Dropshipping is one of the fastest-growing types of eCommerce businesses in the world.
Read on to learn how dropshipping works, how profitable it is, how to increase your margins.
Does Dropshipping Work?
How dropshipping works is by having a supplier handle inventory ownership, storage, and fulfillment while another business sells the products. In this model, the business that sells the products never owns or touches them. Customers place orders with the reseller, which are then passed along to the supplier for order fulfillment. The reseller also only pays for the products as they are sold, along with a dropshipping fee.
Dropshipping is a business model with tremendous opportunity for quick growth. The reseller doesn't need to worry about overhead expenses growing when they increase eCommerce sales, so all efforts can be directed toward this goal.
Can You Make Money Dropshipping?
Yes, you can make a lot of money dropshipping! Though dropshipping businesses traditionally have low margins, there is a lot of opportunity for creating a profitable business. It’s important to understand the difference between markup vs margin when pricing your products. Otherwise you risk missing out on profits.
Here are five ways how to make money dropshipping:
Pick the Right Niche
All types of eCommerce businesses have one thing in common, increasing competition. More and more online businesses are started every day and the dropshipping industry is no different. Before investing in any eCommerce business ideas, the first step in learning how to start a dropshipping business is to look at your target market and their needs. If their needs are well met and competition is stiff, it might not be worth jumping into the fray. Instead, look at smaller niches related to the same industry. Instead of selling homemade cookies online, you could sell vegan and keto-friendly cookies. This limits your market, but also frees you up from the constraints of a highly-competitive option.
Focus on Marketing
Since margins are thin, driving sales is key to growing your revenue. Focus on eCommerce digital marketing to attract new customers and increase your sales. One of the best ways to do this is to use eCommerce email marketing to send promotional emails, engage with customers, generate leads, and more. If you invest in eCommerce marketing automation tools, you can further increase the return and lessen the manual labor involved in reaching these customers.
Use the Right Software
An eCommerce business relies heavily on its website to attract and convert new customers. Cutting corners here can lead to weak sales and slow growth. Stick with a headless eCommerce platform or online marketplace that's well-known and easy to use. Your site needs to be easy to navigate and help push customers through the sales funnel as seamlessly as possible.
Luckily, BlueCart eCommerce does exactly that. It's an all-in-one solution to help you sell your products easily. We handle store design, eCommerce payment processing, and more, so you can focus on selling. It even lets you sell B2B and direct to consumer, so you can expand your market and increase sales with ease. We also have integrations with many eCommerce shipping platforms, so starting a dropshipping business has never been easier.
Running an online business has many benefits, especially in regard to your access to data. You can easily track eCommerce KPIs like conversion rates, site visits, abandoned cart rates, and more. However, these numbers are meaningless if you don't establish goals and routinely measure your business against them. Stay on top of data and use it to inform your actions, and you have a much better chance of increasing sales and growing your revenue.
Try Drop Surfing
Drop surfing is a unique form of dropshipping where you don't always get your products from the same suppliers. Instead, you can use a wholesale directory to find wholesalers that offer the same wholesale products to sell for cheaper. You then turn around and sell these products at the same price as your competition. This way you maximize your margins without having to increase your prices.
Remember, with drop surfing you won't have the same suppliers for every product, so you'll need to make sure you're flexible. Not all vendors can provide you with the same amount of products and many have minimum order quantities (MOQ). So, do your research and make sure you can quickly and easily add and remove products from your site to avoid issues with backordered products. You need to know how to find dropshipping suppliers that are reliable.
How Much Can You Make Dropshipping?
Successful dropshippers can make up to $100,000 in their first year of operations. This relies heavily on their ability to market their storefront and the size and competitiveness of the niche they serve. Since no money is tied up in inventory, safety stock, or warehousing, profits are maximized.
There are two main types of dropshipping businesses that offer different returns: low ticket dropshipping and high-ticket dropshipping.
In low-ticket dropshipping, you create a digital store with the intent to sell large quantities of low-cost products. These dropshipping businesses are very common and can often be found advertising using social media marketing. They can be very profitable, but have short lifespans as customers are unlikely to return and word-of-mouth is generally negative.
In high-ticket dropshipping, you instead focus on procuring quality products to sell. This model is slower to grow, but has longevity that can lead to increased profits each year. This model can feature evergreen products and relies less on investing in eCommerce PPC since your customers will advocate for your business and help you grow.
How Much Do Dropshippers Make On Average?
On average dropshippers make between 20% and 30% from each sale. This works out to be between $1,000 and $5,000 per month. The remaining money goes to purchasing the product from the supplier, dropshipping fees, and marketing.
One thing to note is that businesses that sell higher-quality products naturally have higher profit margins. However, they also sell fewer products. Finding a balance between pricing and demand is key to maximizing your revenue and growing your business. Perform demand forecasting before choosing a product and supplier for the best results.
Don't Drop the Ball
Dropshipping is a business model with a lot of upside if you know how to market and sell products. Find the right suppliers and keep costs low, and you can make a lot of money. Avoid low-cost, low-quality goods if you don't want to cause people to ask "is dropshipping dead"? or "is dropshipping legal"?