You've seen the YouTube videos. People making $50K in their first month with dropshipping. But you've also read the horror stories. The tales about stores that failed-and failed hard. While it's not uncommon for successful dropshippers to make $100,000+ in their first year, some drop shippers earn less than $1000. How much you make comes down to how much you sell. The average drop shipper is making 10%-40% profit from final sales. (What's left over after you calculate your business expenses).
But with only 10% of dropshippers are profitable in their first year, your financial success depends on your knowledge of the business model. How well you've researched your product and target market. Add competition, niche selection, and suppliers to the mix. Coupled with your marketing strategy and it's clear that multiple factors impact earnings.
Types Of Dropshipping:
There are two main types of dropshipping businesses:
A digital store that sells a ton of low-cost products. It takes some savvy marketing abilities. Using paid ads to get impulsive purchases to reap financial rewards with this style. Less about customer retention, you're selling cheap inventory at a mark-up.
Stock is usually imported from China. So there are often long delays. And you may face breakdowns in the supply chain.
Connect with established brands and use their inventory. The focus is on evergreen products. Items that people are actively looking for. You don't spend as much on ads because you're building a trusted brand. Partner with suppliers who are in your country of origin for faster shipping times.
Products are more expensive ($200+). But you need to sell less. This model is slower to grow than low-ticket dropshipping. And requires superior customer service and optimal product selection.
The dropshipping industry is headed for a staggering market value of $557.9 billion by 2025. And has the potential to be highly profitable. But dropshipping requires time and effort to be successful. And whatever type of business you choose. They both have the same factors impacting profit margins.
"Profit happens to be the difference between expenses and revenue". The Brand Boy
How To Calculate Your Profit Margins:
Most of the screenshots you see on YouTube and Reddit are based on revenue. And why not? Those numbers are way more impressive.
But revenue doesn't mean profit. Your income is what's left after you factor in costs. A number of things contribute to profit margins:
Niche & Product Costs
You can sell any product you like. But this is where market research is key. Will you go for evergreen and high-end products that cost more and sell less but offer longevity?
Or will you go for trendy low-cost stock that generates a ton of sales but doesn't have the longest shelf life?
Concentrate on products that offer value and can help people solve problems. Or save them time with daily tasks.
Sourcing & Shipping
You don’t hold inventory, but you are responsible for your wholesalers' shipping costs.
Costs to source and ship goods will depend on the location of your wholesaler (the further to ship-the more expensive the price tag). Smaller items are less expensive to ship than oversized products. And you can buy more inventory at once.
You also need to factor in shipping by sea or air. Sea is the more cost-effective option. But you are often faced with lengthy shipping times. And the worst thing for any dropshipper is to run out of inventory.
Customer satisfaction and providing the best shopping experience possible. Crucial elements to the success of your dropshipping store. And an inconvenient return policy deters 80% of shoppers.
See refunds as an opportunity to create customer loyalty. Check if it's cheaper to let the customer keep the product and send them a replacement at no extra cost. Or they can send the product back to your supplier, and you cover shipping costs.
But the bottom line is that you want to avoid paying out full refunds whenever possible. And still keep your customer happy. Just remember that every refund is a loss of profits for that product.
Marketing & Advertising
Research your product and find a winner. Test products on social media platforms with a small daily budget for 3-5 days. Set specific, measurable, attainable goals. And have a specific target for a predetermined period. Use a variety of channels and have a strategy.
Experts suggest spending 12%-20% of your revenue (at least at the beginning). Be mindful of your budget. And remember, no matter how much you spend, you need to track the progress of your campaigns.
Payment Gateways & Processing Fees
Sites like Shopify have their own payment gateway. And they typically charge a transaction fee. Add in additional payment processing services like PayPal. And you'll be on the hook for a surcharge with each transaction.
Of course, different rates and fees depend on the services you use. But consider this. The more payment options you offer your customers, the better your chances of making a sale.
Online Store Maintenance & Apps
Your website (Shopify starts at $29 per month), software, apps, and taxes are all considered necessary expenses. And you need to factor in these costs before calculating your profit margins. Know your numbers to ensure your expenses don't surpass your budget or dig into your bottom line.
Why People Fail With Dropshipping:
There’s no definitive answer on the average income for a dropshipper. But there are a few explanations why so many people fail at this business model.
Understanding these obstacles will put you in a better position. Not only to be successful. But generate a profitable income stream with dropshipping.
Let's consider the reasons why people fail at dropshipping:
We wrote a detailed 10 common dropshipping mistakes article. Dropshipping isn't a get-rich-quick scheme. Research and product testing are paramount to your long-term success. And you need to treat this like a real business if you want to make money with dropshipping.
Build your brand. Focus on customer engagement. Add value and be better than the competition.
How To Improve Your Dropshipping Earnings:
Very few dropshippers become an overnight success. Often people will try and fail at a couple of stores. Then they find their winning product and develop a concrete marketing strategy.
But there are a few ways to improve your success rate. And increase your average income with dropshipping.
Focus On Your Customer:
Offer products that add value or solve a problem. Provide stellar customer service (64% of customers think customer experience is more important than price).
Build A Brand:
Engage with your target audience to establish customer loyalty. And secure recurring clients as a way to generate more sales. Invest in professional designers (Try Fiverr) to create logos that stand out. It's one of the crucial ways to make sure your dropshipping stores stay profitable, creating that impression on cold traffic that your company & product is high quality.
Leverage The Internet:
Use Google and social media platforms. And connect with your target market through a solid online presence. (74% of consumers rely on their social networks for purchasing decisions). Create a marketing strategy and focus on SEO techniques to rank your store.
Secure The Right Supplier(s):
Find wholesalers that are reliable and offer decent price points. Bonus for those willing to include shipping options.
Specialization is a way to connect with a specific target market and be perceived as an expert. It's also a way to differentiate from the competition.
Case Study: Sara Finance-One Week Of Profits With Tik Tok
This 19-year old Canadian has multiple successful dropshipping stores. But for this video, she gave herself one week and one product. She earned $439.89 in revenue, resulting in a profit of $267.89.
Here's how she did it:
Sara found a product. And did her research using searches on Tik Tok Made Me Buy It, Amazon Find, and Dropshippers Exposed. She was looking for a 'really cool product that a lot of people would want'. A high demand item that could be used to make videos that would go viral.
She chose a sunset lamp and secured a supplier (Spoket). Her supplier prerequisites included:
- Decent price point
- High-quality products
- Fast shipping times (7-10 days)
Then she built a 'real brand' looking store on Shopify that took her about two days and included:
- The guaranteed safe and secure checkout logo (to make her store look 'more legit').
- Quality photos
- A 30-day guarantee
- A premium product description
- Social proof (reviews from other stores selling the same product)
"Without social proof, you won't make many sales." Sara Finance
Her marketing strategy was to advertise on Tik Tok through free videos using the product. Her ultimate goal. To have the videos go viral.
She posted 3Xs/day using trending sounds and relevant hashtags. Some flopped-others got a ton of views. And her final takeaway after one week:
"You need to be patient and consistent with Tik Tok to get results".
How much dropshippers make on average comes down to how much they sell. Typical earnings are between 10%-40% from final sales.
Sell $1000/month, and you're not generating much income. Turn around and sell $100,000/month, and you're at the top of the pack.
How much you earn with this business model is up to you. And there's no limit to the amount of money you can make with dropshipping. But you can also walk away with nothing.
Invest the time to grasp the fundamentals of this business model. Perform your due diligence around product and niche selection. And don't be afraid to try and fail.
Set a budget and have realistic expectations. Lead with value and make the customer the focal point. And you can earn an income with dropshipping.
Advanced dropshippers are not afraid to have pretty high daily ad spends so they can quickly test different products, ads, landing pages and find the winning combination.