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Is drop shipping a profitable business ?

pritom dey

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Hay,
I want to start a drop shipping business. I am new in dropshipping. Please give me some ideas.
 

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ChrisV

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Digamma

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It is indeed a profitable business...
for your suppliers.

Why don't you manufacture and sell your own product? You'll have more control and you won't have to worry about breaking even in an oversaturated and outdated business model.
Why not invent a cure for cancer? Imagine how much money you will make then.

I don't mean to get into an argument here, but if someone asks if dropshipping can be profitable, they are clearly beginners. How are they supposed to take on manufacturing of a new product? How is that realistic?
And besides that - easier to break even? You make your own product you still have to compete with those same dropshippers who only have to run ads against yours, but you need to recoup startup costs that always run double what you budgeted.

Why not just put in the effort and get the full experience in the first place?
Because we're not going to the school of hard knocks to feel like we're edgy, we're trying to make money.

Man, does your usename check out.


On to dropshipping.

Of course dropshipping can make money. It is one of the easiest business models for getting started. Full disclosure: I have not personally ran dropshipping businesses, although I have been tempted to do so for a good while because it looks like a fun side project, but I do know people who do personally. Been in the trenches together, so to speak.

In my opinion the main advantages are:
  1. It teaches you super useful skills - copywriting, paid ads, testing & iteration.
  2. It can scale very well once you find something that works - you just spend more in ads (simplifying here, obviously).
As I haven't done it personally I don't have specific advice. I just wanted to make a point about revenues and bullshit - that is, you will find gurus out there boasting huge numbers on screenshots. That's cool, but beware of people who don't specify that it is gross revenue.

Margins tend to go from 30% on the low end and more around 10% at scale. Rough numbers. I am betting there are people on this board who run stores who can swing by here and give better numbers.

These are great numbers by the way. 20% margin on a one man op that can scale? Hell yeah.
 

Real Deal Denver

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I am developing a drop shipping business.

I am not interested in being small time. I want to make high six figures.

I am not going to store things or ship things. I am going to RUN a business, but I am going to deliberately NOT work in the business, as much as possible anyway. Sure the startup phase will require work, and I am studying my batootie off to get as much of a grip on this as I can.

Dropshipping will cost me two dollars more per item, IF even that much. It will add less than 10% to the cost.

I can handle that. That's a good trade off for no garage start up - no working 50+ hours a week - and no worries. Then, rinse and repeat. I'm not the first or only one to do things this way. I'm late to the game, but I'm figuring out how the big boys do it. I don't mind sharing the wealth. I like that this will be on auto-pilot most of the time, after it is set up and going, and I will have a VERY capable team getting things done. It will be nice to have people work for me for a change.

How is this going to be successful? How can I possibly afford to operate at this level? My overhead will eat me ALIVE!

Um, no it won't. My overhead will be way less than $100 a month, which does not include advertising. That's like going to Vegas, first class, for only $100. Of course, the gambling losses might be severe... My advertising costs "could" be severe, but they are going to be contained. They will not be severe in any way shape or form. That's my job. Steer the ship - not row the ship.

How is this possible? Scale, scale, scale. That's the name of that game.

Get real. Ask yourself if it even *could* work. If it can't find something that will.

jack sparrow.gif

For the naysayers out there...

How about a lowly cheap product that not many people buy? A simple 50 cent mouse trap. How many of these can a company sell in a year? How many mouse traps have YOU bought in the last decade? Exactly. Not too many, right?

"Woodstream Corporation, the holding company that owns the Victor Corporation, which makes mouse and rat traps, reports its income at between $25 and $75 million per year. The rodent extermination business (which sells services, rather than traps, which are a lot less expensive) is a lot bigger. There are other companies that make traps, but Victor has most of the market in North America."

https://www.quora.com/What-is-the-estimated-market-size-for-mousetraps-snap-traps-and-live-traps
 

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GSF

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Ive used drop shipping, it was profitable, around 30-40% margins. I learnt new skills, was able to quickly identify profitable in demand products (one store had around 100 different products, I think 90% of my sales came from just 3 products), would have been costly importing 100 products to find 3 good ones. Had very very few refunds or complaints, lots of happy customers.

Also, one of the best success/ progress threads on this forum used drop shipping to fulfil orders doing 7 figures if I remember right. Think it was @G_Alexander thread

At the end of the day, if you sell a product to a customer, they get what they wanted and are happy with it, why does it matter how it was fulfilled?, what difference does it make if you held the stock yourself or it was sent direct from the manufacturer. Customers happy either way.
 
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Out of Touch

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Why not invent a cure for cancer? Imagine how much money you will make then.
More than drop shipping. Inventing a cure for cancer and manufacturing your own product are both more profitable than drop shipping. One is just a better alternative to drop shipping, while the other is a difficult scientific and medical endeavor.
I don't mean to get into an argument here, but if someone asks if dropshipping can be profitable, they are clearly beginners. How are they supposed to take on manufacturing of a new product? How is that realistic?
They are on the Fastlane Forum. There is more than enough resources to learn how to effectively manufacture and sell your own product here.
And besides that - easier to break even? You make your own product you still have to compete with those same dropshippers who only have to run ads against yours, but you need to recoup startup costs that always run double what you budgeted.
You do not have to directly compete against drop shippers if you’re selling a unique product that few people are selling. Those drop shippers are competing against themselves by using the same easy to obtain suppliers.

You are correct in terms of Startup costs. However, with the proper negotiations, you can order a sample order at a reasonable price and begin selling that way.

Those specific advantages that you listed also apply to manufacturing and selling your own product. However, allow me to list some disadvantages to drop shipping:
  1. Very hard to find unique products
  2. You will always be getting lower margins
  3. Appallingly slow shipping times
  4. Your "business" can disappear overnight on the whim of your supplier

Also saying that you don’t mean to get into an argument and posting a jab of an ad hominem is quite contradictory.
How about a lowly cheap product that not many people buy? A simple 50 cent mouse trap. How many of these can a company sell in a year? How many mouse traps have YOU bought in the last decade? Exactly. Not too many, right?

"Woodstream Corporation, the holding company that owns the Victor Corporation, which makes mouse and rat traps, reports its income at between $25 and $75 million per year. The rodent extermination business (which sells services, rather than traps, which are a lot less expensive) is a lot bigger. There are other companies that make traps, but Victor has most of the market in North America."
Is Victor Corporation drop shipping their mousetraps?
At the end of the day, if you sell a product to a customer, they get what they wanted and are happy with it, why does it matter how it was fulfilled?, what difference does it make if you held the stock yourself or it was sent direct from the manufacturer. Customers happy either way.
Shipping times. With the advent of Fulfilment by Amazon, customers have come to expect fast shipping times that drop shipping does not provide. Drop shippers simply cannot compete with importers/exporters in this regard.
If there's 6 things that can go wrong instead of 3 the chances of failure are much higher. Once you've nailed 3 of them, now you can do the full thing with better odds of success.
Logically, this is valid. However, here’s why I believe it is unsound: You are not undertaking all of those risks at once. For the sake of context let us compare ‘importing and using a fulfilment center to fulfil your orders’ against ‘drop shipping’. I’m going to assign obtaining inventory a risk value of 3 and selling your inventory an equal risk value of 3. Obviously, drop shipping negates the risk value of obtaining inventory. However, an importer only has a risk value of 3 when obtaining their inventory. It isn’t a risk value of 6. Once they successfully obtain their inventory, they will procure all of the advantages of selling their own product along with the necessary experience to repeat that process with less risk. Let’s say they develop a good relationship with their manufacturer and have the proper contacts with back up manufacturers. Their obtaining inventory risk value will fall down to 1 (part of this risk is not being able to sell your inventory) and once said inventory is obtained, they are on equal risk terms with the drop shipper for selling. Yes, 4 is still greater than 3 but that is only in terms of risks. I’ve said nothing about the potential growth value, the control value, etc. in which importing reigns supreme.
Have you done so?
I’ll admit that I have not yet; All the people that I have been learning from and following closely advocate against drop shipping though.(In terms of being a reliable business model).
I just don't see how you can compete by dropshipping. You have no advantage in any way. You lose any pricing advantage, shipping and fulfillment advantage and you cannot control inventory. Those dropshipping companies out there like WWB or others are not worth it. You should never pay to get access to a dropshipping company's list. Most of the time, the prices you pay for products are higher than retail sale prices on Amazon. Also, they never treat your order first. What happens if they have 100 in stock, and over the weekend a bunch of random stores sell 150 units. Which stores' orders do they ship? Which stores will they inform that they are out of stock?

There's just no good long term business by building a 100% dropshipping website. It is not a business model that I would rely on.
Secondly, I don’t recommend dropshipping as a business model, but because I get so many questions about dropshipping I will explain why. It is a long explanation but it answers a lot of the questions that I am so often asked.

Pros and Cons of Dropshipping

I think that most members of the Fastlane forum know how dropshipping works, but in case Rip Van Winkle is online, here is a brief description:

Dropshipping is a business model that allows you to retail goods without holding any physical stock. Without any goods in your possession you advertise for sale those products that your dropship supplier has in stock.

When you make a sale, you send all the sale details to the dropshipper who then ships the item out on your behalf. Your profit will be the difference between what you charge your customer and what the dropshipper charges you. Don’t forget to allow for your selling costs, including Ebay fees, PayPal fees, postage etc. Some people even have to pay a dropship fee.

Pros:
  • Dropship wholesalers offer a vastproduct range for you to sell.
  • You do not need to outlay money for inventory.
  • Your dropship supplier does most of the work for you, including packing and postage, although you still have to handle the sales and administration work
  • Theoretically your bigger product range could lead to higher sales.
  • You don’t even have to worry about storage space.
  • You can automate the process.
  • Your dropship wholesalers might have photos that you can display on eBay or Amazon.
Cons:
  • You have no control over your own business. That can lead to very unhappy customers.
  • You might keep selling not knowing that the supplier is running out of stock.
  • Your supplier may even discontinue a product line without informing you. That can result in bad feedback that will damage your business.
  • Dropshippers make mistakes, but you get the bad feedback.
  • Those who promote dropshipping boast about their huge turnover, but they don’t tell you how low their profits are. Dropship resellers posting on business forums generally report a profit margin of 20% or less, but there are a few who say they get 30%.
  • Many sellers on Amazon and Ebay use the same dropship wholesalers, so there are often hundreds of sellers flooding the market with the same product.
  • When you buy from dropship suppliers you are engaging in a business to business transaction and in almost all western jurisdictions that means you do not have protection under consumer protection laws. Your customers do. Even if they did not, they still get favoured treatment from eBay and PayPal and credit card companies, which means they can, and do, return the goods for any reason and claim a refund. If numerous customers do that, perhaps simply due to a recently announced product update, you now have an inventory of returned goods whether or not you have the funds to finance an inventory. Your suppliers will not give you a refund unless the items are faulty. Those selling via the dropship business model should not do so unless they have funds available to finance a large number of returns.
  • In order for an item to sell successfully especially on Amazon or Ebay, it has to be either unique, or a very desirable item. If you browse through dropshipping directories you will find it almost impossible to find items that meet these criteria except for those very desirable hot selling products that every man and his dog are selling at ridiculously low prices.
Drop shipping is not a sustainable business model. No control, limited value add, and terrible margin. Drop shippers are a dispensable cog and unnecessary cost in the supply chain. Even if you can hit your revenue target, it is a volatile business model.
I don't. What you think is drop shipping and what drop shipping really is are two different things.

Drop shipping is a supply chain strategy for a real business; it is not its own business.
Feel free to argue against them.
 
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Out of Touch

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Here are a few topics with the pros and cons of drop shipping if anyone is interested:

Dropshipping vs Selling on Amazon
Is Dropshipping Dead?
Is Dropshipping Dead? (Not the Same Topic).

I advocated against drop shipping because it is not the method that I will be using. (Although, ironically, I learned about this site through a drop shipper). I personally think that it can be used to add products to an existing brand’s lineup but not for creating the (non-generic) brand in the first place. (Edit: I thought about this a little bit and decided that it still wouldn't be worth doing so. Those drop shipped products would still not be as advantageous as having those products manufactured on your own. The benefits are just too much in the favor of manufacturing. Even if those products were supplementary to the brand). I am well aware of the risks involved in self-manufacturing, but I also believe that the proper knowledge can mitigate those risks. Of course, knowledge is best gained through experience after all.

Well… you will not be able to convince me to become pro-drop shipping, but it was fun arguing these points!
 
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Real Deal Denver

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Ive used drop shipping, it was profitable, around 30-40% margins. I learnt new skills, was able to quickly identify profitable in demand products (one store had around 100 different products, I think 90% of my sales came from just 3 products), would have been costly importing 100 products to find 3 good ones. Had very very few refunds or complaints, lots of happy customers.

Also, one of the best success/ progress threads on this forum used drop shipping to fulfil orders doing 7 figures if I remember right.
Clearly you think big GSF. Every business draws its strength in different ways. Your method worked perfectly for what you were doing. Thanks for the fresh view of optimism. It can and will work, if done properly, as you have shown.

Is Victor Corporation drop shipping their mousetraps?
I would highly doubt they make their products here in their own factory. I would suspect that they mass produce these overseas as cheaply as possible and then {drop} ship them from the manufacturer to their distributors as the need arises.

There is no need to handle product, nor any need to warehouse it. Of course, their product being their own design, eliminates any other competition.

That's my plan exactly. My product is going to be *all* mine. Only I can have it manufactured and shipped. I am just eliminating "me" from the equation in dealing with it physically. What difference does it make who ships it? I'll pay for that service because I'm worth more than being a shipper.
 
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ChrisV

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On to dropshipping.

Of course dropshipping can make money. It is one of the easiest business models for getting started. Full disclosure: I have not personally ran dropshipping businesses, although I have been tempted to do so for a good while because it looks like a fun side project, but I do know people who do personally. Been in the trenches together, so to speak.

In my opinion the main advantages are:
  1. It teaches you super useful skills - copywriting, paid ads, testing & iteration.
  2. It can scale very well once you find something that works - you just spend more in ads (simplifying here, obviously).
yo i think he makes good points here

F*ck it i mean it’s good practice if nothing else
 

Walter Hay

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This has been an interesting debate, but it might provide more light on the question if we note the different kinds of dropshipping models. As I see it some of the variations are:
  1. Buying from traders on Aliexpress and having them ship to your customers.
  2. Buying from manufacturers and distributors in your home country and having them ship to your customers.
  3. Buying from POD businesses that print your designs and having them ship to your customers.
#1 Is one of the worst business models I can imagine. The people that I know of who are making a lot of money from this method are: a) Those who teach others how to do it, and b) Those who buy and sell counterfeits.
#2 Is a far better proposition than #1 if you don't want to carry inventory. It can be scaled and works very well on high ticket items.
#3 Is in my view not truly dropshipping which I believe means buying ready made products from a stockist and getting them to deliver. POD fulfillment services are just that - fulfillment businesses, and they provide a valuable service.

Some people believe that they can Private Label and dropship the products. That might be possible in western countries, but not if buying from Chinese manufacturers.

You can easily persuade a Chinese trader or wholesaler to dropship generic products. But... While it is difficult enough to persuade a Chinese manufacturer to dropship their generic products, it would take a salesperson with incredible powers of persuasion to convince one to make to order, attach your own brand or label and dropship to your customers. They might possibly do it if the buyer paid for all the goods in one hit, and paid a storage fee as well as paying a service fee for packaging and shipping, in addition to the freight cost.

Here's one of countless stories of those who have tried unsuccessfully to make a worthwhile business out of dropshipping: My Shopify dropshipping experience...

Walter
 

Walter Hay

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When you say high ticket items, is it something $100+ USD or more like 4 figures? Thanks!
It is very difficult to define "high ticket", and opinions will vary depending on a person's income.

I mentioned the issue because a large number of eCommerce sellers seem to like selling items costing under $50.

If I wanted to sell products online I would not be interested in handling anything selling for under $100. My reason is that to handle a sale worth $20 or $50 takes as much time as it takes to handle a sale worth $100 or $500.

The ROI when the "I" is invested time, is obviously much greater on the bigger value items if the % profit margin is similar.

When I sold franchises of my importing business I had to work hard to persuade my new franchisees to consider profit per hour, rather than simply % profit per sale. When the message sank in, they found that they were making over $150 per hour when handling average sales of $750 compared to $50 per hour when dealing with sales worth less than $100.

For those who don't already know, the importing business handled only B2B sales. One franchisee wrote to me about a large order, thanking me for the guidance and saying: "It is nice to make the occasional $50,000 profit for 1/2 day's work."

Walter
 

Real Deal Denver

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One franchisee wrote to me about a large order, thanking me for the guidance and saying: "It is nice to make the occasional $50,000 profit for 1/2 day's work."
{staring at you with eyes glazed over}
 

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Walter Hay

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{staring at you with eyes glazed over}
The total sale value was just over $57,000. Landed cost about $7,000. I must say that he only made a sale that big occasionally, but it highlighted to the other franchisees the fact that they should aim high.

The best I ever did personally was a sale of $21,000 for one order that cost $3,000 landed.

The reason such big margins were achieved was that the pricing policy I chose was "What the market will bear", rather than a cost plus strategy. That is easier to do B2B than it is B2C.

For me the beauty of franchising was that once I had the figures to prove what profits I was making, and I set up a system that could replicate it provided my instructions were followed, the sky was the limit in selling franchises in English speaking countries and selling the franchises was easy.

Walter
 

Neng Her

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^ Don't have to swing for the fences the first time you pick up a bat.

Even if the dropshipping only pays breakeven, it'll give you half of the experience required to sell your own products.
I think thats what most people are missing out of. One of my colleagues just made his first sale/income while sleeping. I think it gives you great experience and ideas for future endeavors.
 
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It won't be easy, keep in mind that you have to deal with other people selling the same thing as you and listing it at a lower price. Why should they buy from you if the other guy is selling it a dollar cheaper and faster shipping? Do you have an email list, or an audience to advertise to? It will be easier if you already have sometime of customer base or audience instead of starting out scratch and acquiring new customers through paid ads.
 

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I have a drop-ship store and a POD store, POD does far better than the drop-ship. I'm still trying to drive traffic to the drop-ship store and make its place in its niche.

I'm starting to realize that the drop-ship isn't exactly the best business model. However, I'm starting to see the benefits of it being integrated into a e-com store that allows you to do A/B testing safely and see if one product does sell better than the other and then think about importing it. Its a step you can take in a legit import e-com store that you can use to test the customer's response and gauge if you can get the margins where you want it.
 

James Klymus

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I know a lot of people hate on drop shipping, but in my 3 years of experience with it I just couldn't get it to work for me personally. I used Shopify + Aliexpress.

I actually made a good 5 figure extra income my first year with it, but then.. I just couldn't get it to be sustainable for me. One month Id profit $1k then next id lose $500, the next $200 profit, the next id lose $400 and so on.

It was very turbulent for me and I've since moved on to consulting and serving other business owners and running their facebook ads.

I don't have much interest for it at this point, but if i were to get into it again, I would take what i learned from MJ (solve market problems), and apply that to ecommerce by finding products out there that help others and arent just trinkets and useless gadgets like a lot of people try selling.

Also, Shopify drop shipping is extremely hot right now in the internet marketing space and there are a lot of bro marketers selling courses out there. I actually learned from a course and made a good chunk of money, but it is much more saturated now than in 2015/16. Since the barrier to entry is pretty much non existent, it will only get more and more saturated

If you do it, try to create a brand and find a product that solves a problem that you can offer some sort of competitive advantage if you don't want to go through inventing a product.
 

Zcott

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Dropshipping is a profitable business. It is a proven business model. The problem is so many people have jumped onto this bandwagon because it has become saturated. It is easy to enter and it is flooded with YouTube gurus, and now people think it's as simple as making a website and running facebook ads.

You can be successful in dropshipping but you have to be good at marketing and committed.
 

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It was for me but it's not something I recommend for the long-term.

If you have a successful product - look at branding it. You'll be untouchable.
Why do you not suggest dropshipping if it worked for you?
 

Smuggo

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Why do you not suggest dropshipping if it worked for you?
I think it's like with sports. Why you don't suggest being a pro player if it worked for some people? Because of the level of entry. What are your chances for success when almost everybody can do it? There are some other golden gaps you should look for.

Don't get me wrong. I am not saying that you can't succeed in this area, but for me there are too many fish that swim in the same lake.:)
 

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