How to Make Money Dropshipping
In this guide we’ll cover how to make money dropshipping. Dropshipping is a method that allows you to run an online shop without having to take care of keeping stocks and shipping. Because of this, it is immensely popular among entrepreneurs who like working location independent. First we’ll cover what dropshipping exactly is and then we’ll cover how to make money dropshipping.
What is dropshipping exactly?
The concept of dropshipping is incredibly straight forward. You own an online store in which you sell products. Just like any other online store. The only difference is that you do not own a physical stock of products and hence you don’t take care of shipping as well.
Customers who visit your online store can place an order and pay you. After they placed an order, you forward the order to the wholesaler of the product and pay this wholesaler.
The wholesaler will then provide you with tracking information and prepare the product to be shipped to the customer. On your turn, you provide the customer with the tracking information. The wholesaler will ship the product to the customer.
Dropshipping simply means that you will sell the products. You are the face who does business and keeps in contact with the customer. The wholesaler of the products will handle stock keeping and shipping.
If the customer is unsatisfied with the product he or she will contact you. You contact the wholesaler for a return order. The wholesaler provides you with the details which you pass on to the customer. The customer uses these details to have the product returned to the wholesaler. The wholesaler reimburses you and you reimburse the customer.
Evidently, the price you sell the product for is a higher than what you pay the wholesaler. The difference between this, minus the additional costs you make to run your store is your profit.
The advantages of dropshipping
The popularity of drop shipping exploded several years ago. It is very popular amongst entrepreneurs whose desire it is to run a location independent internet business. Because you don’t have to keep stock and handle shipping you can basically run your shop from anywhere. Ergo, the first, and perhaps largest advantage of dropshipping is location independence. All you need to run your online store is an internet connection. Whether you run it from your home or from underneath a palm tree is entirely up to you.
A second advantage of dropshipping is that it’s low cost and easy to start. When you start a regular online shop that does involve stock keeping and shipping you need to buy the stock up front. Of every product you intend to sell you need to stock up at least some items. This requires a sizable upfront investment. When you start dropshipping you don’t need to make this investment. You don’t need to keep stocks.
Not having to keep stocks not only prevents you from making a large upfront investment. It’s also good for your cash flow. In tough times, many online shops fail not from lack of orders but from lack of poor cash flow. From having to spend money before they receive money over and over again. If you run a dropshipping business it’s the other way around. First you receive money from a customer making a purchase. Then you spend money when you forward the order to the wholesaler. Cashflow issues in dropshipping are nearly nonexistent.
A third advantage and one that is also related to stocks and cashflow is the amount of products you can sell. If for every product you sell you keep a limited stock then the amount of products you can list on your shop is limited to what you can invest. The more different products you want to sell the more you need to invest upfront in stocking them. One of the advantages of dropshipping is that you don’t have this issue. You can make your breadth of products as wide as you want without any investment or cashflow issues.
The disadvantages of drop shipping
As dropshipping has many advantages it also has some disadvantages. Not taking care of stock and shipping gives you freedom and a low barrier of entry. It also takes away your control over these aspects of the sales process. You no longer have control when the orders are shipped and how they are shipped. Nor do you have a lot of control over what shape the products are in when they leave the warehouse. If the wholesaler decides to ship the product later than promised there’s nothing you can do about it. If the wholesaler decides to ship a piece of inferior quality then there’s nothing you can do about it also. In the end, you’re the face of the entire sales process. The only one who has contact with the customer. For all the customers know, they are only doing business with you. As it is supposed to in dropshipping. This also means that the customer will only keep one person accountable for what happens. You. The major downside though, is that you are the only one that will be kept accountable but you are also unable to control the entire process.
Another disadvantage of dropshipping is that it is not as profitable as running a regular online shop. When you run a regular online shop you are often able to purchase your stock in bulk. Doing this will get you a bulk discount. Bulk discounts allow you to procure products cheaper which increases your profit. If you do dropshipping bulk discounts often don’t apply. When a customer places an order for one product you forward that order for one product to the wholesaler. Evidently, you’ll end up competing with other shops who sell the same products but then traditionally. Other shops who do get bulk discounts and are thus able to afford a more competitive price. If you want the same profit margins as your competitors you’ll have no other option than to sell your products for a higher price. Something your more price-sensitive customers probably won’t comply with. Unless you manage to build a desirable brand.
How much can you make dropshipping?
We’ve just covered how dropshipping works and what its pros and cons are. But how much can you make dropshipping? This is a question I often receive from entrepreneurs thinking of getting into dropshipping. Well, the answer is rather simple. Millions. If you do it right.
When you start dropshipping you tap into the e-commerce market. A market where 604 billion dollars changed hands last year in the US alone. It’s safe to say you’ll be entering a market where there is plenty of money to be made. As I just explained, running a drop shipping business is immensely scalable. If you’re able to automate the entire process from A to Z you’ll minimize the amount of manual labor. You can then spend almost all of your time and energy into growing and scaling your business.
There are plenty of dropshipping shops in the US that earn millions of dollars in revenue each year. Shops in fashion, jewelry, books and even tea are among these shops. However, as with every other online business the competition is hard. The lower the barrier of entry a type of business has the harder competition will be. That raises the question. How to make money dropshipping? Where do you start and how can you make dropshipping successful? We’ll cover that below.
How to get started with dropshipping
The first step to get started with dropshipping is picking a niche or product to sell. When you start selling things online as a starting entrepreneur it is not a very good idea to become a supplier of mainstream products. The competition sin the mainstream market is just too strong to compete with. Unless you focus on a specific niche market you’ll be competing with Amazon, Alibaba and countless other giants. Giants with thousands of employees, prices as low as you can get and gazillion dollar marketing budgets.
You can limit the amount of competition by picking a specific niche market you’ll become active in. Ideally you’ll want this niche to be broad enough for your business to generate enough revenue. At the same time you’ll want it to be narrow enough to have a limited competition. How you select your niche and what niche you select is evidently up to you. I will provide you with some tips about selecting your niche:
Look at your passions and interests
Take a look at your passions and interests. See if there are any opportunities to turn your hobby into your business. Selling products that you are passionate about and have unique knowledge of is usually way easier and much more effective. You’ll make better decisions as to what you sell and against what price. Customer service will also become a lot easier when you have firsthand experience with the products.
Look at problems in your daily life
Take a few seconds to ask yourself which kind of problems you bump into in your daily life. Are you the only one with this problem or is it universal? Is it universal to the entire population? Or perhaps to other men and/or women your age? Can the problem be solved by a product or service you can sell online?
Look at other niche markets
Here in the Netherlands where I’m from we have a famous saying: “beter goed gejat dan slecht bedacht”. This roughly translates into “better well stolen than badly invented”. When trying to find a good niche, start by looking at the niches of other dropshipping entrepreneurs. Which niche markets are popular among dropshippers? And why are they popular? It’s better to tap into a somewhat crowded but successful niche market than fail at a relatively unique niche.
When it comes to selecting a niche market, a topic to blog about or an affiliate business I always have one solid advice. Don’t immediately dive into the first idea that pops up in your mind. Take some time to gather multiple ideas. A few weeks or perhaps a month. Chances are that you’ll be running your dropshipping business for several years. Don’t let those several years be wasted on the wrong niche because you tried to save time on the niche selection process. What I always do is that I take a notebook with me for a few weeks or even a month. I write down every idea I get in this notebook. You will notice that the best ideas often don’t come when you force it. They come to you spontaneously. When you’re in the shower. When you’re doing a number two. Hell, I even wake up sometimes in the middle of the night because an idea somehow occurred to me while dreaming. Just take a few weeks or a month to gather niche ideas.
Rating your niche ideas
When you got multiple niche ideas written down it’s time to rate your ideas. This means you will score your ideas on several factors to root out the less useful ones. Some people take scoring ideas immensely serious. They have a very scientific approach to it. I myself don’t really have a scientific approach to it though. When you haven’t even started you often don’t have enough reliable data anyway. So I would advise you not to go chasing some pseudo accuracy by making the rating process needlessly complex.
I rate my niche ideas on the 7 factors you can see below. For each factor I give every niche idea a score between 1 and 10. In the end I sum up all scores and sort the niche ideas from high to low.
- What is the size of the market?
- Is it an evergreen product, a seasonal product or a trend based product?
- How many reliable suppliers are there?
- Do you expect the product to have a high return rate?
- How much profit can you realistically make?
- How enthusiastic are you about the product?
There are several ways to measure the market size of a product or niche. You can use the Google Adwords keyword planner or several other tools to find out what the monthly Google search volume for product related keywords is. The search volume will give you a feeling of how popular a niche is.
A second way is to look how many products and how often products sell on Ali Express. Ali Express keeps track of how often a product is sold and how many different products there are. All you have to do is execute a search query, then sort on orders and you see the most sold products in a descending order. As you can see below I did this with smart watches. It shows me that there are over 1.7 million different products. The best-selling watch has been ordered little over 50.000 times.
A third, and last way to gauge market size is to see how many products are being sold on eBay.
Is it an evergreen product?
Look at the type of product you might be selling. Is it an evergreen product? Or is it a seasonal or trend based product? Evergreen means that you’ll be steadily selling the product all year around for years to come. Seasonal products are products that sell moderate most of the time and flourish in a specific time of the year.
Christmas trees for example don’t sell particularly well from January to October. Swimwear sells better during spring and summer than autumn and winter.
Trend based products are products that sell really well in a short period of time and then sell like crap. Fidget spinners sold really well a couple of months and nowadays everyone has forgotten about them. But tablets, headsets and phone covers and millions of other products sell well throughout the entire year though. They are known as evergreen products. Rate each niche on how evergreen it is.
How many reliable suppliers are there?
Dig into the suppliers of each niche. How many reliable suppliers are there? Is there just a single supplier? Or are there more? How reliable do the suppliers seem? Do they have quality product images? Are they transparent about their terms, pricing and bulk discounts? Are they transparent about their partner requirements? Can you find any reviews on the suppliers? Give each niche a “supplier quality” score.
Expected profit margin
For all the product ideas you have it’s time to make an estimation of how much profit you could make on them. Take a look at the different wholesalers and the wholesale prices they offer. Then take a look at a few prospective competitors and what they sell the products for. How big is the price difference? Take this difference, deduct shipping costs and you get a ballpark figure of your potential profit margin. Does the potential profit look appealing? Or not? Give the niches with a high potential profit margin a high rating and vice versa.
How enthusiastic are you about the niche?
How enthusiastic are you about the niche? As we’ve just covered, most people who get into dropshipping try to find niches that are close to their interests. Selling products that excite you is more fun, keeps you motivated easily and sparks the content you create. On a scale from 1 to 10, how excited are you about the niche?
Summing up the ratings
When you’ve rated all the niche ideas it’s time to sum up the ratings. After that, sort the ideas from high to low.
On the surface, some ideas look good. Until you start to break the ideas up and look closer to aspects like profitability, suppliers, market size and competition. If you’ve done the due diligence right these ideas will show up on the bottom of your list. And it is exactly clear why. Lack of profitability. Lack of suppliers. A market that is too small. All are possible constraints you will bump into when you break up your niche ideas.
So, after sorting your ideas. Which ones are on top of your list? And how close are the top ones to each other? Is there one idea that trumps all the other ones by far? Then the decision is rather simple. Or are there two, or perhaps three that trump all the others? Then you’ve got some more digging to do. If there are multiple ideas with a score close to each other I’d suggest you select a decisive factor.
I personally, find my own excitement about a product one of the most decisive factors. Next to that I also look at the suppliers. Competition can be beaten, given that you can hold you breath for long enough. Which will selling a product you’re excited about give you. A higher profit margin can be achieve if you brand your shop well. Terrible suppliers though can make your life immensely difficult.
So, which idea will be your final choice?
Reach out to the suppliers
If you followed the previous step I assume that you have researched potential suppliers. In dropshipping there are three ways to do business with suppliers. Two indirect ways and a direct way.
Use a dropshipping marketplace
The first indirect way means that you get into business with a dropship marketplace. A dropship marketplace is an organization that brings together multiple dropship suppliers on one platform. It’s like a supplier database. You, as a retailer can become a marketplace member. Becoming a member gives you access to some or all products on the marketplace. Examples of well-known dropshipping marketplaces are Oberlo, Salehoo, and DHGate.
Use dropshipping plug-ins
The second indirect way to get into business with dropshipping suppliers is by using product feed plug-ins for your online shop. Product feed plug-ins are extensions that one can download for most of the popular online shop platforms. Platforms like Shopify and WordPress. The plug-ins are connected to one or multiple dropshipping suppliers and allow you to import their products into your shop with one mouse click. Two well-known examples are Dropified and Spocket. Both of these plug-ins integrate with Shopify and Woocommerce (WordPress). You’ll be able to import and sell products of multiple US and European suppliers in your shop. Next to that, there are multiple plug-ins that allow you to simply import and sell AliExpress products in your shop. Plug-ins like AliDropship and WooDropship for Woocommerce and Expressfy for Shopify.
Contact dropshipping suppliers directly
The last way to get into contact with dropshipping suppliers is by contacting them directly. Almost every supplier who directly does business with retailers has some means of contacting them. Usually, their website has an application form for retailers. If not, they probably have an email for you to contact them and perhaps a page explaining what you need to do when you apply for a partnership.
Applying to become a retailer for a dropshipping wholesaler is quite an easy process. In its simplest form you contact a supplier and start a conversation about becoming a retailer. However, do take into account that some dropshipping suppliers tend to screen applications. Wholesalers get multiple applications every month. Statistics show that over 80% of dropshipping businesses never manage to really lift off. Wholesalers are generally very busy and are not keen to lose precious time over applicants who don’t take their role as a prospective partner all too serious. So if you send an email containing “Yo, I want to resell your products. Send me a list of what you got!”, don’t be surprised if you don’t get a reply.
Follow the tips below to increase your chance of success of landing a good supplier.
Find out what you need to do to apply
Different suppliers have different application processes. Some require them that you send them an email. Some require that you fill out an application form. Others require that you create an account on their website and complete your profile. Whatever it is, make sure that you check out the supplier’s website and find out how to apply. You’ll only waste your and the supplier’s time if you go sending emails when there is a big fat application button on their website.
Be a business, not just a person
If you have a business name in mind, go to a domain registration service like GoDaddy and register the domain. When you do so, you often get to register an email address for the domain as well. This allows you to create a personalized business email. Instead of reaching out to a supplier via your private email you can do so with a business email. This will make you look much more legit in the eyes of most suppliers. If you choose to ignore this advice and end up using your private email nevertheless. For god sake, please make sure you have a decent private email address. Using your high school Hotmail address email@example.com is an absolute no go!.
Check the FAQ section of the supplier website
When you’re about to apply it isn’t strange when a dozen questions pop up in your head. What payment terms and methods does the supplier have? Which shipping company is used? How about insurances? Are there product feeds?
You’re not the only one who has these questions. Chances are that there is a section where they answer all frequently asked application questions up front. Filling your application email with a bunch of questions to which the answers can be found in the FAQ section is rather silly. Not only is it silly, it shows a lack of thoroughness. To suppliers it radiates you’re just sending out random emails without haven taken the time to dive into a suppliers website. Before you fill your email with questions, check if you can find the answer somewhere.
How far should you go?
When you reach out to suppliers directly there is always the question of how far you should go to show how much of a serious business partner you can be. Some experts claim that securing suppliers is something you do before you build a shop. Others claim that you first need to build a shop to show how professional and serious you are. In my opinion, the answer is somewhere in the middle. It depends on how many options you have and how flexible you are.
Are there 20 different suppliers to choose from? Do you know that suppliers in the niche easily accept retailers as their resellers? Can you access multiple suppliers through a marketplace or plug-in? In this case you are pretty free in choosing whether you build a shop first or find a supplier first. Perhaps you can do both at the same time as the contact back and forth to suppliers takes time. Give yourself a flying start by building your shop as you’re negotiating with suppliers.
Are you thinking of selling a very niche focused product that is only sold by one supplier only? In that case there’s a difficult tradeoff to make. If you set up a shop before you contact the supplier it might boost your professional credibility. It shows the supplier that you are serious and increases your odds of being accepted as a reseller.
However, there’s always a chance that the supplier rejects your request for a partnership. If the only supplier in a niche doesn’t want to do business with you then you’ve set up your online shop for nothing. The effort, time and money you spent building the shop is wasted.
So, there is a tradeoff to make here. If the niche is so specific and the amount of suppliers is limited. How badly do you want to be a reseller? How willing are you to invest your time into building a shop up front knowing that there’s a chance you are wasting your time? This tradeoff is different for everyone.
My personal opinion on this matter is: supplier before shop. If a supplier doesn’t want to do business with me then that is their loss. Not mine. There are thousands of different niches and suppliers out there that can be profitable. I don’t believe in that one single niche product that outperforms thousands of others. But obviously you’re free not to share that opinion.
Dropshipping marketplaces versus plug-ins versus direct relationships
We’ve just covered the three ways to secure a dropshipping supplier. Via a marketplace, using plug-ins or engaging in a direct partnership. Starting dropshipping entrepreneurs often struggle with the question which way of securing a supplier is the best way.
Evidently, all ways have their pros and cons. I personally favor engaging in a direct relationship with suppliers. When you use a marketplace or a plug-in the “directness” of your relationship is limited. There will always be a middle man. Plus, you will have less opportunities to negotiate about terms and conditions. Your ability to build a close personal relationship with your supplier will also be limited. At last, the middle man needs to be paid as well. These dropship marketplaces and plug-ins aren’t free. They are often subscription based. The only thing they do is contacting suppliers and adding them to their platform. This is something you could easily do yourself.
However, plug-ins and marketplaces do have two big advantages. Scale and integration. The marketplaces are often connected to hundreds of suppliers. If you plan on using a multitude of suppliers then you might be better off using a marketplace or a plug-in. Maintaining a personal relationship yourself with a dozen suppliers is rather time consuming. A second advantage of plug-ins and marketplaces is integration with shopping platforms. Plug-ins for Shopify mean that you can mass import supplier products along with images and descriptions by clicking one button. If you plan on selling a very wide range of products you could save yourself a lot of time by using such a bulk import. Nevertheless, suppliers who aren’t linked to a marketplace or plug-in often do have bulk product feeds as well.
In the end, what you prefer depends on your situation and ambition. Do you plan on selling a multitude of products from a multitude of suppliers? Consider saving a lot of time and effort by utilizing a marketplace or plug-in. Do you plan on selling a few products from a few suppliers? Try to build a long lasting and sustainable direct relationship with them.
Start building a shop
When you’ve got one or more suppliers secured you can start by building an online shop. Luckily, building an online ship these days is a lot easier than five or ten years ago. Back then, you needed some knowledge of web development. Nowadays, building an online shop is more like playing with Lego. There are different platforms that you can use as a base. All these platforms can be expanded by plug-ins as if they are Lego bricks.
The first step in building a dropshipping store is by selecting the platform you want to use. There are different platforms to choose from. Shopify, Woocommerce, Opencart and Magento are a few well-known examples. All of these platforms can be divided into two categories. Hosted platforms and self-hosted platforms.
Hosted platforms are platforms that are hosted elsewhere. They are offered to you as a service. Self-hosted platforms are platforms you can host yourself on your own hosting provider. In general, hosted platforms are easier to work with for those who have zero tech experience. It will not require you to install the platform on your own hosting. Nor will you have to face technical issues regarding hosting by yourself. Self- hosted platforms are more suitable for people with some tech experience. Though, installing WordPress or Magento is not very difficult. Most hosting platforms have applications that install them for you with the click of a button. Another advantage is that self-hosted platforms are generally cheaper and there’s more choice.
Shopify and BigCommerce are examples of hosted platforms. So are Oracle Commerce, GoDaddy Quick Shopping Cart, Weebly eCommerce and Miva Merchant. WordPress is an example of a self-hosted platform. So is Magento, Zencart, Drupal Commerce and OpenCart.
Best e-commerce platform for dropshipping
I often get the question which platform is the best e-commerce platform for dropshipping. As with all things, it matters on your ambition, preferences and tech skills. I will cover the most used platforms below.
WooCommerce has made quite a brand name for itself. Despite it not being an actual platform. WooCommerce is actually a WordPress plug-in. It allows you to turn your WordPress site into an e-commerce site. At this moment it has the largest market share of e-commerce platforms worldwide.
The biggest pros of WooCommerce are that it’s free, flexible and very user friendly. It also has a immensely large user community that can help you out with questions and issues.
Because WooCommerce is a WordPress plug-in you need both knowledge of WooCommerce and WordPress to make the most of the platform. WordPress in its core is made for blogging. Not for e-commerce. Hence, you will be required to combine your knowledge of the blogging part of the platform and the e-commerce part.
Shopify is one of the largest hosted platforms. You don’t need to install it on your own hosting. All you have to do is sign up and you can start building your online store. Because it is so easy, Shopify is used by thousands of dropshipping stores around the world.
The biggest pro of Shopify is that it is easy to get started. You don’t have to take care of hosting, installing the platform and maintaining it. All you have to do is sign up and get started. A second pro is that you can sell your products via other channels than just Shopify. You can sell your products on Facebook, Amazon, Pinterest and through mobile apps.
One of Shopify’s major con is the pricing. The platform itself is subscription based. The cheapest plan is around 30 bucks per month and the most advanced is close to 300 dollars per month. Next to that you’ll also be paying for extension features so the price will add up quickly.
Magento is a self-hosted platform that is built purely for e-commerce. It is the platform with the most extensive set of functionalities. It is hugely flexible and offers many solutions that its competitors don’t.
The greatest pro’s of Magento is its wide variety of options.
This flexibility and wide variety of options evidently comes with a price. Even though Magento is used by many dropshipping stores, its primary target group is large professional e-commerce stores. Stores that have the revenue, skillset and needs that fit will with a platform like Magento.
Some last thoughts on picking an e-commerce platform
Whichever e-commerce platform you pick is entirely up to you. I hope the information above has given you some insight in the pros and cons of different platforms. I do want to share some last thoughts on picking an e-commerce platform though.
The first, and most important is that you should it as picking a platform for life. Technically, migrating your store from one to another platform is possible. But it’s dreadful, time consuming work that you prefer not to do. In the process it’s likely that you’ll encounter many issues. Not to mention the negative impact it can have on your SEO presence.
I would advise you to pick a platform that .
I would also advise you to be honest with yourself. Is the technical work something you don’t mind doing? The installing, updating and troubleshooting that inevitably comes with a self-hosted platform. You could outsource this. But outsourcing the technical maintenance of a free platform like WooCommerce is probably more expensive than having a Shopify subscription. If you don’t
Pick a brand name and domain
When you’ve picked a platform it’s time to start by picking a brand name and registering a domain. When you build a dropshipping store having a strong brand name and domain are important. A good brand name and a strong domain can be a very good asset to your business. A strong brand name can increase your online presence and lead to more often returning customers. A strong domain can boost your presence in search engines and also lead to more often returning customers.
Evidently, your brand name and domain name are more or less related to each other. There are a few tips you can implement in choosing your brand and domain name.
- Pick a brand and domain name that relates to your niche and products.
- Preferably pick a domain that has a .com extension.
- Pick a brand name that is easy to recall and easy to write.
- Pick a brand/domain that is easily abbreviated.
- Avoid using hyphens in your domain. It’s bad for SEO.
- Check if the brand name is not already trademarked by someone else.
As easy as this sounds, it can be actually quite difficult. Picking a brand name that is easy to recall, easy to write and isn’t trademarked is difficult as it is. Being able to find a corresponding .com domain that isn’t taken is even harder.
What I recommend everyone who enters the process of picking a brand and domain name is to take your time. In my experience, the first few ideas you can think of are often great. But they are also the most obvious ideas and therefore already taken by others. The next thing you’ll do is start to think harder and harder. You will then end up forcing ideas that sound great at first, but are actually not that great at all.
Take a notebook with you for a few weeks and write down all the ideas that pop up in your mind. Truly great ideas are often not the ones that are forced by thinking hard and long. It’s the ideas that suddenly pop up when you least expect it. After those few weeks evaluate all the names you have written down and pick the best.
Build your shop
When you have a brand name, a domain and a platform of your choice it’s time to build your shop. If you’re going for a hosted platform all you have to do is sign up for the platform and get started. I would advise you to host your domain there as well. If you already have a domain you’ll need to move it to Shopify.
Are you going for a self-hosted platform? Then you will need to combine your domain name with hosting. I would advise you to register your domain with a party that also provides hosting. This way you can combine the two. If you don’t, you’ll eventually need to migrate your domain to your hosting provider. I myself recommend using Bluehost for your domain and hosting. They are reliable and offer many services. When your hosting and domain are up you can start by installing the platform of your choice. Most of the popular platforms can be installed with one click in your hosting back-end. If this isn’t the case, you’ll have to search for a step by step guide or contact your hosting for support. Most hosting providers offer installation services for a small price.
The features of your shop
When the platform is installed it’s time to focus on the features of your shop. With features I mean products and pricing, categories and pages, payment gateways and shipping methods.
Products and pricing
Let’s start with the most important aspect of your shop. Products and pricing. Ergo, which kind of products do you want to sell? And against what price? There are different ways to price your product. I will cover various strategies below.
The most straight forward and traditional way of pricing your products is cost-based pricing. In cost-based pricing one takes a look at all the costs associated with a product. Costs like the wholesaler price, shipping, marketing, payment, taxes, keeping your online store running and returns. Add a desired profit margin on top of these costs and you have your product price.
The wholesaler price should be known to you. So are shipping costs associated with the size and weight of the products you sell and how much you’ll be paying in taxes. For marketing costs people usually take 20 -30% of the wholesale price into account. Payment fees are usually around 2-3% of the product price. What you should be do with returns depends on the type of products you sell. Clothing for example is returned much more often than beauty products. A general rule of thumb is that 5% of the product price is taken into account to cover for returns.
At last, we have the desired profit margin. 40 to 50% is what shop usually take into account. Though the percentage can be a lot higher and a lot lower depending on the competition, the market and the customers. We will cover that below.
Competition based pricing
When pricing your products, it would be foolish to only take the associated costs into account. Nevertheless, cost-based pricing is useful because it allows you to determine an absolute minimum. After you’ve determined the total costs associated with your products it’s time to look at your competitors.
For how much are your competitors selling their products? And how does that relate to the cost-based pricing you have in mind? Are their prices generally lower of higher? And do they offer anything else special? Free shipping? Same day shipping? Free shipping on returns? And of what perceived quality are their products compared to yours?
When pricing your products based on competition the trap is that many people fall into is wanting to be cheaper than their competition without giving this idea a second thought. It’s not about being the cheapest. It’s about acquiring a unique spot among your competition. A unique spot in your market. And then building a brand around it that fits that unique spot.
AliExpress and Rolex both sell watches. AliExpress sells 7 dollar watches. Rolex sells 15.000 dollar watches. Evidently there is a gap in quality. But that gap isn’t 14.993 dollars wide. They both have a unique market position and have built a brand around that. Take a look at your competition and your market. Where do you fit in? Which positioning can make you unique? Will you be the Rolex of your market? Or the AliExpress?
Customer based pricing
The third important factor to take into account when pricing your products is your potential customer. Your target customers will tell you how far you’re able to stretch your product prices. Especially how far you can stretch them upwards.
How price sensitive are your target customers? And how familiar are they with the products?
Target customers with lower incomes are often more price sensitive than those with higher incomes. Topping up your prices will have its limits. Price sensitive customers will often compare prices and choose the cheaper alternative. Customers who are less price sensitive display this behavior less. They are more sensitive to branding and style.
At last, how well informed are your potential customers? Are they regular shoppers who are just passing by? Or are they hobbyists? Whether they are hobbyists or not is often closely related to the type of products you sell. Do you sell bikinis? Or model trains? The thing is that hobbyists are often customers with high return rates. But also customers who are very well aware of prices and quality. Hobbyists are known to be relatively price sensitive.
Product categories and pages
When you’ve got your products and prices sorted out it’s time to take a look at your product categories and pages. If you’re going to sell a lot of products you can’t just put everything on one page and expect your customers to find them all. You’ll need some sort of underlying structure.
Most of the online store platforms will allow you to create a product category structure.
Next to categories you’ll also need to think about pages. As a store owner there are some pages you must have. Pages like:
- A page with your terms and conditions.
- A contact page with your contact details .
- An about page with information about your business.
- A page with information about shipping.
- A FAQ page which answers the most often asked questions.
- A size guide page in case you sell clothing.
- A page with store information in case you have physical stores as well.
- A page with information about the different payment methods you offer.
- A blog page with blog articles in case you want to use blogging as a content strategy.
At last, a lot of countries have regulations about the contact details of your dropshipping store. I would advise you to dig into these regulations. In the Netherlands where I’m from example you need to provide at least one way where customers can contact you directly. This means you can’t just provide an email address and leave it there.
When your customers place an order in your store one thing is of vital importance. Them being able to pay. There are a dozen different payment gateways you can implement in your drop shipping store. Most entrepreneurs who are starting out with drop shipping don’t know which payment providers to use. And how many.
When you select payment gateways there are a few criteria to take into account. The first, and most important rule I apply is that I limit the payment gateways to the ones that are by default supported by your store platform. Most of the well-known store platforms offer a variety of payment gateways. I would advise you not to go messing around with custom pieces of code to implement a gateway that isn’t supported.
Next, there are a few additional criteria to pick suitable payment gateways:
- Select payment gateways that are supported and popular in your target country or countries.
- Select payment gateways based on their transaction fees. Lower = better.
- Do you sell internationally? Select payment gateways that do business internationally.
- Select payment gateways that are easy to use and user friendly. Nobody likes complicated payment processes.
Some examples for well-known, easy and supported payment gateways are:
- Apple Pay
- Google Checkout
Dropshipping makes a lot of things easier. But shipping can be a pain in the ass for some dropshippers. The first thing to know is that as a dropshipping store you have a limited influence on shipping. You have a limited influence on when an order is shipped. With whom it is shipped and how long the shipping takes.
If you have multiple wholesalers then shipping becomes even more complicated. Especially when your customers order multiple items at once that come from multiple wholesalers. When you forward these orders, your suppliers will individually ship their products to the customer. A first is that you will be charged shipping costs by each individual supplier. A second is that your customer will probably receive different products on different days from different shipping companies.
And at last.. what do you tell your customers about your shipping times and shipping companies? Let’s break it all down shall we.
It’s very important to realize that you don’t have control over the entire process. If you want to have more control, you shouldn’t have started with dropshipping. You should run your own stock instead. One of the first things to do when you get into business with a supplier is check its shipping policies. How fast after an order is placed do they ship? With whom do they ship? Do they use the same shipping company all the time or different ones? The goal here is to create an overview. An overview of your suppliers, their shipping speed and their shipping partners.
When you’ve got this overview, you can use it to implement a shipping strategy for your online store. There are a few things you should take into account.
When it comes to shipping rates there are three strategies one can employ. Use calculated shipping rates, flat shipping rates and free shipping.
A calculated shipping rate
If you use calculated shipping rates then the shipping costs will be calculated when your customer checks out. Using calculated shipping rates can be very useful if:
- You sell products that highly vary in weight and size. Evidently, it would only be fair to charge more to ship a sofa than to ship a t-shirt.
- You sell products to customers in different countries. Shipping products abroad is simply more costly. If this is only profitable for you when your customer is willing to pay for the extra shipping costs, then it’s only fair if they do so.
When you use calculated shipping rates, there are two things you can do. You can calculate the rates based on the distance between your store and your customer. Or you can calculate them based on the distance between your supplier and your customer. Among dropshippers there is always a debate which of the two is the best option.
In my opinion this debate is senseless. If calculated shipping rates differ too much for your location versus the location of your supplier then you should reconsider using calculated shipping rates. This would imply that your supplier isn’t even located in the country you operate from. What I mean with this we’ll cover later.
A flat shipping rate
An alternative to calculated shipping rates is a flat shipping rate. A flat shipping rate means that you charge five or perhaps ten dollars for every order. Flat shipping rates are perfect if:
- You sell products that hardly vary in weight and size.
- You only sell products domestically.
- Your suppliers ship the products from the country where you operate your store from.
Flat shipping rates saves you time and hassle. It always provides your customers with transparency and reliability. They don’t have to go through the entire ordering process to wonder how high the shipping rates will end up. They know they will be paying a flat fee.
Flat rates are less useful if you sell your products to customers in different countries. It wouldn’t be fair to charge a customers who lives in a town 5 miles away from you the same flat rate as you would charge a customer who wants it shipped thousands of miles overseas. Neither would it be fair if your products vary a lot in weight and size. It’s not fair to charge someone 5 dollars to ship a pair of socks and charge them the same amount to ship a sofa.
The last shipping rate strategy for dropshippers is using free shipping. Obviously, nothing is free. You’re not a charity organization. The idea behind it is that you increase the price of your products to cover for shipping expenses. The free shipping strategy is excellent if:
- You have different wholesalers who use different shipping companies.
- Your suppliers are based far away from your target customers. I.e. if your suppliers are based in Asia.
In general I recommend people to consider free shipping when the actual shipping costs are disproportionally high compared to the product price. This mainly happens in two cases. The first is when you have different suppliers. If a customer places an order with different products from different suppliers then each supplier will individually ship their products and charge you for it. This is one of the main drawbacks of using multiple suppliers. Evidently, you can’t directly charge on these costs to your customers. You can’t say:
“Hey, I see you just ordered 5 different t-shirts for a total of 100 dollars. Well, umm.. each of those t-shirts comes from a different supplier. So I’ll be charging you 10 dollars in shipping costs for each t-shirt which comes down to a total of 50 dollars.”
The second case is when your suppliers are located far away from your target market. In this case you will often see that the shipping costs become more and more disproportional to the product price. Research shows that close to two-thirds of consumers say that shipping costs greatly impact their decisions. One-third of the consumers even abandons online shopping carts when they find that disproportionately high shipping costs are added to their order. I myself can relate to that feeling. When I’m shopping online and I see a 30 dollar product with 55 dollars in shipping costs it makes me cringe.
Deep inside I know that when I order this product from a domestic supplier I end up spending the same. That I’ll be paying 80 dollars for the product and 5 dollars in shipping. But it just feels different. And so it does for millions of other consumers.
When the costs of shipping becomes too high compared to the product price you might want to consider using free shipping. Calculate which percentage of your total revenue would be spent on shipping. Then increase your product prices with this percentage and label them with free shipping. It might be less transparent but the minds of consumers are quite irrational.
Communicating about shipping
Starting dropshippers often struggle with communication about shipping. Many dropshippers prefer to hide the fact that they are a dropshipper from their customers. They just want to make it look like the customer is in business with a store that runs its own stock. Then a customer places an order and they are left wondering what to tell them. They are asking their selves questions like:
- What do I tell them when my supplier is a bit unreliable when it comes to shipping?
- What do I tell them when my suppliers are located overseas and shipping might take weeks?
- What do I tell them when I have multiple suppliers and they will be receiving multiple separate shipments?
When it comes to communication about shipping times there are two golden rules I live by:
Rule 1. Be transparent
Be transparent about your situation and about shipping times. Most people don’t mind waiting a bit longer for their order. As long as this is communicated up front and they are given the choice to proceed with the order nonetheless. You won’t gain anything by trapping customers into ordering with false pretenses about shipping times. This will only lead to dissatisfaction, little returning customers and possibly to higher refund requests.
So the first tip is be transparent about your shipping times and situation up front. If shipping takes 3 to 5 days, be sure to let your customers know during the order process. If you have multiple suppliers, then be transparent about the fact that your customer can expect different delivery drivers. There is no sense in hiding this. Just tell your customers that you receive stock from different suppliers throughout different times and days. And that you might dispatch products separately as soon as they arrive to ensure the fastest possible shipping.
Rule 2. Underpromising and overdelivering is better than overpromising and underdelivering
Disappointment comes from not being able to meet a customer’s expectations. A customer’s expectations are on its turn shaped by what you promise them. If you promise them they can expect their order within two days and it turns out to be a week you can bet they are disappointed. If you tell them they can expect their order within a week and it turns out to be two days most customers tend to be optimistic.
What I mean is that it’s best to make no promises you can’t keep. If you know your suppliers shipping times are somewhere between 4 and 7 days. Just tell your customers they can expect their order to arrive anywhere between 4 and 10 days.
Designing the shop
We’re almost approaching the end of this extensive guide about how to make money dropshipping. So far we’ve covered niche selection, supplier selection, branding, platforms, products, payment methods and shipping.
The only thing that is left is a neat looking online store. A store that is clean, easy to navigate, straight forward to use and aesthetically appealing. Research into online shopping shows that the majority of consumers’ purchase behavior is influenced by the aesthetics of an online store. But how do you create an aesthetically appealing store? And how do you make it user friendly?
Evidently, there is no simple generic 3 step process to this. Aesthetics vary a lot between different consumer groups and change over time as well. However, there are a few solid tips I can give you in the process of designing your shop.
Tip 1. Build an epic about us page
Build an epic about us page. A page where you can engage with your customers and tell your story. What is the unique story about your online store? What more than just a “product” are you selling? What experience are you selling? What drives you as an entrepreneur?
Tip 2. Use high quality images
Using high quality professional images is what separates you from a lot of competition. Ask your suppliers if they can send you the highest quality product images they have. You can always scale down high quality images if necessary. Doing it the other way around is difficult and has its limits.
If your supplier doesn’t have high quality images there are two options. Order every product you want to sell and create your own high quality images. Or go for a different supplier who does have high quality product images.
Tip 3. Make sure your store is easy to navigate
Tip 4. Simplify your checkout process
Ensure that the checkout process is as easy as possible. Research shows that customers drop out often during the check-out process. The more complex the process, the easier customers tend to drop out. Your options here are more or less tied to the platform you use. If you use a well-known platform there must be plenty of options to simplify your checkout process. There are plug-ins that allow your customers to check-out without signing up for an account. There are also plug-ins that simplify your check out process to just one page.
Opening your shop
In the last part of this guide we will cover the last step of how to make money dropshipping. The actual money making part. Ergo, opening your shop. The last tip I want to give you here is to take some time to carefully review all the steps you have taken in the preparation process.
After you’ve reviewed the entire process all I have left to say is. Start. And go with the flow. You’ll never know which problems you will encounter. So you can prepare for every imaginable problem. Do prepare for issues to arise though. Unhappy customers, negative reviews, quarrels with your suppliers over shipping and returns are definitely not uncommon for a dropshipper. If this is something you don’t want to deal with then go find a dayjob.
A last piece of wisdom
I end all of my money making guides with a last piece of wisdom. A piece of wisdom that can be applied to almost any type or business. This wisdom is: “don’t do unto others what you don’t want done unto you”.
With every decision you make in the process of building your dropshipping business, ask yourself: Would I be positive about this feature if I were a customer and this was someone else’s shop?
Would you appreciate it if you were shopping online and you’re suddenly charged strange additional costs in the checkout process? Probably not. So don’t expect your customers to do so.
Would you appreciate it if you placed an order and the store estimates a 3 to 5 day shipping time only to see the UPS guy 26 days later? Probably not. So don’t expect your customers to do so.
Be transparent and build an online store you can be proud off. Not a customer trap.