Welcome back to Make Money Bro and another (hopefully) informative article about dropshipping. Dropshipping has become insanely popular in the past 5 years or so, however we want to help you understand the reality of this business. It ain’t all rainbows and unicorns 🙂
Is dropshipping a business that is even worth your time? Is an investment in dropshipping money well spent?
Many people claim that putting up a business is not worth it—you have to put in the effort, risk some money, and then face the possibility of failure.
Let us take a look at the following things:
- The real cost of building a dropshipping store
- The things you need to do to maintain a dropshipping store
- The profit margins of a dropshipping store
- The unique opportunity in dropshipping
- What should you do to make it work?
In the end, is dropshipping worth it if it did not work? Just you just choose a ‘duff’ product to sell or is it the industry itself that is at fault?
This is what I want to find out, and I will share with you the risks of dropshipping. At the end of this analysis, we should be able to answer this question: is dropshipping worth it?
The real cost of building a dropshipping store
What I want to do is to take a look at the cost of dropshipping, plus all the other costs that you would incur.
In the end, we will make an assumption—do these costs stack up to the potential opportunity on offer? Considering all of this, we will decide if dropshipping is worth it.
Let us start with the store.
You can build your store via several platforms. Here are some examples:
- WordPress + WooCommerce
The list is endless. For the purposes of this assessment, we will only talk about Shopify and WordPress, as these are the two biggest platforms to put up an online store for dropshipping.
The Shopify Store Cost
For Shopify, you want to get the basic plan which costs $29 per month. In one year, your total cost for “renting” your store platform is $348.
Now, you certainly need a dropshipping tool like Oberlo or Spocket. Whilst both of these are free, you will not fully benefit from these tools unless you get the paid version. Let us use Spocket in our analysis.
Spocket is a dropship supplier software. It is connected to the AliExpress marketplace. Instead of you copying and pasting product images and product descriptions from AliExpress to your store, you do it in Spocket.
Spocket allows you to import products from AliExpress and other international suppliers. As such, everything is automatic, including the pricing. If the product is out of stock, your store will also show out of stock.
Spocket, has several price points, the smallest of which is $9 per month. In one year, your overall cost is $108.
Total cost for a Shopify store: $456.
The Woo Commerce Store Cost
The second option is to build your store on WordPress and WooCommerce. WordPress is your content management system, and WooCommerce is the system that will turn your website into a store.
Both are free.
However, you need a web hosting service provider to build your store. A web host service provider is a company that will store your website’s data. It is also the company that has servers that deliver your website to people online.
There are many web hosting services out there like Bluehost, SiteGround, and Hostinger. Let us go with SiteGround for now.
SIteGround has three main plans, but it makes sense that you get the second tier. This plan costs $19.95 per month. This plan gives you a huge storage capacity, huge traffic, and an unlimited number of websites.
For one year, your cost is $240. On top of that, you have to pay for a dropship supplier tool. Oberlo and Spocket are not compatible with WordPress, so your only option is the AliDropship plug-in, which costs a one-time payment of $89.
Total cost for self-hosted dropshipping store: $329.
The difference between Shopify and WooCommerce is $127, with Shopify costing more.
At a price of $456, you already have a fully functional dropshipping store—plus you do not have to buy inventory.
Here is my question: how much will it cost to rent a physical space in the mall to build a store? A lot more than the sub $500 cost of a dropshipping store.
The things you need to do to maintain a dropshipping store
After building your store, the next step is to spend on ads and other marketing materials.
- Graphic art
- Advertising costs
Graphic Art and Video Cost
Let us start with graphic art. These are images that you buy from artists—images that you use to advertise.
You can do this for free with tools like Canva, Inkscape, and GIMP—these are decent alternatives to expensive graphic arts suites like Adobe Photoshop, Illustrator, and CorelDraw.
Next, you need to make videos—videos are in demand, and they do better at capturing the attention of your target consumers. To produce a video, you either have to do it yourself or pay someone to do it.
A commercial video from freelance marketplaces like Fiverr cost anywhere between $85 and $300. These videos are just average videos. If you are looking for TV-quality commercials, forget about it—these videos cost tens of thousands.
The other option is that you buy your own animation or video editing software. The most reliable tool out there is Camtasia, which costs $249. If you have a tool like this, you can create and publish as many videos as you want.
You do not have to be an expert videographer to create videos. Tools like Camtasia has tons of templates—pre-made videos and sounds. All you have to do is to replace the video with your own product images.
With this and the Shopify store, your total cost now is $705
Now, let us talk about blogs.
Promoting through Blog Traffic
A lot of people on lower budgets cannot build a dropshipping store and rely on ads for traffic. Ads work well if you know how to do them, but they can be expensive at first with less than perfect results. Most people turn them off before they have learned enough to actually be successful! It’s quite ironic. So the other cheaper option is to invest in blog posts. You can write the blog posts yourself, or you can pay a copywriter to do this for you. At the very least, you must publish four posts a month, with each post having a length of 1,200 words.
On average, this is going to cost you $36 per post. Multiply this by four per month and then by 12 months and your annual blogging cost is $1,728. Be aware that it could take up to 6 months for your blog to start bringing in any kind of meaningful traffic, so this is the slow and steady route 🙂
Here are the total expenses so far:
- Store – $456
- Camtasia – $249
- Blogs – $1,728
Overall cost: $2,433
Why should you blog?
You need to blog to get free traffic from search engines. If you do it right, your blog posts will rank high on Google’s search results pages, and people who click on your blog links may buy from your store. As I said above, it’s a slower but much cheaper method of promotion. A lot of successful dropshippers do the ads first with a blog going on in the background. As the blog starts to rank more on Google, your ad spend can reduce 🙂
Here are the benefits of blogging:
- Brand credibility
- Free traffic via SEO
- Free advertising
- Adding value
- Shareable content
As you can see, the cost of a $36 blog post far outweighs the cost of advertising. Once a blog post is up and running, that asset is on the internet forever—unless you shut down your site.
Now, let us move on to advertising. This is a little tricky because there are no standards in advertising costs. It is all up to you how much you want to spend.
Paid Advertising costs
You can advertise on Facebook, Instagram, Google, and other platforms. Let us use Facebook for now.
On average, you must spend at least $5 per day to be able to advertise on Facebook. Depending on your targeted niche, you may even spend more than that. For the purposes of illustration, let us just say that you spend $100 a month to advertise.
In one year, the cost of advertising is $1,200.
Now, your overall annual cost is $3,633. If we divide this cost by 12 months, your average monthly expenses are equivalent to $303.
What this means is that you should at least produce $303 in gross profit margin to break even.
Now, do not jump to conclusions yet. The example expenses we are looking at is for an average dropshipper. You are in a position not to use ads if you do not want to. You can also write your own blog posts, and you can certainly not use videos if you do not want to.
If we remove all these expenses, your only monthly expense is your Shopify and dropship tool, which is $38.
The profit margins and potential profit of a dropshipping store
Now that we know how much you will spend on your business on a monthly basis let us talk about profit margins.
This is a highly subjective topic, as you are in a position to decide how much your profit margin should be. What matters is that you do not price your products beyond what is reasonable.
On average, the average dropshipping income or profit margin of a dropshipping store is 30% to 40%.
A profit margin is simply the percentage of your profit calculated against your capital outlay. At its basic form, the profit margin is calculated base on the price of your product, not yet including your expenses.
Let us say that the cost of a dress from AliExpress is $15, and then you sell it for $23. Your gross profit is $8.
If we divide $8 by $15, your profit margin is 53%.
Now, our question is this: how many items must you sell to pay for your monthly cost of $38? The answer is five items. If you manage to sell only five of this dress in a month, you would have made $40 on gross profit.
From the $0, you take away $38, and this leaves you with $2.
Not much, eh?
Now, if your monthly expense is $303, you need to sell around 38 pieces of this particular dress in a month.
Now, what if you are selling 100 items a month? At that rate, your profit is $800. And if you are selling 200 items in a month, your gross profit is $1,600.
If you are only spending $303, you still made a lot of money.
Selling 50 pieces of an item is not at all difficult, provided that you have done your marketing correctly.
And herein lies the problem of all dropshippers—many people believe that if you build it, the customers will come.
No, it does not happen this way. Only foolish people think that putting up a business is easy.
You see, the average dropshipping success rate or conversion rate is only 3%. What this means is that for every 100 people who viewed your products, three people are likely going to buy any of them!
To be able to pay your monthly cost of $38, you need 200 people to go to your store. At a conversion rate of 3%, six people will buy, and so you make $8 x 6 = $48.
To be able to sell 50 items to pay for $303, 1,700 people must come to your store every month.
Monthly web traffic of 1,700 people is more than achievable if you know what you are doing. You can easily achieve this in less than six months, provided that you do it right. Even less if you have the budget for paid traffic.
The sad thing is many dropshippers open their stores for two months, do not make a sale, and then they shut it down.
Two months is never enough to build traffic to your store. You need at least one year! Do people open physical shops for two months and then close? Not usually! Think of your dropshipping store like a physical store. It takes time to build up at the start!
The unique opportunity in dropshipping
The internet has made dropshipping possible. When I was a teenager dropshipping was not even a thing and the only choice was to start a physical store. I myself even toyed with the idea of starting a business selling and installing home computers. I wrote a business plan and everything 🙂
Back then, I didn’t have the opportunities we have now. More people buy online than ever. You can connect with suppliers on the other side of the world due to the internet. It’s an exciting new world for business.
You don’t need to hold any stock, and the cost of setting up and running an online store is much lower than a physical store. It means if something is not working or a trend or fad has ended, it is much easier to pivot and open a totally different store. How many people do you know that have opened a physical store that failed, and they could then proceed to open a new one? Not many, I can tell you 🙂
A physical store is limited by the amount of foot traffic it gets, and the rent can be expensive if you choose places with high foot traffic. You could advertise, but only to local people that are willing to come over to your physical store. However, a dropshipper can use paid advertising and blogs to reach a potentially unlimited amount of potential customers. Scaling up is much easier in dropshipping when you know what to do!
I myself have started blogs that get 100 people a day visiting after 6 months. How hard would it be to do the same with physical foot traffic? And with well made and targeted paid advertising you could easily direct thousands of people to your store in a matter of weeks. And you can target exactly the type of people you think are your potential customers, something that is much harder to achieve with a physical store.
So don’t listen to all those people saying dropshipping is dead. Yes, it has become popular but you can still carve out a good business for yourself if you take your time and do it in the right way 🙂
What should you do to make it work?
Now, let us discuss some principles about dropshipping—principles about dropshipping pitfalls that will help you build a dropshipping store that is profitable.
The two most important factors are to make it professional and not to give up on marketing.
Make your store professional
What is a professional store?
A professional store is one that is carefully thought of. It has uniformity, a brand, a message—it has a personality.
The problem with many dropshippers is that they build a store from different parts. Their stores are like something that was stitched together in a rush.
Here are some tips to make your store professional:
- Use readable fonts, and use it as a standard across your site
- Use standard color schemes
- Product photos must be uniform; if one has a white background, then ALL must have a white background
- Do not go overboard on the design—keep it minimal
- Site must be easy to navigate
- Site must be fast
- Go for something clean and professional looking 🙂
You see, many dropshippers think that if they build a store, then they must be able to sell.
No, if your store does not look professional, or it doesn’t come across as credible, you will not make a sale. Or you probably won’t make enough sales to be or stay profitable for any decent period of time.
Focus on marketing
If your first ad did not work, will you quit?
There is a reason why companies spend so much on ads—good ads work. Companies spend millions on ads—they pay copywriters and artists to come up with an ad that will entice a customer to buy.
If your ad did not produce a conversion, figure out what went wrong. Revise your ad and do A/B split tests. Find your audience—and more importantly, you have to KNOW your audience.
Dropshipping would not be so popular if it didn’t work. But for every Joe who succeeded, a dozen or so have failed.
And these people who failed are the ones who say that dropshipping is a scam—that it is not worth it.
The issue is not the business model. The issue is that people have false expectations. They think that just because someone became a millionaire through dropshipping that it is an easy journey. They watch a few influencers on YouTube that have made it in dropshipping, and expect to do the same with ease 🙂
No. Dropshipping worked for these guys because they worked hard to get to their goals. And if you do, dropshipping will be worth your time and money.
After all This, Is Dropshipping Worth It?
All people who go into business are only after one thing: money. This is not wrong. What’s wrong is the mindset that if you did not earn quickly that you are a failure and should give up!
But wait, you should know already that more than 90% of businesses fail? Many entrepreneurs failed many times before they found success? This is fact! If you want dropshipping to work for you, then you need to have to work at it. You might not find immediate success, but with more experience you are more likely to find success. Don’t give up!
Yes, the popularity of dropshipping as a business means there is a lot of competition out there. But there is also a growing market of people that are willing to buy online.
Dropshipping is not dead! Dropshipping is totally worth it if you have the right approach. Do good research into your products, be prepared for some failure and stick at it. Maybe your first store failure will be a failure, but the second might be a runaway success.
The mindset of a businessperson is not the same as the mindset of an employee. This is why no employee gets rich.
Only people who are willing to take the risk get rich. They understand that every failure presents an invaluable lesson for them—lessons that they would never have learned if they never failed.
And this is what makes dropshipping worth it. Just think about the cost of a dropshipping store and that of a physical store. Think about the fact that you have the possibility to scale your business to much higher levels than that of a physical store. With a physical store, you can only scale as much as the foot traffic you get into that store.
It makes me laugh. If you told your friend you were starting a physical store, they would pat you on the back and say good luck. If you said the same about a dropshipping store, they would probably tell you it’s a scam and it’s not worth it. This is because dropshipping is still fairly new and it is not the ‘norm’ for many people. However, a well-run dropshipping store has way more potential than any physical store a single person can run.