What Is Digital Dropshipping? Ultimate Guide

March 30, 2024

Digital dropshipping is an e-commerce model where entrepreneurs sell digital products like software, courses, or media without owning or stocking them. It leverages third-party suppliers 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.

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. However, digital dropshipping has challenges including high competition, technical requirements, and dependency on paid traffic and marketing. 

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.

What Is Digital Dropshipping?

Digital dropshipping is when 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. This approach reduces overhead costs since there are no production and shipping fees. Sellers can repeatedly sell digital products with instant delivery and unlimited stock.

Digital Dropshipping Ultimate Guide

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

  • Higher profit margins: Digital products have an 85%-100% net profit margin, which is higher than the average 10%-30% profit margin of physical dropshipping products.
  • No inventory or warehouse fees: You don’t need to manage stock levels with digital goods. The supplier provides infinite copies of their products. 
  • Low starting cost: Starting a digital product store is cheap. You can build a new one on Shopify store for just $39. 

Drawbacks Of Digital Dropshipping

  • High competition: The market for digital goods and services is saturated, so it’s hard to stand out. There are over 26.5 million e-commerce stores globally.
  • Difficulty finding reliable suppliers: 84% of dropshippers say finding a good supplier is their biggest challenge. You need at least 2-3 pre-vetted suppliers you can source products from.  
  • Legal and copyright risks: Digital products can be shared and copied easily. You risk facing piracy or unauthorized distribution. 
  • No control over product quality: You can’t monitor product standards, since the supplier or creator handles order fulfillment. Customers are likely to send negative reviews that can affect your store’s reputation.

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:

  • Online courses
  • E-books and PDFs
  • Software and apps
  • Digital art and design resources
  • Audio and video content
  • Membership and subscription services

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:

  • Shopify store owners can sell and distribute digital goods using apps like Digital Downloads or SendOwl.
  • Sellfy is a platform tailored for creators and entrepreneurs wanting to sell digital products, subscriptions, and physical goods. It offers built-in marketing tools and the capability to embed products and a storefront on your website.
  • Gumroad is a platform designed for creators to sell their work directly to their audience. It's suitable for a variety of digital products like films, music, books, software, and any other type of creative work.
  • Payhip is an e-commerce platform that makes it easy to sell digital products and memberships. It offers features like digital delivery, EU VAT handling, and marketing tools such as affiliate programs and coupon codes.

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:

  • Open a Shopify seller account. Sign up for a Shopify account and choose from their Basic, Shopify, and Advanced plans. Shopify offers a one-month free trial for new sellers.
  • Add your digital product listing. Click on the "Products" section in your Shopify dashboard and choose "Add product." Upload product images, write descriptions, set prices, and categorize your items. Clarify that customers will receive a digital file rather than a physical product. 
  • Automate product delivery. Get the "Digital Downloads" app from the Shopify App Store to automate the delivery. Link the app to your digital products and set up email delivery to customers. 
  • Set up Shopify Fulfillment and Currency Conversion. Digital products don't require direct fulfillment, but activating currency conversion attracts international customers. Enable this feature in your store settings so customers can view prices and make purchases in their local currency.
  • Edit shop appearance and domain. Customize your store's appearance by customizing a theme from the "Online Store" > "Themes" section. Purchase a unique domain through Shopify or link an existing domain to your store for better brand recognition.

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:

  • Audible
  • PLR Websites (PLR.me, IDPLR, Resell Rights Weekly)
  • Tradebit
  • Teachable
  • Udemy
  • JVZoo

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.

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.

Frequently Asked Questions About Digital Dropshipping

Can You Start Digital Dropshipping With No Money?

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.

How Much Can You Make In Digital Dropshipping?

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.

Is Digital Dropshipping A Good Business?

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.

Is Digital Dropshipping Legit?

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.

Is Digital Dropshipping Hard?

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.

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.

Follow Me
Ippei Kanehara
Founder/CEO

$52K per month providing lead generation services to small businesses

Ippei.com is for digital hustlers, industry leaders and online business owners.

His #1 online business recommendation in 2024, is to build your own lead generation business.

Leave a Reply

Your email address will not be published.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}