So many dropshippers still share the belief that profit margins in the industry are irreversibly tight. Some of them spend months searching for ways to boost their margins and stretch their budgets to the max, while others buy wholesale from their suppliers in a bid to secure better profits.
Although buying wholesale can address dropshipping-related pricing limitations to an extent, not every eCommerce business owner can afford to buy products in bulk, hire a warehouse or a fulfillment firm, or pay hefty import duties and taxes.
Luckily, there are other effective ways to boost your dropshipping profit margins without spending a fortune. If you want to do it the right way, you first need to understand exactly why dropshippers face such tight margins to begin with.
The Reasons Behind Tight Dropshipping Margins
You may already know why dropshippers cannot always increase their profit margins to the levels they’d like to. The most common reasons for tight margins in this sector are:
- Your suppliers may raise the prices of the products they sell to cover the costs of fulfilling your orders, or to purchase items from manufacturers and for the staff who packs and ships your packages. The result is that you, the dropshipping business owner, will have to pay your suppliers more, and consequently you will have leaner profit margins.
- Using multiple suppliers to ship your products can be expensive. Many dropshippers have multiple suppliers for their products, and this can dramatically increase shipping costs. If your customers order multiple products from different suppliers in the same order, you’ll have to charge for shipping multiple packages, which means you’ll have significantly higher operating costs. Not only that, if you choose to have your customers pay for these expenses, they are likely to choose to buy from one of your competitors.
- Competing against your industry rivals with competitive product prices. If you choose to compete with other dropshipping outfits by lowering your prices, your choice can also lead to slimmer profit margins. Many similar stores carry identical products. Some will offer those products at cheaper prices to gain and retain customers’ attention, sacrificing immediate profits for expected long-term customer loyalty.
- Handling refunds and returns. Refunds and returns are facts of the dropshipping trade, and every business owner has to deal with these requests from time to time. With that said, if you’ve teamed up with reliable suppliers, you’ll probably face less return and refund requests than you would when working with an unscrupulous supplier.
Common factors that could prompt refund and return requests from your customers include shipping delays, delivery of the wrong item, delivery of damaged items, delivery to incorrect addresses, lost packages, and failed deliveries.
How to Boost Your Profit Margins
We’ve discussed the reasons dropshippers often reap lower profit margins than traditional eCommerce operations do. Now, let’s assess how you can increase your dropshipping profit margins to counteract these effects.
1. Focus on a niche
Popular items like game systems, smartphones, tablets, and fashion wear are always in hot demand. This means you’ll face significant competition when trying to serve these niches.
Instead of targeting massive, over-saturated niches, find a sub-niche with a customer base whose needs are largely going unmet. Focus on satisfying a small but evident customer base to gain the upper hand in your sector. The less competition you face, the better your profit margins will fare.
2. Sell at higher volumes
You can counteract low profit margins by increasing the volume of products you sell. This will require upfront investments in promotions and smart marketing campaigns to attract more customers.
You will need to advertise, use strategic marketing tactics, and keep your customer support at its highest level to consistently attract and retain new customers.
3. Choose your suppliers carefully
Some suppliers are better than others, as the saying goes. Especially if your business is enjoying a consistent influx of orders, you have to make sure to choose a supplier that will be able to support you as much as you need. You need a supplier who will be able to provide your products at B2B prices, one that will also be able to ship multiple products in the same parcel, so that you can save up money on shipping costs.
Suppliers weigh on your dropshipping business more than you can imagine, and often they can be one of the “X” factors that will take your business to the next level.
If you are looking for a reliable partner who will assist you from the sourcing of your products up to the automation of your fulfillment operations, Yakkyofy if you answer. We can offer a wide range of services, from real-time quotations of your dropshipping products up to private labelling and after sales assistance with a dedicated customer care team.
Yakkyofy’s software can fully integrate with Shopify and WooCommerce and can provide you the automation that you need, so that you can focus on your most important goal: increasing your margins and marketing your products.
We can ship in over 100 countries worldwide and thanks to our fastests delivery method, Special Line, we can ship to many countries in just a few days.
Moreover, if you decide to buy a stock of products with us we will keep them for free in our warehouse, ready to leave as soon as an order arrives from your store.
4. Increase your prices
If you feel your prices are a little low, increasing the prices of your products is an easy way to boost your margins. Correctly calculating your markup without over or undercharging is key, and can ensure you make as much profit as possible.
If you set your prices according to market demand, and the standards for dropshipping products, your customers may perceive your products as being more valuable, and many of them will be happy to pay more.
5. Upsell your products
You can offer customers products that come with premium counterparts or optional add-ons to net better profits. You can upsell to your customers before a purchase, while a purchase is being made, and even after the purchase has been made.
The trick to upselling successfully is to understand the needs of your customers and make shopping with your business a pleasurable experience for them. You can do this by comparing products to highlight the value of your premium offerings, reward customers who spend more at your store, display an attractive (but not overwhelming) range of similar products to your customers.
6. Cross-sell your products
In addition to upselling, it’s recommended that you subtly suggest related alternatives or complementary products that would meet each customer’s needs based on what they initially chose to buy.
This is known as cross-selling in the industry, and research suggests that you can boost your revenues by around 10-30% using this approach. It also doesn’t require you to find new customers to enhance your margins.
7. Try social marketing
Chances are, your business already has a digital presence. However, you can stretch your budget further and gain valuable exposure by marketing your products across multiple social media platforms.
Sites like Instagram and Facebook are free or inexpensive to use for marketing purposes, and provide excellent exposure of your wares to a global audience.
8. Reshape your product portfolio
There are probably some products in your product portfolio that could be updated or replaced with items that offer better quality and value.
Remove any products difficult and costly to ship, frequently returned, refunded, or plagued by negative reviews. Replace them with strategically selected alternatives that will boost your profits and keep your customers coming back.
Nearly every dropshipper and eCommerce store owner has to deal with tight profit margins at some point. Use the 8 intelligent tips mentioned above to keep your profits high and maximize the potential of your limited budget.
Also, if you want to have a reliable supplier who will assist you in every step of the sourcing and fulfillment process, make sure you
We will streamline all your daily dropshipping tasks, saving you time and money aplenty!
BIOGRAPHY OF THE AUTHOR:
Nina Sharpe is a content champion for various outlets, covering a wide range of business topics from finance for startups, small business accounting tips, and online entrepreneurship.