Once you learn what is drop shipping and how to dropship, you'll want to know if it's a model that can drive profits and scale. You can calculate the profit of a business by using the break even point formula.
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 (see order fulfillment meaning).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 dropshipping 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 dropshipping 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 and dropshipping ads 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 automated dropshipping 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 and dropshipping website builder or an 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. That's unfortunately one of the biggest dropshipping beginner mistakes. 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. You should also ask your customer service for dropshipping team to track satisfaction metrics as that's an oft-overlooked area.
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 vendors 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 backorder. 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 the best dropshipping 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. Whatever you choose, make sure to include it in your drop shipping business plan.
How Much Do Dropshippers Make?
Dropshippers make between a 20% and 30% profit from each sale or up to $100,000 per year on average. 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, paying to host dropshipping websites, and marketing. You can make a lot more if you pick high-margin products or partake in reverse dropshipping.
One thing to note is that businesses that sell higher-quality products naturally have a higher dropshipping profit margin. 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 planning before choosing a product and supplier for the best results. You can also look into affiliate marketing vs dropshipping for ways to make even more money and maybe even need to post some dropshipping jobs to help keep track of all your new orders.
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"?
For more information, check out our free drop shipping for dummies guide or try reading dropshipping books and taking dropshipping courses. You could also look into cross docking if you have a little bit of storage space and want more quality control.
Frequently Asked Questions About Dropshipping Profits
Dropshipping is a popular eCommerce business model, but does that mean you can be profitable with it? There’s more to this story than meets the eye. Here are some frequently asked questions and our answers:
Is 2021 dropshipping profitable?
Yes, dropshipping in 2021 and beyond is still a profitable business model. The global dropshipping industry is expected to reach $558 billion by 2025 and is growing by about 7% year over year (YoY). You can also expect about 50% greater profit when dropshipping versus holding your own inventory.
The requirements of being a profitable dropshipper haven’t changed much. It’s still essential to sell great products, have speedy shipping and handling, and offer top-notch customer service. These days, you also need branding and a customer service experience that puts you head and shoulders above competition. When customers can hop to a different site in seconds, you need to give them a reason to stick with you.
How much do dropshippers make a day?
Successful dropshipping businesses can make anywhere between $50 to $5,000 in daily profit. This hinges on stocking high demand products, having enough profit margin, top-shelf marketing and sales, and recurring purchases.
This kind of profit can be made with products that have high recurring sales value, like food, clothing, office supplies, and beauty products. It’s also smart to build an identifiable brand around your business, otherwise it won’t stand out in a sea of dropshippers.
It takes time to reach significant profit in your dropshipping business, which is why you shouldn’t start this kind of business if you want to make money quickly. It’s best to build a strong website, list key products, and start driving traffic with low-cost, high-impact marketing like email and content marketing.
How much do Amazon dropshippers make?
Though every dropshipper’s income varies, committed Amazon dropshippers can make anywhere from $1,000 to $50,000 per month on the site. This requires a recognizable brand, selling products that are high demand but low competition, professional customer service, and competitive pricing.
Many Amazon dropshippers quit early in their business building process because of the steep competition and initially low profit. If you like the dropshipping business model and can be patient as your business grows, there’s always room to grow an Amazon dropshipping business.