About one-third of online stores are dropshippers. Dropshipping is a popular ecommerce business model for three reasons:
On the downside, it's impossible to control product availability, quality, or delivery. Most new dropshippers give up quickly when they see how hard it is to make a profit.
In fact, 90% of dropshippers shut down a few months after launching.
New dropshippers don't need to go hog wild over the perfect website. Most important by far are the products you carry and who supplies them.
For a dropshipping business to thrive, the gross profit margin should be at least 40%-70%. In most cases, dropshipping gross profit margins are just 15%-20%.
This is because dropshipping suppliers offer much lower discounts than wholesalers, who sell to traditional retailers. Dropshippers also face stiff competition from many other dropshippers with the same products.
Dropshipping is cutthroat.
New stores can't cut prices enough to stay competitive and remain profitable. Nor can they absorb chargebacks, which increase when (like now) logistics are a nightmare and deliveries are slow. Nor can they control product quality, which is often substandard and triggers returns.
Most dropshippers use the same suppliers. They don't stand out. Suppliers aren't concerned about the small guys. They only pay attention to large dropshippers.
Most of the people hyping dropshipping are either ecommerce platforms like Shopify and Oberlo (which is owned by Shopify) or people selling courses.
Gross profit margin is the difference between an item's wholesale and retail price. Net profit is your gross profit margin minus all your costs. In the end, your net profit is what matters. Revenue is a vanity metric.
Shipping is important, coming and going. Nearly all shoppers want free shipping, and 79% say free returns are also important. (Source: PowerReviews 2021)
Suppliers typically do not pay for return shipping, even if the item is defective. Dropshippers wind up paying, on average, $10-$20 per returned item.
You may be able to convince a customer to keep an item in exchange for a partial refund. More often, the customer will want a full refund or a replacement. Either way, it comes out of your pocket.
Dropshipping removes the need to warehouse and ship products. But dropshippers still need to spend money on marketing. This includes social media, email, Google, and word-of-mouth.
Established ecommerce sites spend between 5%-12% of total revenue on marketing. Small businesses spend more. And, of course, it costs more to get started. (Source: The Good)
Based on the above, if you want to earn $5000 in revenues a month, you'll need to spend 15% ($750) a month on ads. This is the margin on most products, before deducting supplier fees, return shipping costs, transaction fees, etc.
Let's look at it another way. Oberlo's dropshipping calculator assumes it costs $0.35 to attract one visitor to your site. Only two people out of 100 will place an order (at best). If your average order value is $50, you need 100 orders to make $5,000 in revenue. To get 100 orders, you need 5000 visitors. That will cost you $1,750 under a best-case scenario. Remember, the typical margin is around 20% ($1,000). You've lost money before you begin.
Dropshipping branding is the best way to maximize the impact of your media dollars. When you do this, you can shave your ad spending.
Your products are the linchpin of your business. You need an organizing idea that sticks in the minds of consumers. Preferably, this is a niche that avoids competition.
It doesn't matter what you sell as long as 1) there is some sort of common thread, 2) there is market demand, and 3) you won't get swallowed up by the competition.
Good branding helps you justify higher prices. It also makes your store more memorable, so you can spend less on advertising.
Branding includes research, analysis, synthesis, and execution. When branding is done properly, a dropshipper can charge higher prices because there is a perception of superior quality.
A better customer experience is also grounds for charging more. In fact, 90% of customers will pay more for good customer service. (Source: Forbes) Boiled down, good customer service depends on making buying from you as convenient as possible in every way.
Knowing more about the products you carry is part of customer service.
A website is your best opportunity to express a brand. But a website isn't necessary if you sell over other channels.
You can dropship on some social media platforms.
You can dropship on marketplaces as long as you follow their guidelines.
A website is the biggest upfront investment in drop-shipping. Your e-commerce platform should have integrations with your supplier to automate order processing and fulfillment. This allows you to focus your efforts and spending on marketing, while staying up-to-date on backend processing.
It is perfectly possible to gain traction on Facebook and other social media, without making money.
Hello Matcha no longer has an active website. Its FB page stalled in 2015 with 110 followers. Its Instagram page has over 5,000 followers, but's also cold. There is a Mexico-based company under the same name, but it's inactive.
Even with a dozen websites, Hello Matcha would face hellacious competition from matcha.com, a branded seller of Japanese matcha. First, the domain name is unbeatable. Secondly, founder Andre Fasciola has partnered with the well-known Andrew Weil, MD. Launched in 2017, matcha.com spent $60,000 on its website and packaging. Since launching, the company has relied on podcasts, LinkedIn, Quora, partner blogs, and micro-influencers. They also use YouTube, TikTok, IG, and other free channels. Email has been critically important. They have grown about 300% per year and website traffic has increased more than 100% per year. Revenues in summer 2020 were $390,000 per month. Not bad.
As a dropshipper, you're going up against the likes of matcha.com. Smart people with experience and money. Be scared. Very scared.
Top dropshipping platforms for larger stores include:
Top dropshipping platforms for creators include:
Top dropshipping platforms for beginners:
Not recommended for dropshipping