Digital dropshipping is an e-commerce model where entrepreneurs sell digital products like software, courses, or media without owning or stocking them. It uses third-party suppliers like Tradebit and JVZoo to fulfill orders so businesses can operate anywhere with an internet connection. This business model removes the need for physical inventory and simplifies running an online store through automated supplier integration.
In digital dropshipping, an online retailer sells a digital product on their site and then transfers the orders to an external supplier for fulfillment. Customers receive their orders through email or as digital downloads. Sellers can repeatedly sell digital products with instant delivery and unlimited stock. There are minimal overhead costs since there are no production and shipping fees.
Digital dropshipping can be a lucrative business model since digital purchases saw a 79% increase in 2022, according to Gitnux. There is a rising trend in consumer preference for digital goods and content. There is also greater profitability since you can set profit margins as high as 85% for digital products.
Peter Pru of Ecommerce Empire Builders claims to have made close to $25 million in sales from digital dropshipping. He shares that he sells a mix of low-ticket, mid-ticket, and high-ticket products to earn higher profits. His strategy involves funneling customers from low-ticket items to higher-value purchases. Peter emphasizes the importance of a strong initial offer (even if not immediately profitable) to acquire customers and build trust.
However, digital dropshipping has challenges including high competition, technical requirements, and dependency on paid traffic and marketing. Armen Sahakyan, a digital dropshipper from New York, US and founder of Alphas of Ecom, says that a common misconception around digital dropshipping is that it's easy. Despite earning around $10,000 per month, Armen shares that the process requires a lot of effort in sourcing PLR products, email marketing, order fulfillment.
This digital dropshipping ultimate guide shows you the 9 steps to start your own digital dropshipping business. You'll get case studies of online entrepreneurs who became successful with this business model. I also answer some commonly asked questions about digital dropshipping so you know what to expect before starting.
Digital Dropshipping Ultimate Guide in 2024
1. Understand the Basics of Digital Dropshipping.
You need to understand how digital dropshipping works before building a digital product catalog and selling to customers. Instead of selling physical products, you sell digital files and media sourced from a third-party supplier. When customers place an order, they pay the retail price in your online store. Orders are forwarded to the supplier for delivery, along with the wholesale cost of the digital product.
Perks of Digital Dropshipping
Drawbacks of Digital Dropshipping
2. Identify Profitable Digital Dropshipping Products.
Choosing profitable digital dropshipping products means finding a high-demand niche where Private Label Rights (PLR) apply. PLR products are digital goods that you can buy with the right to modify, rebrand, or sell as your own without attribution to the original creator. You can buy a PLR product once and customize it to fit your target audience’s preferences. Some examples of digital dropshipping products are:
3. Pick Your Digital Dropshipping Platform.
Picking the right digital dropshipping platform affects your sales and conversion rates. The platform should offer scalability and support for digital products. Wix, WooCommerce, BigCommerce, and ClickBank are useful digital dropshipping platforms for multi-channel retailing. Other popular digital dropshipping platforms include:
4. Set Up Your Online Store.
Setting up your online store is creating a digital platform where you can display and sell your digital products. This impacts your brand's visibility and customer experience.
The steps to set up your digital dropshipping online store on Shopify are:
5. Choose Reliable Digital Dropshipping Product Suppliers.
Choosing reliable digital dropshipping product suppliers involves a supplier vetting process to find partners who can deliver high-quality digital goods consistently. You can search in dropship supplier directories to learn about a creator’s customer service and product standards. Digital product suppliers include:
You can go into a direct partnership by reaching out to the creator to negotiate dropshipping agreements. The affiliate-to-dropshipper method also works where you start as an affiliate and propose an arrangement based on your sales performance. Some digital product creators might not offer formal dropshipping programs but may be open to custom sales arrangements.
6. Create Your Digital Dropshipping Marketing Strategies.
Effective digital marketing strategies help your digital dropshipping products stand out in a competitive online marketplace. These strategies help increase visibility, attract targeted traffic, and convert visitors into customers.
Use ecommerce SEO to enhance your online store's search rankings. This involves adding relevant keywords to your product listings and descriptions. Content marketing through blogs or videos increases customer engagement. Social media marketing on Pinterest, Facebook, and Instagram helps to reach a wider audience. You can use tools like Google Analytics for tracking, Canva for design, and Mailchimp for email campaigns. Social proof and positive customer reviews add to trust signals in ecommerce. 93% of consumers agree that online reviews affect shopping choices.
7. Take Note of Digital Dropshipping Legal Considerations.
Noting digital dropshipping legal considerations and compliance ensures your business operates within the law. This involves understanding and complying with laws related to copyright and intellectual property. You should also comply with consumer protection and digital product regulations. Failing to comply can cause legal action, fines, and a damaged reputation.
An example is the Digital Millennium Copyright Act (DMCA) in the U.S. for copyright compliance so your digital products do not infringe on others' intellectual property. There are also privacy laws like the General Data Protection Regulation (GDPR) in the EU for customer data.
Master resell rights is another licensing agreement that lets the buyer resell the product and sell its resell rights to others. For example, if you buy an e-book with master resell rights, you can sell that e-book to your customers who can then sell it to other people.
Each MRR comes with its own set of terms and conditions, which specify how the product can be altered, distributed, or used. It’s important to understand these terms to avoid legal complications. After purchasing the rights, you will be held accountable for how the product is used.
8. Price Your Digital Dropshipping Products Effectively.
Pricing your digital dropshipping products effectively helps you maximize profits while ensuring competitiveness. Find a balance that reflects the value of your products, covers costs, and meets market expectations. When pricing your products, consider competitor pricing, perceived value, and customer demand. Incorporate product bundling strategies to offer combined products at a discount.
For example, premium online courses can command higher prices if they offer unique insights or expertise. Consider psychological pricing strategies, such as pricing products just below a round number to make them seem more affordable.
9. Scale Your Digital Dropshipping Business.
To scale your digital dropshipping business means to expand its operations, reach, and profitability. You can start scaling your digital dropshipping business by expanding your product offerings. Increase your efficiency by leveraging market automation. You can also explore and enter new markets to expand your reach. Building partnerships and investing in SEO and social media advertising also drive growth for your digital dropshipping store.
Digital Dropshipping VS Traditional Dropshipping
| Digital Dropshipping | Traditional Dropshipping |
|---|---|---|
Initial investment | Lower, due to no physical inventory. | Higher, includes inventory and warehousing. |
Profitability | Higher, minimal operational costs. According to Austin Rabin, the profit margin is 90% to 95%. | Margins are affected by shipping and handling costs. According to BlueCart, the profit margin is 15% to 20%. |
Competition | High, especially in saturated niches. | Also competitive, but varies by product and market. |
Shipping process | None, products delivered instantly online. | Involves logistics, shipping times, and potential delays. |
Return and refund policies | Often stricter since the products are digital. | High possibility of customer returns if the product has poor quality. |
Digital Dropshipping vs Drop-servicing
The difference between digital dropshipping and drop-servicing is that digital dropshipping deals with selling digital products sourced from a third-party supplier. Drop-servicing involves outsourcing services such as graphic design, content creation, or digital marketing to freelancers or agencies after securing clients. You act as an intermediary or middleman who manages client relations and project completion.
Digital Dropshipping Case Studies and Success Stories
Tanner Planes from Greensboro, North Carolina, ran a 30-day experiment with dropshipping digital products within weight loss niche. Among the digital goods he offered were ebooks, video courses, and masterclasses tailored to health and fitness. He generated over $14,000 in revenue with a 42% net profit margin and a 2x return on ad spend.
Jasx Aigner from Houston, Texas dropshipped digital products like planners, educational content, and various other non-tangible items under the PLR (Private Label Rights) model. She selected products from high-demand niches and sourced them from platforms like Creative Market. Jasx used digital marketing channels like Pinterest and TikTok to sell her products. She shares making $1,000 per day in sales through digital dropshipping since she didn’t need to pay for manufacturing and shipping.
George Stoitzev from Chicago, Illinois dropshipped digital products like Notion templates. He used online platforms like TikTok, Twitter, and Etsy to sell the products. His strategy involved product validation before development. George also capitalized on the instant fulfillment that comes with selling digital goods.
Digital Dropshipping FAQs
Yes, you can start digital dropshipping with no money. You can do this by using free trials on platforms like Shopify to set up your dropshipping store. Source free or low-cost PLR products as your initial inventory. This approach lets you build your brand and market products without spending on a website or paid ads.
You can make $1,000 per day or $20,000 per month with digital dropshipping. Success depends on your ability to find high-demand products. You also need to implement strategic marketing and continuously optimize your sales funnel.
Yes, digital dropshipping is a good business with a profit margin that could reach 90% to 95%. It’s a good business model for those looking for an entry into e-commerce without the high initial investment. Digital dropshipping can be effective because of its low overhead costs, unlimited inventory, and instant order fulfillment.
Yes, digital dropshipping is legit because there are 6.4 million e-commerce retailers that fulfill orders through dropshipping. It’s a viable business model for anyone looking to sell digital products without holding inventory. However, digital dropshipping is risky since you need to abide by strict copyright laws to ensure your products are legally obtained and sold.
Yes, digital dropshipping is hard because it requires consistent effort to see sales. Starting your digital dropshipping store involves understanding the market, sourcing digital products, setting up an online store, and implementing effective marketing strategies. It’s challenging to attract and retain customers without investing in paid ads and promotions.
How Does Owning Digital Assets Compare to Digital Dropshipping?
Owning digital assets is better than starting digital dropshipping because it offers a more sustainable income with lower initial investment, less hands-on maintenance, reduced competition, and higher ROI. The initial investment in digital dropshipping might seem low with Shopify plans starting from $29/month. But hidden costs for apps, themes, and marketing can quickly add up. Starting a local lead generation business requires just the cost of a domain and hosting, plus the sweat equity you put into ranking your sites.
The competition in digital dropshipping is intense, with thousands of sellers vying for customers' attention in the same niches. Local lead generation targets underserved local markets, where competition is much lower. This makes it easier to establish a presence and generate leads for businesses looking for more customers. Local lead generation businesses enjoy margins as high as 80%-90% because of the free traffic generated from SEO and the high value of leads in local markets. It works by optimizing websites to rank well in search engine results for local services to attract customers actively searching. The leads generated are then sold to local businesses. This creates a win-win situation where businesses get new customers and the lead gen operators earn for each lead provided.
The work you put into building and ranking sites in local lead generation pays off in the long term by creating assets that generate passive income with minimal ongoing effort. For example, a well-optimized lead gen site can continue to bring in thousands of dollars monthly, with little to no additional work after the initial setup. This is in contrast to digital dropshipping, where constant product research, customer service, and marketing campaign adjustments are necessary to stay competitive. If you’re looking for a sustainable way to make passive income online, consider local lead generation.
