Complete guide to Amazon dropshipping: Start and grow your online business without inventory

Guide to Amazon dropshipping: Get started with a successful business

Are you ready to explore the opportunities of e-commerce without worrying about stock or shipping? Amazon dropshipping could be the perfect solution for you. This business model allows you to sell products on Amazon without ever having to hold them in your own possession. In this comprehensive guide, we walk you through everything you need to know to launch, manage, and scale your Amazon dropshipping business.

What is Amazon dropshipping?

Amazon dropshipping is an e-commerce model where you, as the seller, do not keep the products in stock. Instead, orders are forwarded directly to a supplier or manufacturer, who then ships the goods directly to the customer. You act as the intermediary between the customers and the suppliers, without having to handle physical products, warehousing, or shipping.

This business model has become highly popular because it requires minimal start-up capital compared to traditional retail. You do not need to invest in inventory up front, significantly reducing your financial risk. This makes Amazon dropshipping an attractive entry point to the world of e-commerce for entrepreneurs with limited starting capital.

But can you dropship on Amazon? The answer is yes – Amazon does allow dropshipping, but there are strict rules and guidelines that must be followed closely to avoid issues with your seller account.

Amazon dropshipping policy: Rules you need to know

Before you launch an Amazon dropshipping business, it is crucial to understand Amazon’s official policy regarding dropshipping. Amazon has specific rules that must be adhered to in order to keep your account in good standing:

Permitted dropshipping practices on Amazon

• You must be the official seller of all products in your store
• You must be identified as the seller on all packing labels, invoices, and other communications relating to the products
• You are responsible for accepting and processing product returns
• You must comply with all other terms in your seller agreement and Amazon’s policies

Prohibited dropshipping practices on Amazon

• Purchasing products from another online retailer and having them shipped directly to the customer (known as “retail arbitrage”)
• Shipments that have a packing label, invoice, or external packaging displaying another seller’s information instead of your own
• Delegating responsibility for customer service and returns to a third party

Breaching these rules can result in suspension or permanent closure of your Amazon seller account. It is therefore essential to choose suppliers willing to cooperate under these conditions and to ship products in compliance with Amazon’s dropshipping policy.

How to set up an Amazon dropshipping account

Starting your journey with dropshipping on Amazon begins with creating a seller account. This process involves several steps and important considerations:

Choose the right account type

Amazon offers two types of seller accounts:

• Individual Seller Account: Ideal for beginners selling fewer than 40 items per month. There is no monthly fee, but a fee is charged per item sold.
• Professional Seller Account: Costs a monthly fee (39.99 USD), but no fee per item sold. This account gives access to more tools and reports, and is required to compete for the Buy Box.

For serious Amazon dropshipping business owners, a Professional account is recommended, as it provides the flexibility and tools needed to grow.

The registration process

To set up your Amazon Seller Central account, you will need the following:

1. An active email address
2. An international credit card with a valid billing address
3. Tax information (CPR number for sole traders or CVR number for companies)
4. Telephone number
5. Business information (if registering as a company)
6. ID documentation (passport or driving licence)

Amazon will verify your identity by phone and may request additional documentation to confirm your information. Be thorough and honest during registration, as errors or inconsistencies can delay your account approval.

Setting up your seller profile

Once approved, it is time to set up your seller profile. This includes:

• Choosing a display name for your shop
• Filling in sender and return addresses
• Setting up tax information
• Configuring shipping settings
• Setting up payment methods for withdrawals

A professional and thoughtfully chosen shop name can help establish your brand on the platform. Choose a name that is easy to remember and relates to the products you plan to sell.

Choosing the right business structure for your Amazon dropshipping business

Choosing the appropriate legal structure for your business is an important decision that affects your tax, personal liability, and growth opportunities. Here are the most common options for Danish Amazon dropshipping businesses:

Sole proprietorship

This is the simplest business structure and often the best choice for beginners. Advantages include:

• Easy and quick setup via virk.dk
• Minimal paperwork and administrative requirements
• Direct taxation through your personal tax return

The disadvantage is that, as the owner, you are personally liable for all business obligations, which can put your personal assets at risk in case of problems.

Private limited company (ApS)

As your dropshipping business grows, it may be beneficial to convert it to an ApS. This provides:

• Limited personal liability (your personal assets are separated from the business)
• Greater credibility with suppliers and customers
• The opportunity to take on new investors

An ApS requires a minimum of 40,000 DKK in starting capital and has more administrative requirements, including annual accounts and, under certain conditions, auditing obligations.

Public limited company (A/S)

For larger dropshipping operations, an A/S may be relevant. This requires a minimum of 400,000 DKK in starting capital and is typically most relevant for established businesses with significant turnover.

Consult an accountant or lawyer to determine the best structure based on your specific circumstances, growth plans, and risk appetite. The right structure can provide tax advantages and protect your personal assets as you build your Amazon dropshipping business.

How do you find dropshipping suppliers for Amazon?

Finding reliable suppliers is the foundation of a successful Amazon dropshipping business. Your supplier’s reliability, product quality and shipping speed will directly impact your shop’s reputation and customer satisfaction. Here are strategies for finding and evaluating potential suppliers:

Types of dropshipping suppliers

There are several types of suppliers, each with their own advantages and disadvantages:

• Manufacturers: Produce the products themselves and often offer the best prices, but may require higher minimum order quantities
• Wholesalers: Buy from manufacturers and sell in smaller quantities, often with more product variety
• Dropshipping specialists: Companies specifically set up to support the dropshipping model

How do you find suppliers?

There are several methods for finding potential dropshipping partners:

1. Online directories: Platforms such as SaleHoo, Worldwide Brands, and Spocket offer curated lists of verified suppliers
2. Wholesale trade shows: Physical events where you can meet suppliers in person and assess their products
3. Direct contact with manufacturers: Many companies offer dropshipping services but do not advertise it publicly
4. Alibaba and AliExpress: Popular sources for dropshipping products, especially from Chinese suppliers

Evaluating potential suppliers

Before establishing a partnership, you should thoroughly assess each supplier based on:

• Product quality: Order samples to evaluate quality personally
• Shipping times: Test the supplier’s shipping speed, as long delivery times can result in negative reviews
• Communication: A supplier who responds quickly to enquiries is invaluable when issues arise
• Amazon compliance: Ensure the supplier can ship products with your branding on labels and invoices
• Returns policy: Understand how returns are handled, as you are responsible for these as an Amazon seller

Once you have found potential suppliers, it is wise to start with a limited number of products to test their service before expanding your cooperation. The most successful Amazon dropshipping businesses often build long-term relationships with reliable suppliers.

Product research and market analysis for Amazon dropshipping

Choosing the right products is crucial for your dropshipping success on Amazon. Thorough product research helps you identify profitable opportunities and avoid oversaturated markets. Here is a systematic approach to product research:

Key criteria for product selection

When searching for products for your dropshipping on Amazon business, focus on these factors:

• Price range: Products in the mid-price range (150-1000 DKK) typically offer the best balance between profit and sales volume
• Product size and weight: Smaller and lighter products minimise shipping costs and complexity
• Demand: Look for products with consistent, year-round demand rather than seasonal items
• Competition level: Analyse the number of competitors and the quality of their product listings
• Profit margin: After all costs (Amazon fees, supplier price, shipping), aim for at least a 20-30% profit margin

Tools for Amazon product research

There are several tools that can help you identify profitable product opportunities:

• Jungle Scout: Provides detailed sales estimates, competition analysis, and product trends
• Helium 10: Comprehensive suite of tools for product research, keyword analysis, and market monitoring
• Amazon Best Sellers: Free resource showing the most popular products in each category
• Google Trends: Helps you identify seasonal fluctuations and long-term trends in product interest

Competitor analysis

For each potential product, you should thoroughly analyse the competition:

1. Review the top 10 listings for the product on Amazon
2. Analyse the quality of their product images and descriptions
3. Note the number and quality of reviews
4. Review their pricing and whether they use Amazon PPC advertising
5. Identify weaknesses or gaps in their offering that you can improve upon

The ideal product opportunity is one where demand is high, but the existing offers have clear weaknesses in product quality, presentation, or customer service. This gives you the chance to differentiate your offer and build a strong position in the market.

Remember, product research is an ongoing process. Successful Amazon dropshippers constantly update their product range based on market trends, customer feedback, and seasonal fluctuations.

Optimising product listings for Amazon dropshipping success

The quality of your product listings directly impacts your visibility in Amazon’s search results and your conversion rate. Here is how to create fully optimised listings that appeal to both Amazon’s algorithm and potential customers:

Powerful product titles

Your product title is the first element seen by both the search algorithm and customers. An effective title should:

• Include your primary keyword early in the title
• Include brand name, product type, materials, size, colour, and other relevant details
• Be readable and natural, not just a string of keywords
• Stay within Amazon’s character limit (typically 200 characters, but varies by category)

Example of a good title: “BrandX Premium Waterproof Backpack 30L – Lightweight Hiking Bag with Laptop Pocket, Black”

Compelling bullet points

Bullet points are critical for highlighting the main product benefits. Optimised bullet points should:

• Focus on benefits first, followed by features
• Address potential customer questions and concerns
• Incorporate relevant keywords naturally
• Highlight unique selling points (USPs) that set your product apart from competitors

Detailed product descriptions

The product description allows you to elaborate and persuade the customer. An effective description:

• Tells a story about how the product solves the customer’s problem
• Includes all technical specifications and dimensions
• Is formatted for easy reading with paragraphs and subheadings
• Incorporates multiple relevant keywords in a natural way

High-quality product images

As customers cannot physically interact with the product, images are crucial for conversion. Be sure to have:

• A primary image with white background (Amazon’s requirement)
• Multiple images showing the product from different angles
• Detail shots of key features
• Lifestyle images showing the product in use
• Images with size comparison or measurements

Backend keywords and search terms

Amazon allows sellers to add “hidden” keywords in the backend, which influence search results without being visible to customers. Maximise this field with:

• Synonyms and alternative spellings
• Related search terms
• Common misspellings

Remember, Amazon SEO is about optimising for the A9 search algorithm, which places great emphasis on sales performance and relevance. Even the best optimisation cannot compensate for a product that fails to meet customer needs or is priced too high. Always balance technical optimisation with a genuine focus on delivering value to the customer.

PPC advertising for your Amazon dropshipping business

Pay-Per-Click (PPC) advertising is an essential element in a successful Amazon dropshipping strategy. It helps boost the visibility of your products, especially when launching a new listing without reviews or sales history. Here is how you can implement an effective PPC strategy:

Basic Amazon PPC campaign types

Amazon offers several types of ad campaigns, each with its own advantages:

• Sponsored Products: Displays your products in search results and on product detail pages. This is the most common and often the most effective campaign type for beginners.
• Sponsored Brands: Displays your brand logo, a custom headline, and multiple products. Ideal for brand building.
• Sponsored Display: Shows ads both on and off Amazon, targeting customers based on their browsing history.

Setting up your first PPC campaign

For beginners, it is recommended to start with Sponsored Products campaigns:

1. Select the products you want to advertise (ideally those with good margins and competitive prices)
2. Decide between automatic or manual campaigns (start with automatic to gather data)
3. Set a realistic daily budget (start conservatively, e.g. 100-200 DKK per day)
4. For automatic campaigns, let Amazon choose keywords
5. For manual campaigns, research relevant keywords with tools like Helium 10 or directly in Amazon’s search bar

PPC strategy and optimisation

After running campaigns for 1-2 weeks, begin optimisation:

• Review search term reports: Identify which search terms convert and add them as keywords in manual campaigns
• Eliminate irrelevant search terms: Add non-converting or irrelevant terms as negative keywords
• Adjust bids based on performance: Increase bids on high-converting keywords and lower them on low-converting ones
• Monitor ACoS (Advertising Cost of Sale): This figure shows how much you spend on advertising compared to generated sales

Your ACoS target should be based on your profit margins. If your profit margin is 30%, an ACoS of 20% can still leave you with 10% profit on advertised sales.

Advanced PPC tactics

As you gain more experience, you can implement these advanced strategies:

• Layered campaign structure: Create separate campaigns for different keyword types (exact, broad match, etc.)
• Product targeting: Target specific competitor products through ASIN targeting
• Dayparting: Adjust bids based on times with the highest conversion rates
• Seasonal bidding: Increase budgets during peak seasons for your products

Remember, Amazon PPC is a long-term strategy. It requires ongoing monitoring, testing, and optimisation. Over time, you will develop a deeper understanding of which keywords and targeting strategies work best for your specific products and audiences.

Inventory management and supplier coordination for dropshipping through Amazon

Effective inventory management is a challenge in dropshipping, as you do not physically handle the products. Keeping track of your suppliers’ stock and ensuring timely delivery is crucial for maintaining a well-functioning Amazon dropshipping business. Here are strategies for managing these aspects effectively:

Synchronising with suppliers’ stock levels

Selling products that are out of stock at your supplier can lead to order cancellations and negative reviews. To avoid this:

• Establish regular communication with your suppliers about stock status
• Request daily or weekly stock updates for your best-selling products
• Implement software that can automatically synchronise stock status (if the supplier offers API access)
• Maintain a conservative buffer in your Amazon stock settings (e.g. if the supplier has 100 units, you might only list 80)

Handling “out of stock” situations

Even with careful planning, stock levels can change quickly. When products sell out:

• Immediately set Amazon stock to zero to prevent new orders
• Communicate with customers who have already ordered if there will be delays
• Have a backup supplier for your most popular products
• Consider implementing an automatic system to pause your listings when the supplier’s stock drops below a certain level

Coordinating order processing with multiple suppliers

As your business grows, you will likely work with several suppliers. To keep track of orders:

• Develop a system to track which orders to send to which suppliers
• Automate order forwarding where possible through integrations or software
• Standardise your order formats to reduce errors and confusion
• Set up clear procedures for ordering, order tracking, and troubleshooting with each supplier

Seasonal planning and forecasting

Anticipate periods of high demand to ensure your suppliers are prepared:

• Analyse past sales data to identify seasonal patterns
• Communicate expected peaks to your suppliers in good time
• Be aware of events such as Black Friday, where both demand and supplier workload increase
• Adjust your stock settings and PPC strategies ahead of expected busy periods

Automation tools for inventory management

Various software solutions can help automate aspects of inventory management:

• Orderhive, SellerZen, or Zentail for order tracking and processing
• Inventory Source or ecomdash for managing inventory across multiple channels
• API integrations directly with suppliers where possible

Effective inventory management is about balancing product availability for customers with minimising the risk of selling out-of-stock products. With the right systems and communication channels in place, you can run a successful Amazon dropshipping business without having to worry about physical inventory.

Customer service and handling returns for Amazon dropshippers

Although you never see the products you sell through dropshipping on Amazon, you are still 100% responsible for customer service and returns. In fact, excellent customer service is an area where you can differentiate your business from many other dropshippers. Here is how to manage these aspects effectively:

Customer service fundamentals

As an Amazon seller, you are required to respond to customer messages within 24 hours, but faster responses can give you a competitive edge:

• Set up a system to receive instant notifications when customers contact you
• Develop templates for common enquiries, but always personalise your responses
• Be proactive – reach out to customers after purchase to ensure they are satisfied
• Take ownership of problems, even when caused by your supplier

Remember, Amazon’s A-to-z Guarantee allows customers to request a refund if they are not satisfied with their purchase. Well-handled customer service can prevent many of these claims.

Handling Amazon dropshipping returns

Returns are an inevitable part of e-commerce, and as a dropshipper you must have a clear strategy:

1. Establish clear return policies with suppliers: Before you start selling, agree on how returns will be handled
2. Create a centralised return address: Either your own or a third-party service that can handle returns
3. Consider “keep the item” refunds: For low-cost products, it may be more cost-effective to let the customer keep the item
4. Automate the returns process: Use tools to generate return labels and track returns

There are mainly two models for handling returns in dropshipping:

• Direct to supplier: The customer returns the product directly to the supplier (requires the supplier to use your branding on return labels)
• Two-step process: The customer returns to your address, and you then send it to the supplier (more expensive but gives you more control)

Dealing with negative feedback and reviews

Negative reviews can harm your shop’s reputation, but they also present an opportunity to demonstrate customer service:

• Respond quickly and professionally to all negative reviews
• Offer concrete solutions to the customer’s problem
• If the issue is resolved, you can politely ask the customer to update their review
• Use negative feedback to identify areas for improvement in your product or process

Using customer data to improve your business

Customer communication provides valuable insights that can improve your dropshipping business:

• Track common questions to improve your product descriptions
• Identify frequent reasons for returns to improve product selection
• Analyse customer feedback to find new product opportunities
• Use customer comments to improve communication with suppliers

Remember, on Amazon, customer satisfaction is directly linked to your account performance. Metrics such as ‘Order Defect Rate’ and ‘Late Shipment Rate’ affect your ability to win the Buy Box and can even result in your account being suspended if not kept below Amazon’s thresholds. Investing in solid customer service is therefore not just good practice – it is essential for the survival and growth of your Amazon dropshipping business.

Scaling your Amazon dropshipping business

Once you have established a stable and profitable dropshipping on Amazon business, it is time to think about scaling. Scaling is about growing in a sustainable way that increases your revenue without compromising quality or customer satisfaction. Here are strategies to take your Amazon dropshipping business to the next level:

Expanding your product range

One of the most direct ways to scale is by adding more products to your shop:

• Vertical expansion: Add more variants or related products within your existing categories
• Horizontal expansion: Explore new, but related, product categories
• Cross-selling opportunities: Identify products that naturally complement your best-selling items

Use your existing data to guide product expansion. What search terms do your customers use? What related products do they buy from other sellers? This can provide valuable insight into where to focus your expansion.

Automating business processes

To scale effectively, you need to free up your time from routine tasks through automation:

• Order processing: Implement software such as Ordoro or SellBrite to automatically forward orders to suppliers
• Pricing: Use repricing tools to automatically adjust prices based on competition and demand
• Customer service: Set up systems with ready-made responses and automated follow-ups
• Inventory management: Implement software that syncs with suppliers’ stock

The more you can automate, the more time you have to focus on strategic growth and business development.

Expanding to international Amazon marketplaces

Amazon operates in several international markets. Expanding to these can dramatically increase your potential customer base:

• Amazon European marketplaces: Germany, France, Italy, Spain, and the Netherlands
• Amazon UK: A large English-speaking market
• Amazon Japan: The third-largest economy in the world
• Amazon Canada, Australia, Mexico: Growing markets with a similar structure to the USA

Before expanding internationally, investigate:

• Local regulations and tax obligations
• Shipping options and costs from your suppliers
• Language barriers in product descriptions and customer service
• Local competition and pricing strategies

Building a team

At some point, you will reach a limit to how much you can handle on your own. Building a team can help you break through this ceiling:

• Virtual assistants: Can handle routine tasks such as order processing and basic customer service
• Product researchers: Can identify new product opportunities and analyse the competition
• PPC specialists: Can optimise your Amazon ad campaigns for better ROI
• Content writers: Can improve your product descriptions and marketing materials

Start by outsourcing tasks that are time-consuming but relatively easy to learn, and keep strategic decisions under your control.

Diversifying sales channels

Although Amazon may be your primary sales channel, diversification provides additional security and growth opportunities:

• Your own webshop: Platforms like Shopify make it easy to launch your own online shop
• Other marketplaces: eBay, Walmart Marketplace, etc.
• Social media: Facebook Marketplace, Instagram Shopping

By scaling your Amazon dropshipping business strategically and sustainably, you can turn a side hustle into a full-time business with significant earnings. Remember, growth should be controlled and based on solid foundations – expanding too quickly without the right systems in place can lead to issues with customer satisfaction and profitability.

Common challenges and solutions in Amazon dropshipping

No matter how thoroughly you plan your dropshipping on Amazon business, you will inevitably encounter challenges along the way. Being prepared for these common problems and having strategies to tackle them can save you a lot of frustration. Here are the most common challenges for Amazon dropshippers and how to solve them:

Shipping delays and tracking

Challenge: When you do not handle shipping yourself, you have less control over delivery times. Delays can lead to dissatisfied customers and negative reviews.

Solutions:

• Choose suppliers with reliable shipping tracking
• Communicate realistic delivery times to customers (add a buffer to the supplier’s estimates)
• Implement a system to automatically track all shipments
• Be proactive – inform customers if delays occur before they contact you
• Consider offering partial refunds for serious delays to maintain customer satisfaction

Product quality issues

Challenge: Since you do not see the products before delivery, quality issues can be hard to spot until customers complain.

Solutions:

• Order samples of all products before adding them to your shop
• Start with small order quantities to test supplier quality consistency
• Establish clear quality standards with your suppliers
• Monitor product reviews closely for signs of quality issues
• Build relationships with multiple suppliers so you have alternatives if quality problems arise

Stock issues and out-of-stock items

Challenge: Selling products that turn out to be out of stock with the supplier results in order cancellations and negative customer comments.

Solutions:

• Implement automatic stock synchronisation with suppliers where possible
• Maintain a conservative buffer in your Amazon stock settings (list fewer units than your supplier has in stock)
• Establish regular communication with suppliers about stock status
• Have backup suppliers for your most popular products
• Consider pausing ads for products with low stock to avoid overselling

Dealing with Amazon policy changes

Challenge: Amazon regularly updates its policies, and some changes can significantly impact your dropshipping business model.

Solutions:

• Stay updated with Amazon policy changes via Seller Central notifications
• Subscribe to newsletters or forums that cover Amazon policy updates
• Be flexible and ready to adapt your business model as needed
• Diversify your sales channels to reduce reliance on Amazon
• Consider consulting with an Amazon consultant for major policy changes

Increased competition and pricing challenges

Challenge: Dropshipping has low barriers to entry, meaning profitable niches are often quickly saturated with competitors.

Solutions:

• Focus on product differentiation through better images, descriptions, and bundles
• Build a brand rather than just being an anonymous dropshipper
• Develop exclusive product variants or bundles with your suppliers
• Focus on excellent customer service as a differentiator
• Use pricing tools to remain competitive without sacrificing profit

Account suspensions and performance metrics

Challenge: Amazon enforces strict performance metrics, and dropshippers can be especially vulnerable to issues with shipping times and product quality.

Solutions:

• Carefully monitor your seller metrics in Seller Central
• Respond quickly to any negative customer feedback
• Keep your Order Defect Rate below 1% (Amazon’s threshold)
• Implement systems to ensure quick response times to customer queries
• If your account is suspended, provide a thorough action plan to address the causes

By anticipating these challenges and having strategies ready to deal with them, you can navigate difficulties that cause many other Amazon dropshippers to give up. Remember, the most successful businesses are not those that never encounter problems, but those that effectively solve problems as they arise.