Amazon FBA vs Shopify – My Personal Story

Amazon has about 1.1 million merchants while Shopify has close to 900,000 web stores. In terms of Gross Merchandise Value (GMV), Amazon overpowers with $600 billion in 2021 compared to Shopify’s $175.4 billion.

I have been selling on Amazon FBA since 2019 and have run Shopify web stores for longer than I can remember. This is my story.

Contents:

1. How I got Started on Shopify
2. What I Like about Shopify
3. What I Dislike about Shopify
4. How I got Started on Amazon FBA
5. What I Like about Amazon FBA
6. What I Dislike about Amazon FBA
7. How I Decide between Amazon and Shopify
8. In Conclusion

How I got Started on Shopify

My entrepreneurship journey started sometime in 2003/2004 when I signed up for an online marketing program with StoresOnline, Inc.

This was when I first learned the techniques of Search Engine Optimization (SEO) and started 3 web stores using StoresOnline’s software. I kept my day job and did these as side hustles. Only one of them succeeded, but I did become good at SEO. I kept this business until 2008. Along the way, I can’t remember why, but I stopped using StoresOnline and switched to Microsoft Publisher to build my website.

In 2008, I quit my day job and started my distribution business. SEO wasn’t the primary marketing strategy in my original marketing plan, but it was surprisingly the quickest to yield results. The website was built with Microsoft Publisher as well.

But when Microsoft stopped supporting Publisher, I was forced to look elsewhere. I tried a couple of other platforms, but once I got on to Shopify, I never looked back.

Since then, I have built multiple websites using Shopify. At the time of this writing, I still run 7 active Shopify stores, all catered to different niches, one of which sells products to customers in the USA.

What I Like about Shopify

I would say it has been great!

The reason why I’ve stayed with Shopify so long is that I’m both very comfortable and familiar with it. When it comes to selling physical products online, Shopify is my go-to software because it has everything you need to get something up and running quickly.

If you create multiple web stores with the same products as I do, Shopify is fantastic. 5 of my 7 Shopify stores are selling similar products but covering different countries. I can export products in bulk from one store as a CSV file, and import them into a new store within minutes. Everything, including pictures, text, links, and shipping information gets copied over instantly.

Shopify is also well-supported by an ecosystem of apps and plug-ins that can be used for various purposes. I have apps installed that do the following:

• Upselling accessories
• Upselling extended warranties
• Multi-currencies
• Multi-languages
• Automated shipping rate calculation
• Automated shipping
• Contact Forms
• Chat Boxes
• WhatsApp Messenger
• Buy Now Pay Later
• E-wallet payment systems

There are literally thousands of apps you can choose from to suit your needs.

And when I do run into issues, Shopify support is quite responsive. I prefer using online chat, and I usually get answers pretty quickly. Some of the associates manning the chat are themselves Shopify web store owners, so they understand perfectly the kind of pain you experience when things go wrong.

Shopify Payments is also a pretty cost-effective, reliable credit card payment processor. It comes with in-built fraud detection and raises a red flag when a transaction has a high fraud risk.

As I also sell internationally on one of my sites, I can choose to activate the multi-currency feature that allows overseas customers to view prices and pay in their native currency.

Shopify is also SEO-friendly (Search Engine Optimization), which is always a key part of my marketing mix for any website that I build.

What I Dislike about Shopify

Mainly, it is the fact that I cannot settle my transactions in US Dollars (USD). But this affects only foreign sellers operating in the US market, like myself. It’s a non-issue to US-based sellers.

For my web store selling to US customers, I can accept payment from customers in USD, but Shopify converts it to Singapore Dollars (SGD) and charges a 2% conversion fee before remitting the funds to me.

Therefore, I lose 2% whenever Shopify settles the payment in SGD. Furthermore, my suppliers also want to be paid in USD. So I have to use SGD to buy USD in order to pay them, losing another 2 – 3% in the process.

In total, I lose about 5% of my revenue due to the back-and-forth conversion from USD to SGD to USD. If Shopify allows me to settle in USD, then it would be perfect. Unfortunately, only businesses based in the USA are allowed to do so, but I am based in Singapore.

It’s also quite difficult sometimes to get the themes (in Shopify context, themes are like design “templates”) to look exactly the way you want them to. Sometimes what you want on one theme only exists in another theme, so it is rarely perfect. But if you aren’t too fussy, it can still work.

How I got Started on Amazon FBA

To be clear, I am talking specifically about selling on Amazon with Fulfilment by Amazon (FBA). This is where Amazon stocks your inventory at their warehouse and fulfils the orders automatically. I am not talking about FBM (Fulfilment by Merchant), where fulfilment is done by the Merchant.

Thus, Amazon FBA is not a drop-shipping business, because you actually need to buy and stock inventory at Amazon. You can only do drop-shipping with Amazon if you do FBM since Amazon doesn’t care whether you stock the item or not, as long as your supplier ships them to the customer.

Like Shopify, I got started on Amazon FBA in 2019 after attending a workshop conducted by one of the first 7-figure Amazon sellers from Singapore. I have since started 3 product lines on Amazon FBA.

The first is a kitchenware product, followed by an electronic gadget, and lastly wall decorations.

The electronic gadget line failed very quickly. The problem with the product is that it is impossible to do a full quality check (QC) to see if it works without rendering it un-sellable. Thus my QC inspectors (I’ve used them for many years, they are trustworthy) could only do basic checks on a 20% sample. The first batch was passed.

But when the sales started, I got negative reviews almost immediately, which made it even harder for the product to gain traction. It was failing after a few uses, some didn’t even work well upon first use. So I had to kill this product line very quickly, losing some money along the way.

Learning from this mistake, my 3rd product was basically something you just paste on a wall. And since they were made in Singapore, I could personally ensure that the quality was up to standard before shipping them to Amazon. Thus, I didn’t have quality issues with this one.

The problem was that the Return on Advertising Spend (ROAS) was very low. My ad spend was higher than my net profit, so I had to turn off the ad campaigns. This in turn caused sales to fall off a cliff. But this product line is still active as I do sell about 10 – 20 units a month from organic traffic. So once my stock is cleared, I may or may not continue with the product line.

That leaves me with just one successful product line, the kitchenware product.

What I Like about Amazon FBA

The thing I like most about Amazon FBA is the lifestyle it affords. Once you launch a product successfully, it runs in almost full automatic mode.

Amazon takes care of the nuts and bolts of the business. To me, Amazon’s biggest competitive advantage is not that it has the most number of buyers. It is the network of fulfilment centres, carriers, and technological capabilities it has built up to deliver 1.6 million packages to customers every day.

It is very difficult for a competitor to do that in the USA because Amazon has spent $30 billion and many, many years building up this fantastic fulfilment network.

Once you send the stock to an Amazon FBA warehouse, Amazon takes care of the rest. Orders are automatically processed and shipped. Returns, the bane of many e-commerce businesses, is taken care of automatically. You don’t even need to handle the customer service!

All you need to do is to make sure your stock gets replenished in time before they run out, and monitor your advertising campaigns to make sure they are generating a ROAS high enough to not make you lose money. Reviewing the competitiveness of your pricing is part of the monitoring process. I do this only about twice a month.

Amazon will then settle payments with you every 2 weeks. Any costs incurred with Amazon such as FBA fulfilment fees, commissions, and advertising costs are deducted from your revenue before the balance is remitted.

Also, while Shopify doesn’t allow me to settle payments in USD, Amazon does. Twice a month, Amazon remits the funds to my Wise borderless account in USD. I then use the same USD to pay my suppliers using Wise. Not a single cent is lost due to forex conversion!

What I Dislike about Amazon FBA

When things run well, life is fantastic. But when things go wrong, they go TERRIBLY wrong.

With Amazon FBA, there is a lot of counter-party risk. Counterparty risk is the probability of another party in the transaction (i.e. the “counterparty”) messing you up completely. Among the counterparties that can screw you up, Amazon is the most dangerous.

Because you sell on Amazon’s platform, you are at Amazon’s mercy whenever they decide to change a regulation (or more strictly enforce an existing one). They may delist your product when it doesn’t meet their compliance standards.

Sometimes, it isn’t even your fault. I often see complaints in my Amazon FBA Sellers Facebook group from sellers whose listings were suspended because a competitor accused them of trademark violation, which isn’t true.

Even if they eventually win the fight, it will take weeks before their listing suspension is lifted. Not only is there an immediate loss of sales during the suspension, but there’s also a drag on future sales because their organic search rankings on Amazon have dropped.

When COVID-19 happened, out of the blue, Amazon imposed a storage limit on all non-essential items, like kitchenware. So instead of sending my whole shipment to Amazon, I had to scramble to find somebody else in the US to store it for me temporarily, then replenish my stock at Amazon FBA in multiple small shipments. This, of course, was an extra out-of-pocket expense I had to bear.

Another major counterparty is the 3rd party logistics (3PL) warehouse that I use to stage the goods in the US temporarily before they go to an Amazon FBA warehouse. This was the result of Amazon imposing storage limits post-COVID. My most horrible experience was in the 2nd half of 2021.

This 3PL operator approached me in the Facebook group I’m in for Amazon FBA sellers. I sent my bulk shipment to him and managed to send a couple of shipments out to Amazon FBA. But he started becoming unresponsive to email.

I only managed to reach him by phone and Facebook messenger, and he told me that his company’s servers had been hacked. So he can’t do ANYTHING. He can’t access his emails and he can’t arrange for the warehouse to prepare my shipments to FBA. He can’t even invoice me for the storage fees. All of their work processes are tied to their system, which has crashed.

It took them about 3 months to solve the problem. In the meantime, my stocks at FBA dried up, so I lost sales. What’s worse was that with the entire business in jeopardy, I wasn’t so sure whether I was going to continue the business. So I didn’t order new stocks from the factory either, despite knowing full well that I will run out of stock for most of the SKUs.

Thus, even after the 3PL resumed operations and I replenished some of my stock, only 1/3 of my SKUs were available. This caused the conversion rate on my Amazon PPC campaigns to drop by two-thirds, making it unsustainable to continue advertising. I was forced to turn off the ad campaigns, creating an even bigger drop in sales, about 90% in total.

The worst part was, that after the 3PL issue was fixed, Amazon complicated things with a new problem.

They had “upgraded” their workflow to make it efficient. But while I was creating an LTL (less than truckload) shipment to send to FBA, the system hung at a certain stage in the process. And despite several tries spread over two or three days, it always got stuck at the same stage.

I reached out to Amazon support. They were pretty responsive and responded within 24 hours to say they will check.

3 days later, they responded to say they are still checking.

6 days later, another email to say they are still checking.

9 days later, yet the same email.

After I think about 15 days, I decided not to continue waiting. Keep in mind that I had already waited for 3 months for the 3PL to solve their IT problem. I simply couldn’t wait any longer.

I cancelled the whole LTL shipment and created a new Small Parcel shipment, which was more costly. But at least I finally got the stock to Amazon FBA.

But do you know how lousy Amazon support was? They continued sending me emails to say they were still looking into the issue, several weeks after I had cancelled the LTL shipment! They obviously weren’t looking at my problem and were just sending the email updates for the sake of meeting their KPI of responding to all requests within 3 days.

I have recently switched to Shipbob, Inc, and the first shipment I sent was successfully received by Amazon yesterday. Hopefully, this will be the end of my 3PL problems.

The last important counterparty is the supplier manufacturing these products.

In my electronic gadget example, the supplier made poor-quality products. The defects could not be detected by QC, and in the end, I was forced to ditch the entire product line, suffering 4-figure losses as a result.

But sometimes, it’s not the product quality. With my kitchenware line, I started with only 1 SKU. The supplier only had to print one barcode for all the products. The first shipment was smooth.

Soon after launch, I found that while the product was selling, the conversion rate was too low. I diagnosed (correctly, as it turned out) that the problem was a lack of choice. The customer wanted to buy my product, but I didn’t have the right size.

So in my second shipment, I ordered another 5 sizes. Like the first shipment, I had a QC team do pre-production checks to make sure the product quality was good. Everything seemed to go well.

Until I started selling these 5 SKUs.

For at least 3 of the SKUs, customers were complaining about receiving the wrong size. I had no choice but to suspend the sale of these 3 SKUs, ship samples of them to a friend that was helping me with my Shopify business and try to figure out what went wrong.

As it turned out, the factory messed up the barcodes. All Amazon FBA products need to have a barcode that identifies the product. Once you label a product incorrectly, Amazon will ship the wrong product as though it was the right one. Thus, Amazon had shipped the right SKUs according to the barcode, but physically it was the wrong item because the product was a different size!

Again, I had to spend thousands of dollars shipping all the stock from Amazon FBA to my friend, get her to re-label everything, and then send everything back to Amazon.

Now my QC checks are post-production, so my inspectors will also do random checks to make sure the product and the barcode match.

All in all, at the time of writing, I have lost about USD 30,000 on the Amazon FBA business.

But this is not because Amazon FBA as a business model doesn’t work. For a brief period of time (after the mislabeling issue was sorted out and before my 3PL’s systems got hacked), the kitchenware business was indeed profitable, and I was enjoying the lifestyle that Amazon FBA had to offer.

It’s just that I have been terribly unlucky so far. But I haven’t given up yet. I know that my kitchenware line can make money. I have already sorted out my supplier problems, and hopefully, ShipBob turns out to be a reliable 3PL.

With 2 of the 3 major counterparties stable, all I need to worry about now is Amazon.

How I Decide between Amazon and Shopify

Generally, if I want to sell low-value items, Amazon FBA is my preferred choice.

As mentioned above, the chief advantage Amazon has is its order fulfilment network. For products that are of low value, logistics costs can eat up a big chunk of the profit. And nobody (in my opinion) can ship products to customers in the USA as quickly and economically as Amazon.

With low-value products, you also don’t need to worry too much about returns. Just liquidate or dispose of any returned items that Amazon deems as unsellable and work these costs into your profit margins.

And when there’s no warranty involved, Amazon orders are pretty much “fire and forget”. Once it’s sold, end of the story. You’re just waiting to get paid.

But if it is a high-value item, then selling it on Amazon is challenging. This is when I prefer to have a Shopify store.

Amazon has a very liberal returns policy. If you sell a high-value item, the disposal and/or liquidation of unsellable returned products can be very costly for you. Imagine disposing of a $1,000 sofa set that was returned because of a small stain that can be easily cleaned off! With Shopify, you have full control over your own returns policy.

If you choose to refurbish and/or repack returned products instead of disposing of them, Shopify is also a better option. If your return location doubles up as a fulfilment centre, there are only 2 sets of shipping costs:

1. Return shipping from 1st customer
2. Outbound shipping to 2nd customer (after refurbishment)

But to do the same with Amazon FBA, you must incur 4 sets of shipping charges:

1. Return shipping from 1st customer to Amazon FBA
2. Shipping from Amazon FBA to your refurbishing location
3. Shipping from your refurbishing location to Amazon FBA (after refurbishment)
4. Outbound shipping to 2nd customer

However, using the product value to choose between Amazon and Shopify is only a rule of thumb. You still need to crunch the numbers to see which one makes more sense. If both are viable options, you may even want to try both and see how it goes.

Both Amazon and Shopify have similar monthly fees. The Amazon professional plan is USD 39.99, while a Shopify Basic plan is USD 29.00 at the time of this writing. Once your monthly sales hit 4-figures or more, this USD 10.99 difference isn’t much of a factor.

The big difference is in the selling fees. Amazon charges a 15% commission for most categories. Shopify doesn’t charge a commission, but credit card payments processed with Shopify Payments have a fee of 2.9% + USD 0.30 per transaction. Here, Shopify has about a 12% cost advantage over Amazon.

As for fulfilment costs, Amazon is likely going to have an advantage. They simply have the economy of scale to secure the best rates from carriers. To do a comparison, you can use Amazon’s free Amazon FBA Revenue Calculator:

https://sellercentral.amazon.com/fba/revenuecalculator/index?lang=en_US

Start by finding a competitor who is selling the same or similar product to yours, enter the selling price, your own fulfilment costs if you don’t use FBA, and the calculator will churn out the numbers for you.

If you’re not sure about your own fulfilment costs, you can contact ShipBob for a quote. Make sure you have the product packaging dimensions, weight, and a few random shipping addresses on hand for them to give you some shipping estimates.

In Conclusion

Amazon is great when things run well. They take care of almost everything, even customer service, and customer service is the one thing Amazon can do for you that Shopify can’t.

Also, the data analytics provided by Amazon seller research tools like Jungle Scout provide actual sales data instead of just the number of keyword searches. You can tell how much revenue each of the top 10 or 20 sellers are generating for a specific keyword. This removes a lot of uncertainty from a new product launch.

However, there are major counterparty risks with Amazon, which can be as frustrating as dealing with customers every day. With customer service, you are still in control, whether you decide to rectify, return or refund an order. But with Amazon and the other counterparties, you are completely at their mercy. Sometimes, you can’t do anything for weeks and months except wait in anguish.

Also, the high commission fees charged by Amazon give Shopify merchants an extra 12% in gross profit margin, which hopefully is more than enough to offset the likely higher fulfilment costs for Shopify, and allow you to hire freelancers to man your customer service.

If it’s a low-value product with no warranty obligations, my preference is Amazon FBA, primarily because I don’t like to deal with customer service issues.

But if it’s a high-value product that typically comes with warranty obligations, then Shopify is a clear winner because I am not obliged to follow Amazon’s liberal return policies. In any case, Amazon won’t be able to handle customer service if technical knowledge of the product is required for diagnosing the problem and recommending solutions.