Can You Really Make Money From Dropshipping?
There are lots of ways to make money on the internet. In this article, I’ll share with you some of the pros and cons of selling real, physical products online.
1) Dropshipping
A lot of people think dropshipping is a great business opportunity. If you don’t know what dropshipping is, here are the basics…
A dropshipping company buys inventory directly from a manufacturer and stores it in their warehouse. As a client of the dropshipping company, they allow you to sell whatever products they have. If you sell something, you pay the dropshipper for the product plus shipping, and they ship it to your customer for you.
Sounds awesome, right?
Well, if it were that simple it would be awesome. Here’s the problem…
When you use a dropshipper, you are paying for the convenience of not having to deal with inventory yourself. Typically you end up paying a lot more for the products you are selling and a lot of times you have to pay additional shipping & handling fees, dropship fees, and possibly a monthly membership fee just to use their program.
Here’s a real life example:
Let’s say you want to sell coffee pots online. You find a dropshipper that carries the coffee pot you want to sell. The coffee pot has a retail price of $120 and your cost from the dropshipper is $90. They charge a $4 dropship fee and $12 to ship the item to your customer if you sell it.
If you sell a coffee pot for $120 and charge your customers $7.95 shipping (to stay competitive), here is what the numbers look like:
$127.95 (total you receive from your customer)
- $90 (your cost to buy the product from the dropshipper)
- $4 (dropshipping fee)
- $12 (shipping fee charged by dropshipper)
————————————————————————
$21.95 profit in your pocket.
Sounds pretty good, doesn’t it?
Not so fast. In most cases, people shop online to save money, so you have to reduce the price of the product by at least 15% to actually sell anything online.
Let’s look at the numbers again.
If you take 15% off your coffee pot so you can actually sell it, you sell the coffee pot for $102 ($120 – 15% off) and then charge your customers $7.95 shipping (to stay competitive). Here is how the new numbers break down:
$109.95 (total you receive from your customer)
- $90 (your cost to buy the product from the dropshipper)
- $4 (dropshipping fee)
- $12 (shipping fee charged by dropshipper)
———————————————————————
$3.95 profit in your pocket. Ouch! Hardly worth the effort now…
And that doesn’t include any expenses you have in making that sale such as advertising, credit card processing fees, etc.
I don’t know about you, but selling a product for $109.95 and only making a profit of $3.95 is not very exciting. Sad thing is, that’s how most dropshipping arrangements work.
2) Buying Wholesale
Now for the good news.
Rather than forking over most of your profits to a dropshipping company, you should consider buying inventory directly from the manufacturer instead. Typically, this will allow you to buy products at 50% off the retail price instead of the 25% off you were getting from the dropshipper (dropshippers mark everything up 25% on average).
Now let’s look at the numbers when you buy products direct instead of using a dropshipper.
Again, using the same theory of selling your coffee pot at 15% off the retail price…
$109.95 (total you receive from your customer)
- $60 (your cost to buy the product direct from the manufacturer)
- $12 (shipping fee charged by UPS)
————————————————————————
$37.95 profit in your pocket.
Hmmm, $37.95 profit compared to $3.95. That’s the difference between a thriving business and one destined for failure.
I know what your saying to yourself.
You don’t want to buy inventory, store it in your garage, spend 2 hours a day printing shipping labels, shipping out orders and driving to the post office or UPS everyday. And that makes perfect sense.
But what if you didn’t have to do any of these things and can still make those huge profits at the same time?
There is a service out there called Shipping Elite (http://www.shippingelite.com) that does all of that for you and it costs you next to nothing to use their service.
Here’s how it works.
1) You buy merchandise from whatever product sourcing technique you want.
2) You have that inventory shipped directly to the Shipping Elite warehouses.
3) You sell your inventory on ebay, through your website, etc.
4) Shipping Elite packages your orders, puts the labels on & ships them out to your customers within 24 hours.
It’s just like dropshipping, but you get to keep all your profits instead of giving it to a dropshipping company.
Shipping Elite charges a small fee to store your products in their website. It’s just $0.02 per day per item stored with them. So, if you send them 50 coffee pots, you only pay $1 per day in storage.
As you sell products, your storage fee goes down each day to match however many items remain in their warehouse.
The shipping fee Shipping Elite charges is a flat rate based on the weight of your orders and it’s pretty much the same price you would pay to ship things out yourself. Also, since you are charging your customers for shipping anyway, you can pass that cost on to them and it costs you nothing out of pocket.
With Shipping Elite, anybody looking to get into dropshipping can make a reasonable amount money online with minimal overhead cost. You can check out their website for exact pricing and to learn more about how it works.
Comments
Matt March 16th, 2009
No one should drop ship forever. You use it to first determine what sells before investing in a bunch of inventory.
And If you find the right supplier, you can get 40% off retail for dropshipping.
Stu March 16th, 2009
I tried my hand at dropshipping a couple of years ago, the results were less than impressive:
1) I learned that if you don’t know what you’re doing, you can blow a lot of money on Google Adwords in a very short period of time.
2) I learned that the cheapest dropshipping supplier is not necessarily the best choice. Screaming customers who didn’t get their product, then who wanted to come to my house and pick them up (“What do you mean you don’t keep them in stock?!?!!?”)
3) If you’re a small business owner with no history, credit card processing fees can be a killer!
Other than that, it went swimmingly!
increase site traffic March 17th, 2009
Wow great post. You really made your point. I sell digtal goods so this does not interest me. But for those who do sell physical goods..this is excellent advice.
Steve March 17th, 2009
Hello,
I stopped using dropshippers just for that, I could never seem to make a good profit when I use a dropshipper so I started to stock items. Luckily the products I was selling were body jewelry so each piece was fairly cheap but it might be harder to do if your items are say $44.00 each and you have to buy 50 thats where you run in to trouble.
Thanks
Steve
Play Games Win Prizes March 17th, 2009
I bought a dropshipping list before from eBay and it is practically useless information. All the websites are selling products for a lot more and they just expect you to put the items up for a high buy it now price.
-Mike
Kyle March 18th, 2009
Have any of you all tried out Worldwide Brands? I’ve been an affiliate of theirs for quite sometime, and have actually gotten to know a couple of the people that work there pretty well…they are passionate about their business and good people all around. Has anybody given their product Onesource a shot? If there’s interest, I could do a review sometime about the product as it deals directly with dropshippers and light/medium bulk wholesalers.
Matt March 18th, 2009
I’m a member of World Wide Brands, and I must say their product is top notch and easy to navigate. Just type in a keyword and it will list Dropshippers and Wholesalers who sell anything related to that keyword.
Expensive ($299), but it’s a one-time fee for lifetime membership. It’s a small price to pay to have quality, reputable supplier database at your fingertips at any time.
Kyle March 18th, 2009
@Matt: That’s good to hear. If anyone is interested in watching a video about Worldwide Brands, you can do so here, or if you want to have access to the site as a customer would (let’s you navigate around the product as though you had bought it), you can do it with this free preview of Worldwide Brands. I’ll do a more detailed review of their product Onesource in the coming weeks.
top commentator March 21st, 2009
Shipping Elite Sounds like a great company getting as close to the supplier is always the best thing to do. Cut out the middle man.
Webmaster Juice March 26th, 2009
I would much rather sell my own physical products online than doing the drop shipper affiliate thing. This seems too risky to me.
I think it is important to talk directly with any people involved with supplying products that you intend to store and ship to customers. Ideally you will meet with the manufacturers face to face and get the products in your hands and have a tour of the factory.
- Ned
Tyrone – Internet Business Path March 31st, 2009
What an idea! This is quiet intriguing and a hope for internet money searchers.
Candy Q. April 3rd, 2009
Good post. It’s really important to stay on top of the trends in dropshipping. However, there are so many markets that become quickly saturated with sellers, which makes selling products online, very difficult. I’ve found that it’s extremely important to find a unique niche to dropship products in. Keep up the good work!
door handles April 25th, 2009
A very good idea for making money through dropshipping and it does sound great.
Jonathan April 27th, 2009
Has someone here already done business with them? Because I checked the site and it was just created in March of this year and the company has also not been in business very long. Please consider this before you decide.
Bob Rainey June 29th, 2009
It appears that World Wide Brands employees are flooding the internet with messages pretending to be customers.
Kyle June 30th, 2009
@Bob – Where did you hear/see this? I’ve never heard anything bad about the people behind WWB and actually know a couple of them casually.
Dwain C November 16th, 2009
I used World Wide Brands a few years back when they first started, and since they were affiliated with E Bay, I thought they might be a good source. But, after checking out some of the drop shippers, I found out that it was a bit more less than worth doing business. Most of the drop shippers wanted a fee up front, then a subscription fee on top of that to do business with them. They did have some good software programs that came with the initial package, like a keyword search box and a product finder, that would tell you the percentages of sales of that item, but that was all I found to be helpful. You can find out all about keywords and products yourself and you don’t need fancy software. Some search engines will find keywords for you and also you can do your own product research. As far as drop shipping, I have found it to be less than great, way less. Your better off to find products that will sell, then store them yourself and do your own shipping or have a company do it like mentioned earlier.