How to Make Money Dropshipping: Doing The Math for eCommerce Profits
Wait, didn’t you order this from a small business in Kentucky? So why are you waiting for a package from Shenzhen?
Welcome to the world of dropshipping.
Thanks to social media, making money on the side with a dropshipping business is easier than ever. Some people are able to make it their full-time income.
A dropshipping business is simply connecting suppliers to new customers for a share of the profit. You build your own website, find products you think you could advertise well, and let the manufacturers ship those products directly to the new clients you bring. You can sell products you’re passionate about without making them yourself or maintaining a warehouse.
eCommerce is more accessible than ever. If you’re thinking of giving reselling or dropshipping a try, don’t be fooled by social media stars bragging about their easy, passive income. There are costs to starting a dropshipping business, not a lot but there are.
Read on for all the actual nitty-gritty math required to set up an online store, and how to make money dropshipping.
Setting Up Your Online Store
Technically speaking, you could set up a small dropshipping store for free. But it wouldn’t really get you anywhere.
A free store would probably only allow a set number of orders per month through a trial period, you will choose only from few possible design and you will have only a small part of all the service given.
So your website would only last as long as the free trials offered on the software you need and your life will be much more complicated because you will not have access of most of the app or the plug in that you business need.
In other words, there is no way to run a legitimate dropshipping business that lasts more than a month without investing your own capital.
Here’s a quick break down of what you’ll be spending before your first customer even places an order:
Buying a URL and Hosting Site
We can all agree that free domain names with “.HostingName” in the URL look sketchy.
It’s important to buy rights to your own unique domain name to build trust with your customers. Thankfully, you can buy a custom URL with a one-time purchase of less than $20 from Shopify or BlueHost.
The hosting site you choose doesn’t really matter. Different sites offer different premade layouts for you or let you be more involved with coding and formatting. Your budget and website building skills will help you make that decision. Shopify is one of the most popular website building options, so that may be a great place to start looking.
Rather than cold email someone running a warehouse in China, you can use a website that easily connects entrepreneurs to manufacturers.
Yakkyofy, for example, lets you browse products by category and start advertising those products on your pre-existing website right away.
To use sites like this require to have a paid account on CMS like Shopify.
The good news is, you’ll be saving enormous amounts of money and time not having to make any of your own trips to the post office. But take into account how much profit you can expect to make off of each item when you’re calculating your break even.
Speaking of products…
Getting Products Ready
Do us all a favor and don’t be the guy who ships useless junk for profit.
It’s essential you purchase and test the products you decide to sell on your Shopify or Amazon dropshipping store before you sell them to anyone. Don’t blindly trust the pictures a manufacturer sends you. Physically touch and try the products yourself.
Besides, by doing this you’re learning how to sell that product better and predict complaints before they happen.
Paying for Marketing
Marketing is the most important expense for your dropshipping website. You won’t make any money if you don’t first spend money on marketing.
Unfortunately, there’s no easy formula to figure out how much you’re going to need to spend here. Where and how you choose to market your dropshipping business depends entirely on what you’re selling and to whom.
But there’s no doubt you’ll need to put your store in front of hundreds of people to get even a handful to make purchases. So figure out the easiest and most cost-effective way you can continually market your business without going broke.
Keep in mind, a great product and positive word of mouth will give you even more for your money.
The Best Marketing is Good Customer Service
We can all remember a time a terrible experience ruined a brand or restaurant for us forever.
Don’t let that happen with your dropshipping business!
As important as all the other expenses are, there’s no point in running a store if you don’t attend to your customer’s needs. For excellent customer service, make it easy for your customers to:
- ask questions before they buy
- ask about shipping and approximate shipping times
- give you feedback about the product
- return products and understand why they do or don’t get a refund.
Make sure your business is financially prepared to lose money on lost or damaged packages that need to be reshipped, and returns for unhappy customers.
When in doubt, provide the same level of customer service you would want, if it was you buying something online.
Legal taxes registration
Last but not least you can’t avoid taxes, you have to register your business with the IRS and complete your tax returns in good time. And you have also to calculate the impact that those will have on your business, if you sell only for pay taxes for sure your math is not right.
How to Make Money Dropshipping: Do The Math
Don’t be fooled by corny, get-rich-quick gurus. There are upfront costs involved in running a legitimate dropshipping store, and it may take a few months for you to turn a profit.
To make sure you can provide good customer service and quality products, there are going to be some unavoidable expenses. To recap, those include:
- The cost of your own website domain name
- Monthly payments for a store hosting site, like Shopify
- Buying samples to test the quality of the products you’re selling
- Marketing costs
- Transaction fees
- Money lost on customer returns or lost packages
If you found this article about how to make money dropshipping helpful, check out what else we have to say about dropshipping here on our blog.
to start selling in dropshipping.