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How Amazon Drop shipping Works in 2023?: Everything You Need to Know

Fri Jun 30, 2023 Amazon Tips

Many people promote dropshipping on Amazon as a simple and fast way to start selling on the site. This approach can be appealing because it eliminates the need to handle inventory, storage, and fulfillment. However, it’s important to understand Amazon’s Dropshipping Policy before starting. Failure to comply with this policy can result in account suspension and other adverse outcomes. Our Amazon Seller Attorney at ESQgo® provides valuable information on how amazon dropshipping works, what Amazon’s policy requires, and common mistakes to avoid.

Table of Contents

What Is Dropshipping? 

Dropshipping is an order fulfillment option wherein an Amazon Seller outsources storage and fulfillment of products to a third party. Under this business model, the Amazon Seller is responsible for maintaining the online store, taking orders, placing those orders with the drop shipper, and managing customer service. The rest of the physical fulfillment process is out of the Amazon Seller’s hands and handled by the third-party company.   

  • A typical dropshipping process follows this general sequence: 
  • Amazon Seller signs agreement with drop shipper. 
  • Customer orders from the Amazon Store. 
  • Amazon Seller receives the order. 
  • Customer receives an order confirmation. 
  • Amazon Seller forwards the order to the drop shipper. 
  • Drop shipper ships the order. 
  • Customer receives the product. 

Understanding the benefits

Amazon dropshipping offers a unique opportunity to sellers. You can sell products on Amazon without worrying about warehousing, packaging, or shipping logistics with dropshipping. This is because the supplier ships the products directly to the customer.

One of the main advantages of start dropshipping on amazon is the low barrier to entry. Unlike traditional retail models, you don’t need to invest in inventory upfront. This allows you to test different products and niches without the risk of being stuck with unsold merchandise. Also, drop shipping eliminates the need for fulfillment centers, which can be costly and time-consuming.

Another benefit is reaching a massive customer base. Amazon is the largest online marketplace, with millions of customers searching for products daily. By leveraging the power of Amazon’s platform, you can tap into this vast pool of potential buyers and increase your chances of making sales.

Is Amazon Dropshipping Legal?

Yes, it is! Amazon is cool with Dropshipping, but make sure you play by their rules. For Amazon Sellers, using a dropshipping service is generally allowed as long as you are the seller of record and identify yourself as such. Unless this requirement is met, Amazon prohibits dropshipping on its platform. 

How to dropship on Amazon

If you’re interested in Amazon dropshipping, we bring you our step-by-step blueprint that covers everything from finding profitable products to fulfilling orders.

We designed this content for experienced entrepreneurs and beginners looking for a reliable income stream. Our strategies and tips will help you identify high-demand products, maximize profit margins, and optimize your listings for visibility.

Take advantage of opportunities – join us on our journey towards e-commerce success and financial freedom.

Finding profitable products

If you want to high demand products to sell, you must research. Start by checking out the top-selling categories on Amazon and see which products have a good sales rank. You want stuff that people always want and that you can make some decent profit from.

You can also use tools like Jungle Scout or Helium 10 to check product trends, competition, and pricing. These tools tell you what people are into and help you figure out what to sell.

But remember to check out the competition! Look for stuff that’s manageable so you can stand out. Consider selling a unique version of a popular product or something in a smaller niche market. That way, you’ll be different, and people will want to buy from you.

Setting up your Amazon Seller account

To begin dropshipping on Amazon, you must create a seller account. The process is simple and requires you to provide essential business information such as your name, address, and contact details. We have a beautiful post explaining the whole process that you can check here. It would be best to decide on an individual or professional selling plan based on your requirements.

Once your seller account is established, you can list your products on Amazon. It’s crucial to optimize your product listings for the best visibility.

This includes writing persuasive product descriptions, using high-quality images, and selecting relevant keywords. The higher the quality of your product listings, the better your chances are of attracting potential buyers and generating sales.

 Finding reliable dropshipping suppliers 

Finding trustworthy suppliers is essential if you want to succeed in your Amazon drop shipping business. Reliable suppliers offer reasonable prices, fast shipping, and quality products.

There are a couple of ways to find suppliers: Contact manufacturers or wholesalers directly and build a relationship with them, or use drop shipping directories like SaleHoo or Worldwide Brands to find verified suppliers.

When choosing a supplier, check their reputation and track record. Look for suppliers with positive reviews and a history of timely delivery. This will help ensure your customers are happy with their purchases.

Listing and optimizing your products on Amazon

Okay, now that you’ve got some solid suppliers, it’s time to get your products up on Amazon. First, you must develop a catchy product title with all the right keywords and show what makes your product unique. Then, write a detailed description covering everything a potential buyer might want to know.

Remember the visuals! Pictures are super important for getting people interested, so make sure you’ve got some high-quality shots that show off your product from all angles. If you want to stand out, you can use Amazon’s Enhanced Brand Content or A+ Content to make your product pages look extra slick.

Oh, and remember SEO! Please do some research on the best keywords for your product, and make sure you’re using them in your title, description, and bullet points. That way, your product will appear higher in Amazon’s search results, and more folks will see it.

Managing inventory and order fulfillment

Efficient inventory management is essential. To avoid stockouts and delays, it’s crucial to establish a system for monitoring inventory levels and communicating with your suppliers. Consider using inventory management software or tools like Skubana or SellerActive to streamline the process.

When a customer makes a purchase, you must notify your supplier and provide them with the shipping details. This ensures that the supplier can ship the product directly to the customer without delays. Maintaining clear communication with your suppliers is essential to avoid misunderstandings or mistakes.

Strategies to maximize sales and profitability on Amazon

Start by optimizing your product listings for search engines, as mentioned earlier. Additionally, consider running Amazon Sponsored Product ads to increase the visibility of your products and attract more buyers.

Customer reviews play a crucial role in building trust and credibility on Amazon. Encourage your customers to leave reviews by providing excellent customer service and following up with them after the purchase. Positive reviews can significantly impact your sales and help you build a loyal customer base.

Another strategy to consider is bundling complementary products to create customer value. This not only increases the average order value but also encourages repeat purchases. Offering discounts or promotions can also help attract new customers and drive sales.

Dealing with challenges and common pitfalls for drop shipping on Amazon

While Amazon drop shipping offers numerous opportunities, it has its challenges. One common pitfall is dealing with returns and customer complaints. Having a clear return policy and handling customer inquiries promptly and professionally is important. Providing excellent customer service can help mitigate potential issues and build a positive reputation for your business.

Another challenge is managing inventory and ensuring that your suppliers have sufficient stock. Establishing clear communication channels with your suppliers and monitoring inventory levels regularly is essential. This will help you avoid stockouts and ensure your customers receive their orders on time.

Scaling and growing your dropshipping business

Once you’ve established a successful business, it’s time to scale and grow. Consider expanding your product offerings by adding new categories or niches. Additionally, explore other online marketplaces like eBay or Shopify to diversify your sales channels.

Automating certain aspects of your business can also help streamline operations and free up time to focus on growth. Look for tools or software to automate inventory management, order fulfillment, and customer support.

The Amazon’s Dropshipping Policy

Dropshipping on Amazon is only permissible when the Amazon Seller is identified as the seller on all invoices, packing slips, external packaging, and any other information included or provided with the product sent to customers.  

Sadly, most Amazon Sellers using the dropshipping model do not fall under this category. For this reason, Amazon’s Dropshipping Policy further clarifies this prohibition by providing examples of dropshipping practices that are not permitted on the marketplace, such as:  

  • Purchasing products from another online retailer and having that retailer ship directly to customers if the shipment does not identify you as the seller of record or if anyone other than you (including the other online retailer) appears on packing slips, invoices, or external packaging, it is strictly prohibited without exception; or 
  • Shipping orders with packing slips, invoices, external packaging, or other information indicating a seller’s name or contact information other than your own is strictly prohibited. 

5 Common Dropshipping Mistakes Amazon Sellers Make 

In our practice, we see many Amazon Sellers flagged for violating the Amazon Dropshipping Policy, and there are five common errors that we have observed. 

1. Dropshipping from Another Online Retailer

Purchasing products from another online retailer like Walmart, eBay, Shopify, Sam’s Club, or Home Depot and having the items shipped directly to your customers is prohibited. Under this model, the packing slips, invoices, and external packaging received by your customers will show the online retailer (not you) as the seller of record, thereby creating confusion for the customer about how their order is being fulfilled and whom they should contact for any problems or questions. If a contractor or third-party company recommends this form of dropshipping, you can be confident they do not have your best interest in mind, as this is a sure way to get selling privileges revoked. 

2. Submitting False or Recycled Tracking Information to Amazon or Customers

One of the advantages of using a dropshipping model is scalability because leveraging suppliers can make it feasible to accept more orders without increasing the inventory you store, package, and ship. As a result, most Amazon Sellers who shift to a dropshipping model will see a significant spike in sales volume, which may result in a sales velocity review or inventory management issues. When this happens, some Amazon Sellers provide Amazon or customers with inaccurate tracking numbers to hide their illegal dropshipping practices. Amazon will consider this fraudulent or deceptive behavior, which will not be taken lightly.   

3. Not Fulfilling Orders After Confirming Shipment

Up-to-the-minute updates on what is available in stock may not be possible when using the dropshipping fulfillment option. When a customer orders, you may find that the product is out of stock. Amazon Sellers who don’t pay close attention will confirm shipment of the order before realizing that the product is out of stock, placing them in a situation where they cannot fulfill said orders. Again, Amazon considers this as fraudulent or deceptive behavior. 

4. Not Having Valid or Verifiable Invoices to Support Product Authenticity

Amazon Sellers must submit valid and verifiable invoices to support their supply chain and prove product authenticity when inauthentic product allegations arise. However, purchases made through an online retailer like Walmart, eBay, Shopify, Sam’s Club, or Home Depot do not come with invoices that meet Amazon’s requirements or may not come with invoices at all. This places Amazon Sellers in a position where they cannot provide acceptable proof of authenticity for their products, which results in an account suspension, among other things.

5. Failing to Follow Through on Promises After Your First Violation

Amazon Sellers flagged for violating the Dropshipping Policy may face account suspension. To reinstate the account, Amazon Sellers must submit a plan of action explaining why and how they violated Amazon’s policies, what corrective actions were implemented, and what preventive measures will be undertaken to prevent the same violation from happening again. Based on specific promises of corrective and preventive remedies outlined in the action plan, Amazon may decide to reinstate selling privileges. Therefore, Amazon Sellers must follow through on promises made when appealing a dropshipping violation. If you are flagged for the same violation a second time, account reinstatement is unlikely. Sadly, this happens far too often.   

What Happens When You Violate The Amazon’s Dropshipping Policy?  

Violations of Amazon’s Dropshipping Policy may result in the following: 

Suspension of Your FBM privileges

Under Amazon’s Dropshipping Policy, policy violations may restrict your ability to sell using Merchant Fulfilled Network (MFN). The seller account remains active in such cases, but you can only fulfill orders using Fulfillment by Amazon (FBA). 

Temporary Account Suspension

Because the actions prohibited in Amazon’s Dropshipping policy are also disallowed under the Selling Policies and Seller Code of Conduct, such offenses can also result in suspending your selling privileges under Section 3 of the Amazon Services Business Solutions Agreement (BSA). 

Funds Withheld

When Amazon deactivates a seller account, the Amazon Seller’s funds are typically withheld to settle any outstanding transactions, including product returns or refunds, A-to-Z claims from customers, inventory removal costs, and special fees. If the seller account is reinstated after successfully appealing the violation, funds will be released and disbursed according to the Amazon Seller’s disbursement schedule. However, suppose the account is not reinstated 90 days after deactivating the report. In that case, the Amazon Seller may separately request funds disbursement by contacting the Disbursements Team. Amazon will conduct a separate investigation to evaluate the performance of abusive, fraudulent, or other prohibited activity. Suppose Amazon finds that the Amazon Seller engaged in deceptive, fraudulent, or illegal activity, abused their systems, or repeatedly violated their policies. In that case, Amazon may permanently withhold some or all funds in the account by Section 2 of the BSA, which states:  

 “If [Amazon] determine[s] that your account—or any other account you have operated—has been used to engage in deceptive, fraudulent, or illegal activity (including the sale of counterfeit goods), or to repeatedly violate [their] Program Policies, then [Amazon] may in [they’re] sole discretion permanently withhold any payments to you.” 

Permanent Account Termination

As a condition to selling in the marketplace, Amazon Sellers accepted the BSA, agreed to comply with its terms, and incorporated policies, including Amazon’s Dropshipping Policy. When an Amazon Seller repeatedly violates said policies, Amazon is well within its rights to terminate the seller account and refuse to release the funds rightfully retained by the above guidelines. This is perhaps the most important reason for writing this article, as we do not wish to see more Amazon Sellers suffer this consequence. 

How To Make Sure Amazon Dropshipping Works For Your Business 

The dropshipping model commonly appeals to entrepreneurs seeking efficiency and low overhead, but can come at a cost. To ensure compliance with this policy and fulfill orders using a drop shipper, as an Amazon Seller, you must: 

  • Have an agreement with your supplier that they will identify you (and no one else) as the seller of your products on all packing slips, invoices, external packaging, and other information included or provided in connection with the consequences; 
  • Remove any packing slips, invoices, external packaging, or other information identifying a third-party drop shipper before shipping the order; 
  • Be responsible for accepting and processing customer returns of your products;  
  • Closely monitor customer experience, reviews, and feedback; and 
  • Comply with all other terms of your seller agreement and applicable Amazon policies. 

FAQs

What is the consequence of violating Amazon’s Dropshipping Policy?

Violating the policy can result in account suspension.

What are the requirements for a successful drop-shipping business on Amazon?

If you want to run a profitable drop-shipping business on Amazon, securing a reliable supplier is crucial and demonstrating to Amazon that you are a trustworthy seller.

What are the most essential violations of Amazon’s Dropshipping Policy?

Dropshipping from other retailers is strictly prohibited, and shipping orders with information indicating a seller name or contact information other than your own is also prohibited.

Why is finding a reliable supplier important in drop-shipping on Amazon?

Finding a reliable supplier is crucial to avoid violating Amazon’s policies and to ensure a smooth business operation.

What are the consequences of violating Amazon’s Seller Code of Conduct?

Violations of the Code of Conduct can result in account suspension, and new sellers may need help understanding the complex policies.

Speak With An Amazon Seller Attorney at ESQgo® 

If Amazon suspended your seller account due to alleged violations of their Dropshipping Policy, an Amazon Seller Attorney at ESQgo® is here to help get your selling privileges back. Contact us today by calling 888-600-1925 or via our contact page. We offer a free initial one-hour consultation.