If you have been following the trends in e-commerce and are yourself interested in it, you might have heard about dropshipping.
Simply put, dropshipping is a type of business in which the seller of products takes orders from customers then transfers those details to the manufacturer, who directly ships the order to the customers. Therefore, you are making money by selling other people’s products, saving yourself the need to manufacture goods, pay for warehousing and inventory control and manage the logistics of the order- all of this is taken care of for you by the manufacturer.
Because of all the savings in costs, many people commonly believe that dropshipping is highly lucrative and quick money. But is this belief only a misconception? Just how much money can you make by dropshipping? We’ll be answering these questions in this article.
What is dropshipping?
Before we talk about the profitability of dropshipping, let’s first understand what it is and how it works. As I’ve already mentioned, as the operator of a dropshipping business, you are merely providing a platform for customers to purchase goods as well as marketing these goods to attract as many customers as possible.
On a more technical note, dropshipping is a method of supply chain management (or SCM for short), which refers to the way in which final and unfinished goods are managed by various groups (retailers and manufacturers, mainly). There are 2 ways in which you can operate your dropshipping business: as a brick and mortar store or through mail-order. A brick and mortar store refers to a physical store where you are holding and selling all the products. People visit your store and purchase items.
Alternatively, if you’re operating a mail-order business, customers contact you to place an order for the products they want to buy and you forward the order details to the wholesaler or manufacturer, who ships the goods to the customers. It’s good to have multiple modes through which customers can contact you, including telephone, email and a form on your business website.
How much can you make from dropshipping?
By learning about how dropshipping works you might have realised that you profit from the difference between the amount that a customer pays you for a product and the amount that you paid for it. For example, if a product costs $1000, you can sell it to customers for $1010, making a profit of $10.
It’s uncertain exactly how profitable dropshipping is because it depends on so many factors. On one hand, it depends on things that are within your control- things you can change in order to improve your business- such as your skills in web design, advertising and marketing, managing customers, choosing the right products and managing your finances.
On the other hand, there are factors that are out of your hands that are just as influential to the success of your dropshipping business- things like the state of the economy in your country, the demand for the products you’re selling and the area where you are located. Therefore, luck plays a huge role. If you have the skills I’ve mentioned and are in the right place at the right time, there’s no limit to how much success you can achieve as a dropshipping seller. Indeed, some people have made seven to eight figures by operating this business.
More importantly, how likely you are to make a profit is correlated to the type of dropshipping you are doing. There are 2 main categories: low-ticket and high-ticket. The ‘ticket’ refers to the price of the product that you are selling on your website. If the price is lower than $200, it is considered low-ticket. If it’s higher than $200, it’s high-ticket. Usually, the second type of dropshipping is more profitable than the first one.
Think about it this way. You will be spending quite a lot of money on advertising the product to drive traffic to your website. And just because the product you’re selling is relatively inexpensive doesn’t mean that your advertising costs will fall. The expenses for both types of products are around the same. Hence, by investing the amount in advertising a more expensive product and maximizing the number of consumers who buy it, you are maximizing your profit.
However, you can make the argument that customers are more likely to buy low-ticket products in the first place. Either way, advertising the product is the most important component of success.
Things to keep in mind for a thriving business
Develop the necessary skills
As an entrepreneur, you will be required to play numerous roles at the same time. And if you’re just starting out, it probably wouldn’t be a good idea to hire other people as that would only increase your costs. Hence, you’ll be handling numerous responsibilities alone, including the creation of the website, advertising and marketing, customer outreach, lead generation, bookkeeping and accounting and communications with the business.
Being a successful dropshipping operator requires you to have these skills but learning them takes time. Things like web development and marketing are not easy and you must invest a significant amount of time to learn them. Knowing what you’re doing will definitely boost the profitability of your business, so skill development is a worthwhile investment of your time and money.
Have a source of cash flow
You’ll be making a lot of investments throughout your dropshipping operations, be it in advertising or in hiring employees. To ensure that you have sufficient funding for all this, have a constant source of income (like a day job), at least until you’re making sufficient profits from the business so that it can fund itself.
This is highly important as you must ensure that your business never reaches a negative cash flow- when the amount you’re spending is more than the amount you’re making.
Dropshipping presents a great opportunity for making profits, but it is not quick or easy money. Choosing the right products is the very first step. You should do your research and pick the right type of products: low-ticket or high-ticket or both.
If you are selling high ticket items, expect to earn anything between $50 to $5000.
In case you get lucky along the way, you will be able to earn somewhere between $250 to $3000. The key is to get your hands dirty and work hard to bring in leads.
People who keep at it and do not give up on the idea are able to earn $5000 a month. That’s quite a huge number! So, pick the right products that will help you garner more attention and lead to double the sales.
A successful dropshipping business requires a combination of skill, luck and finance to make it work.