I often encounter the million-dollar question on Facebook groups: is dropshipping profitable? Often, real successful dropshippers hide in the shadows and barely comment on these queries. They’re too busy scaling their business to the top.
Looking at starting a dropshipping business? I outlined the important aspects of dropshipping in this article. Answering your questions of “is dropshipping profitable?”, what you need to start, and what challenges you might encounter along the way.
Back in the day when technology and the internet are not as advanced as today, business owners have no other option than building or renting a space for a walk-in store. Over the years, selling has been redefined by the vast alternatives aided by modern processes. One of these is dropshipping.
What does dropshipping mean?
Dropshipping is a business model that does not require a lot of money to invest. It’s a fulfillment process where a store owner does not keep inventories. In other words, selling is done online without warehousing or having the products on hand. All you need to start dropshipping is a computer, an online store, and a basic understanding of how to market and sell online.
With dropshipping, you can focus on marketing your products and saying the right things at the right time and providing real value to the right people. It’s about leveraging your time on marketing and customer service since you’re not warehousing the products.
How does dropshipping work?
- Research a good product.
- Find a reliable supplier.
- List the product in your online store.
- Ship the product from your supplier directly to your customer.
Step 1: Research a product
Research a product that people would want to buy. These are the products that people need rather than want. Or, a product that has a passionate audience, for instance, succulents.
A good product to dropship is comprised of these points:
- Does it solve someone’s problem?
- Is the price within the “impulse buyers” range?
- Does it have passionate consumers?
- Is it trending?
It’s always easier to market a product that solves a pain point. When someone sees your ad with your product showing how to solve their specific problem, that fuels an impulse buy. “Take my money”, “how much is this”, where can I get this” – these are just some of the common comments of people who see videos of products being demonstrated to solve a problem.
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Each year, Americans spend about $5,400 annually on impulse buying. Time-sensitive discounts such as flash sale plus $10-$15 price range of a dropshipping product make impulse buyers take their credit cards straight out of their pockets.
Passionate people are also a good target for dropshipping products. There are many niches to consider that have really passionate audiences who are willing to pay any product that is within their passion even at higher prices. I am a crafty person myself and every time I see an ad about a product about sewing, decorating, and scrapbooking, I make sure I save them on my list.
Everyone follows trends these days. If you have found a viral product to dropship, that is gold! Although I find that most viral products are more on the entertaining side rather than usable, people buy them because everyone else has them. It is trending, that is what it’s all about – curiosity.
If you have seen an ad of the “balls” that lights up that you can hang on your bike or someone else’s, that is one! People were crazy about it because they thought it was unique and funny. They find it very entertaining so they’re buying it. When people are tagging their friends in your ad, congrats, you just found a viral product.
Step 2: Find a reliable supplier
Find a reliable supplier who can fulfill your orders who are also inclined with your standards and policies. You can go right to Aliexpress to find a supplier. But keep in mind that there are good and bad ones.
Here are things to consider when looking for a supplier:
- The number of years in business. Or the number of years that their shop has opened in Aliexpress.
- Amount of 5-star reviews that have meaningful phrases. Reviews with pictures are a bonus.
- Contact the supplier (about dropshipping) to gauge their response time and their knowledge about dropshipping. Most stores on Ali dropship but you would want to know how they package orders and what information includes in the package.
- Look for their average shop rating. 90% and up is good but I would usually aim for at least 94% on average rating.
- Add the potential product to cart and see the total prices for the different countries that you will target to sell it to, taking into consideration the shipping method and delivery time. E-packet is what most dropshippers are aiming for.
Step 3: List the product on your online store
List the product on your online store upping the supplier’s price to a certain percentage that will give you an ample profit amount.
When pricing a product, consider your marketing costs. I find that most dropshippers are multiplying the base cost (supplier’s cost) to 3.
Some big players in dropshipping price their items of up to 500% more. It is up to you but takes into consideration the quality and perceived value of your product. You can’t price the light-up “balls” with a $5 price on Aliexpress to $50 on your store. That is just not right. And besides, it falls beyond the “impulse buyer’s” price range.
Step 4: Purchase the product from your supplier using your customer’s shipping address
When a customer purchases from your online store, you then purchase the product from your supplier using your customer’s shipping address. The product will be shipped and delivered from your supplier directly to your customer.
Maybe you’re asking, why wouldn’t somebody just order the products themselves directly from the supplier’s website? There are a couple of reasons:
- The internet is a huge place to be able to discover the specific supplier especially when the person is not actively looking for the product online.
- These suppliers might have not marketed their product to the right people as opposed to what the drop shipper does.
Challenges of dropshipping
- Finding credible suppliers
- Handling customer complaints
- Customer service
- Cash flow
Finding credible suppliers
Not all suppliers are created equal. There are good ones and there are those that will give you nightmares. Finding reliable and trustworthy suppliers require some research. A couple of things to consider:
- Look for an established supplier that is already in business for a couple of years.
- Scour the internet for reviews and feedbacks about them.
- Initially contact them and see if they are quick to respond.
- Let them know that you would like to drop ship their product. If they have no idea how dropshipping works, stay away. Chances are, they might put their own business information to your customer’s package.
Handling customer complaints
Even with all the deep analysis, complaints are inevitable with dropshipping. One of these would be the quality of the product. Without having the first-hand experience, you wouldn’t have an idea of the real feel and quality of the product. However, you can avoid this by ordering it yourself and inspecting its quality before selling it to your customers.
Long shipping times. A great deal of these suppliers is handling a lot of drop shippers. With that being said, they are fulfilling a pile of orders. This causes issues with handling time – the number of days to prepare the order and package them. In addition, some suppliers make the product on demand. Consider this in the first place before partnering with a supplier.
The level of competition is relatively high. The fact that it only takes some marketing knowledge and low start-up cost, many people are attracted to this business model. To make it worse, some of these drop shippers just merely copy someone’s successful product. It becomes easy to do it nowadays with the heap-load of resources online enabling drop shippers to copy and paste what’s working for other people.
Since customers purchase from your store, you have the complete responsibility in making sure that they are satisfied with the whole ordering process. If the supplier messes up, you are the one to answer the customer. You may have to take a loss with it at times.
But at the end of the day, you made your customers happy and satisfied in order to keep them as repeat buyers. They might as well refer your store to their friends and family.
Consider cash flow to be one of the biggest challenges with dropshipping. Why so? Once your customer placed an order, you’ll have to fulfill it as soon as possible to avoid extra delays.
Usually, the funds are still held for a couple of days before receiving payouts. This creates a gap between using your own money to order the product from your supplier, to receiving the funds to your bank account.
Is Dropshipping Profitable?
The answer is it depends on how you manage your business and how much knowledge you invest into it to be successful.
You have absolute control over the pricing. Take it as an advantage to gain a high-profit margin but do not overdo it.
Price your products taking into consideration your target costumers. Another way of racking up a higher profit margin is by directly partnering with a manufacturer rather than a supplier or middleman.
Mistakes are bound to happen. Though it can become a good learning opportunity. And if you develop resilience along the way, you will reap what you sow. There are plenty of drop shippers out there who found a lot of success with this business model.
With dropshipping, you’ll likely have to spend money to drive traffic, especially when starting up. There is no overnight success and this is not a get-rich-quick scheme. Dropshipping still requires you to work consistently in improving your store.
In order for a dropshipping business to be profitable, you need to study and do more research and understanding before taking a leap. Jumping into the bandwagon, publishing your store right away and doing Facebook ads will just eat your budget with little to no return.
Mistakes To Avoid
- Do not pick a product based on your own likes and dislikes. Consider market demand, facts, trends, and viability.
- Do not sell copyrighted or trademarked items. You are bound to get in so much trouble if you do this.
- Do not open your online store for business if it looks spammy and screams fraud.
Once you’re feeling comfortable dropshipping, diversify. Many drop shippers don’t rely on a single store but operate a series of stores targeting different niches. Testing is one of the keys to a successful dropshipping business.