Is Dropshipping Profitable?
You may have heard that dropshipping is the next big thing in eCommerce. But making money selling products without storing, packing, or shipping them sounds fanciful—prompting one to ask: Can you actually make money with a dropshipping store? The answer is an emphatic yes! But to make dropshipping profitable, you must find the right products, market your brand, and charge fair prices. The following tips will help you get there.
What is Dropshipping?
Dropshipping is a way of selling products via an eCommerce website without having to order, store, or ship those products to customers. Their dropshipping process involves the customer, the eCommerce owner, and the supplier. Here are the steps:
- The customer orders a product from the dropshipping website.
- The dropshipping owner emails the supplier with the order information.
- The supplier fulfills the order and ships the product to the customer.
Learn more about dropshipping with the Beginner’s Guide to Dropshipping with WooCommerce.
Find the Right eCommerce Platform
To be successful in dropshipping, start by getting an eCommerce platform that fits your budget and needs. Consider how easy it is to get started, how much the platform costs, what payment methods it accepts, and how it will scale. WooCommerce and Shopify are two popular options.
WooCommerce is an eCommerce plugin for WordPress sites. If you currently use a WordPress site, installing the WooCommerce plugin is free and easy. Even if you’re new to building websites, starting a WordPress site is a no-brainer.
But to get your WooCommerce dropshipping store up and running, you’ll need to buy a domain name, SSL certificate, and a WordPress hosting account. Buying them individually can be more expensive than going with a Managed WooCommerce Hosting service, which bundles these necessities at a lower cost. Think of Managed WooCommerce Hosting as wholesale pricing for eCommerce hosting.
To make your dropshipping store profitable, you need to accept a wide variety of payment methods. You can’t profit from customers who can’t pay. WooCommerce supports every major payment gateway today, from Stripe to PayPal.
Your dropshipping store also needs to change and grow as your sales increase. Higher traffic loads can shut your site down. Your website architecture has to be scalable and flexible enough to change with the demand.
WooCommerce is an open source plugin, which means you can change how it looks and functions any way you like. Some WordPress hosting services automatically adjust your site’s traffic and storage capacity as you need it. So, there’s no need to upgrade to new plans and changes as you grow.
Dropshipping Pros and Cons
Dropshipping offers unique benefits to anyone wanting to add eCommerce functionality to their current website or dive into online selling for the first time. Here are a few of the upsides:
- Low startup and operating costs
- Future growth in dropshipping demand is expected
- No inventory storage needed
- You can increase traffic to your site
But the convenience and efficiency of dropshipping isn’t without its downsides. Outsourcing your storage and shipping means giving up control over a critical part of your customer service. Late delivery, lost shipments, and damaged products will hit your customer satisfaction hard, your online reviews will suffer, and your repeat business will plummet.
Another problem dropshippers face is higher product costs. Because dropshippers aren’t retailers, they often can’t take advantage of lower wholesale prices. Customers may discover that it’s just as cheap to order somewhere else. That’s where your marketing magic and customer service must make up the difference.
Other eCommerce Platforms
Many dropshippers also operate directly on eCommerce platforms like Amazon. The company’s fulfillment program simplifies the storage and shipping for you. The startup is easy, and your products are eligible for Prime free two-day shipping. Dropshippers can buy products, store them with Amazon, and have the company ship your orders.
However, as with any storage, you rack up costs for storing excess inventory that’s not selling. Another downside is that Amazon’s inventory storage is pooled—your products are stored along with other resellers. There is a risk that a similar, but lower quality item could be shipped to your customers.
Some dropshippers skip building a dropshipping website altogether and host their stores on the Amazon Seller program. While you get access to millions of customers, you’re beholden to the eCommerce giant, making it difficult to grow your own niche brand or build a loyal following of customers.
Shopify is another eCommerce platform that makes it easy to start an online store. Plans start at Basic Shopify ($29 per mo) and include the domain name, SSL certificate and web hosting. Shopify stores are easy to spin up, but their basic plans don’t include all the third-party plugins you’ll need to grow your dropshipping site.
Shopify has its own gateway called Shopify Payments and costs 2.9% + 30 cents per transaction. If you want to use other payment gateways, you’ll be charged a flat fee of 2.0% per transaction. For example, if you sold a T-shirt for $20, you’d pay $0.88 to Shopify just to make the transaction through their payment system.
If you need more storage and functionality, you can upgrade from Basic Shopify to Shopify ($79/mo) or Advanced Shopify ($299/mo). Make sure an eCommerce platform like Shopify fits your budget. As your store grows, costs can rise quickly. Because dropshipping margins can be slim, adding just a few cents more to your price significantly eats away at your profit.
Choose a Niche Market
As the old retail saying goes, “The riches are in the niches.” The sales adage uniquely applies to competitive spaces like dropshipping. Every product you can imagine is being sold through dropshipping stores. To be profitable, you need to find a niche market and quality products customers can’t find just any old place.
Start by deciding if you want a long-lasting, more perennial market (e.g. pets, babies, relationships) or a more emerging market (e.g. 3D printing, virtual reality, subscription boxes). Use Google Trends to do some easy market research and test the interest in your niche. You can also use Google Trends to find the search interest in specific product categories (e.g. 3D printers). If interest is rising, the product is a good candidate for your store.
Locate Reputable Suppliers
Once you’ve settled on a market, start searching for products you want to add to your dropshipping store. Even though you’re a seller, keep a consumer’s attitude. You’re shopping for your customers. Not every product is the same quality, and there are plenty of disreputable suppliers trading in counterfeit goods and fake designer products. If you sell brand knockoffs—even if you don’t know they’re fake—companies can force you to pull the products or even close your store.
You can research a company’s reputation yourself by examining its website, customer reviews, certificates, or Better Business Bureau rating. Large online stores marketplaces like AliExpress or Alibaba aggregate and rate thousands of sellers. Both are a good source for those new to dropshipping.
You’ll need a dropshipping agreement with a supplier to sell their products. You can reach out yourself through email or call. Draft an agreement yourself using a dropshipping template. Most companies will have their own vendor agreement, and “dropshipping” is often a checkbox or paragraph within it.
Marketplaces like Alibaba and AliExpress let dropshipping stores add products without needing to contact individual companies or enter into agreements. Dropshippers use services like Woodropship.com or plugins like WooCommerce Dropshipping to quickly add thousands of products from different companies to their stores. The process is fast and simple but also extremely popular, and you’ll face enormous competition with other stores selling the same products. Online marketplaces trade convenience for profit.
Contacting individual suppliers and wholesalers works well for a niche market. Many smaller to medium companies haven’t been approached by dropshipping store owners before and may not be familiar with the process. If you have the time to invest in outreach, creating dropshipping agreements yourself could get you access to untapped markets and products.
Set the Right Price
The price of your products determines the profitability of your dropshipping store, but you need to gather data to plan the right product prices.
Determine Your Profit Margin
Your profit equals what you pay for an item minus the price at which you sell it. First, consider the common margins for the products in your market. For example, electronics are high-volume items with low margins—many are sold with little profit from each. Home furniture is a low- volume product with high margins—fewer sales but higher profits.
For those who want a quick and easy price markup formula, you can use keystone pricing—that’s when you simply double the wholesale price you pay. It’s a common practice but may be too low or too high at times. Doubling the price of a $700 recliner might make the price too high for customers. Doubling the price of a $7 T-shirt, less so.
Other dropshipping owners use the manufacturer suggested retail price (MSRP) or set a fixed dollar amount to add to each item.
These pricing strategies are easy to apply but may not get you the most profit in the long run. There are many other dropshipping markup strategies. Find the one that meets your profit goals.
And Don’t Forget Shipping Costs and Sales Tax
Your suppliers will charge you shipping costs—likely set by your dropshipping agreement. The cost might be a flat rate or vary depending on size, weight, or the shipping destination. If your supplier charges a flat rate, make sure your own shipping costs reflect that or you’ll be cutting into your profits to pay for it.
If shipping costs vary, you’ll either want to contact the supplier to get an estimate before confirming the sale, or figure out a way to estimate the shipping and charge the buyer something close to the actual cost. For example, if your dropshipper is in Los Angeles, and your buyer is in Boston, you’ll want to estimate the shipping cost based upon both addresses, the product weight, and the product dimensions.
Getting accurate variable shipping rates is especially important for large products or international addresses, where shipping can cost hundreds of dollars for some products.
You may also need to collect sales tax depending on where you live. Online sales tax is a complex subject and recent U.S. Supreme Court rulings have made important changes to vendor requirements. WooCommerce plugins like WooCommerce Tax or services like Avalara let you automate sales tax collection and stay compliant with existing laws in your state.
Your profit margin, shipping, and sales tax together form your markup—what you’re going to charge above and beyond the price you paid. If you get these calculations wrong or omit them, you won’t be profitable at dropshipping.
Market Your Brand and Products
Profitability in dropshipping demands you market your products and brand. Paid advertising may not be an option if you’re just starting out. But email and social media marketing are affordable and effective marketing avenues to find the right customers.
Customer email lists give you the power to build customer loyalty and drive sales. Set up post-purchase email automation so that customers receive “Thank you for your purchase” emails, discounts, and recommendations after buying products.
Email campaigns help you make a profit because they are affordable and automated. With eCommerce platforms like WooCommerce and services like MailChimp, you can easily set up post-purchase emails that make your customers feel like part of a special group, not just a dollar sign. Other email services like Jilt help you increase profits by automating emails to customers who leave products in their shopping carts.
Jilt is an industry-leading cart abandonment solution for recapturing lost sales.
Social media advertising platforms like Facebook Ads get your products in front of consumers who want them. With Facebook remarketing ads, you reach customers at their news feeds—whether they’re browsing your products on Facebook.com or in the app.
The real power of Facebook Ads is that you can define a specific audience to target, based on location, age, or interests. The ad strategy works well with a niche market since locating specific customers is challenging. You can spend as much or as little as you want on Facebook Ads. Start small and grow your customer base over time.
Optimize Your Store
Ever have to wait on a web page to load? It’s frustrating, especially to shoppers. If your dropshipping store’s product pages aren’t loading between 1.8 and 2.7 seconds or faster, your shoppers will bolt before even seeing your products.
If you want to add eCommerce functionality to your blog, think seriously about your hosting. Many WordPress hosts are designed to serve readers who stay on a single page for a few minutes at a time—not the high-traffic volume of eCommerce shoppers, clicking on dozens of products at a time.
Make sure your current host can handle the pressure. If it can’t, get a WordPress host that will optimize your new store, automate updates, expand as you grow, and keep your site running as fast as possible.
Speed up your eCommerce website with optimizations like image compression.
Dropshipping is highly competitive, but profitability is possible if you can mix the science with the art of eCommerce. Website dependability and speed are mandatory. Marketing is vital. But perfecting both still won’t guarantee you a profit. You can’t just spin up a website, buy some Facebook ads, and then wait for the money to roll in. All of these components have to work together—that’s the art of eCommerce. Use research to identify niche markets, but use your intuition and human knowledge to locate the right products and create the right marketing messages.
Ready to Get Started Dropshipping?
Have your dropshipping store up and running in fewer than two weeks with Liquid Web’s Managed WooCommerce Hosting Dropshipping Starter Plan. It comes standard with Jilt so you can start recovering carts immediately, along with the ability to make beautiful custom landing pages, Astra Pro, and support for AliExpress and 20+ suppliers.
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