This article pulls back the curtain on dropshipping, revealing the unfiltered realities many people don’t talk about. It’s not a get-rich-quick scheme, but it can be a good way to start making money online. We’ll cover how to find products, figure out profit margins, find suppliers, and understand the costs involved, especially comparing Amazon and Shopify.
The Truth About Dropshipping
Many videos make dropshipping seem easy, like you just scroll on social media until you find a viral product. But views and likes don’t always mean sales. For example, a flying orb ball was extremely popular in videos, but sales on Amazon declined significantly over time. If you’re going to sell trendy items, you need to get in early, not when the trend is fading.
Another problem is that dropshipping is pretty easy and cheap to start, so a lot of categories are full of sellers. When there are too many sellers and not enough buyers, competition goes up, and so does the cost to advertise. On Amazon, it costs a lot to get just one click on an ad. On Shopify, the conversion rate (how many people buy after clicking) is even lower.
This is why picking the right products is important. Otherwise, you’ll get lost among thousands of other sellers. Some products even have 30 different sellers all trying to sell the same thing. Sure, some sellers make a lot of money, but that’s usually because their products are already well-known. The top products often have thousands of reviews. And remember, high revenue doesn’t always mean high profit.
Calculating Profit Margins
Let’s say a product sells for $24. To make a good profit, your total cost for the product should be under $20. If you buy it for $15 and shipping is $6, plus a small service fee, your total cost is $22. This means you’d need to sell 250 units to make $500 profit, which isn’t great.
For dropshipping, a profit margin of 15% to 20% is average. But it’s better to aim for over 30%. This means your product cost needs to be lower, maybe $16 total. If you can do that, you’d only need to sell about 62 units to make $500 profit.
Key Takeaways:
- Aim for 30% profit margins or more.
- Consider all costs, not just the product price.
Shipping Times and Suppliers
One big issue with dropshipping is long shipping times, especially if products come from China. Customers, especially on Amazon, expect fast shipping. The longer it takes, the fewer sales you’ll get. To fix this, you can find local suppliers who store their products in the same country you’re selling in. This can cut shipping times in half, sometimes down to just one week.
When looking for products, try to find ones with three things:
- Consistent high demand: Products that sell at least 10 units a day, or 300 a month.
- High profit margins: As discussed, aim for over 30%.
- Fast shipping times: Look for local suppliers.
Finding Products with High Demand
To find high-demand products, you can check Amazon’s best sellers, new releases, and movers and shakers sections. You can use tools like Jungle Scout to see daily and monthly sales, revenue, and fees. This helps you confirm if a product consistently sells well.
For example, a car window shade selling 587 units daily with over $200,000 in monthly revenue is a good sign. Even at its lowest, it sold over 100 units daily. You also want to check the demand for the whole product category, not just one item.
Checking Competition
After finding a high-demand product, check the competition. If the average product has thousands of reviews, it will be hard for a new seller to compete. However, if you see new sellers with fewer reviews still making good sales, that’s a positive sign. This means there’s room for new people to enter the market and do well.
Finding Suppliers
There are three main ways to find suppliers:
- Online Marketplaces: Sites like CJ Dropshipping or AliExpress are free. You can filter by “ship from” location (e.g., U.S.) and “free shipping” to find local suppliers with faster delivery.
- Paid Directories: Services like Worldwide Brands or Spocket give you access to many pre-checked suppliers. They are usually more reliable.
- Wholesale Accounts: This is when you contact brands directly to set up a dropshipping account. It’s the best way to get good prices and reliable suppliers, but it’s harder to find brands that allow dropshipping because most prefer you buy inventory upfront.
If you’re just starting, free marketplaces or paid directories are good options.
Startup Costs and Fees
Despite what you might hear, you do need some money to start dropshipping. Here’s a breakdown:
- Platform Fees: Both Shopify and Amazon have basic plans, but you’ll likely need more professional plans for better features.
- Order Management Software: If you use Shopify, you might pay around $20 a month for software to automate order fulfillment.
- Domain Name: A small cost for your website address.
These are your main startup costs. They don’t directly affect your profit per item. What does affect your profit per item are these three:
- Return Fees: You’ll sometimes pay for shipping when customers return products.
- Transaction Fees:
- Paid Advertising: This is a big one. On Shopify, you have to drive all your own traffic, so you’ll likely pay for ads. On Amazon, you get access to millions of customers who are already looking to buy. This means you can get traffic for free by optimizing your product listing with keywords.
Amazon vs. Shopify
While Shopify might seem cheaper on paper because of lower transaction fees, Amazon gives you something Shopify can’t: built-in customers. Amazon has millions of shoppers every day. On Shopify, you have to bring all the customers to your store, which often means paying for ads.
- Shopify: You need to be good at marketing and driving traffic, often through paid ads. Conversion rates are lower (around 2%).
- Amazon: You can get organic traffic from Amazon’s huge customer base. If you advertise, your ads go in front of people who are already looking to buy, leading to much higher conversion rates (around 10%).
This is why many beginners start on Amazon. You can even start on Amazon and then, if your product does well, create a Shopify store later.
Dropshipping vs. Private Labeling
Dropshipping has a low barrier to entry, which means a lot of competition. It can be hard for new sellers to get noticed. Also, with dropshipping, you can’t use Amazon Prime, which many shoppers look for.
If you’re going to put in the time, effort, and money into dropshipping, you might consider private labeling instead. With private labeling, you don’t touch the inventory either. You buy products from suppliers, they add your custom logo, and then they ship the products to an Amazon fulfillment center. Amazon then stores your products and ships them to customers when they buy.
Private labeling gives you more control over your business and lets you build a valuable asset that you can sell later for a lot of money. It’s a more rewarding business model in the long run.