Can You Really Make Money From Dropshipping?

written by BlogEx on March 16, 2009 in Make Money Online with 28 comments

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.