What Is Shopify Dropshipping ? And How It Work ?

It has become a massive trend for people to try and make money by dropshipping on Shopify. But is it so easy? And what do you actually have to know?

Having sold over a million dollars worth of products by dropshipping, I can tell you that it definitely is NOT easy. However, like with any business if you have the correct information then it can make it easier and increase your chances of success.

What is dropshipping?

Dropshipping is when you sell a product to someone without actually having it in stock. When a customer orders it from you, you then go and order it from someone else for less than the customer paid you.

The price you sold it for minus your expenses is your profit.

For example, if you sold it for $50 and your expenses were $20, then your profit would be $30.

Sounds simple enough?

In theory it is great. It’s a simple model with minimal outlay and risk.

Reality of dropshipping

However, the reality is very different…

What most people don’t realize is that their expenses are more than what they are paying for the product.

Let’s take a typical example where you are selling a phone case for $20 and buying it for $3 from Ali Express.

What is the profit?

If you guessed $17 then you are wrong…

Additional Dropshipping Expenses

You have to consider the other expenses also:

1. Paypal or credit card processing fees is approximately 3% (60c)
2. The cost for Shopify and other apps you use are a monthly fee so you need to cover that. The amount per sale depends on how many sales you make, but for arguements sake, let’s say it is 30c per sale
3. Do you have an office or employees or accounting expenses or a milliard of other costs of running a business?

And then comes the BIG expenses — traffic.

Drive traffic to your Shopify store

There is no point having a store if no-one visits it. So, you need to drive traffic. That could be via paid ways or free ways. However, there is no real thing as free as traffic will always cost you time or money.

Currently (April 2019), the most popular and easiest way of driving eCommerce sales is by using Facebook Advertising. The reason it is so powerful is because of the great targeting that you have. You can target through interests and other means a very specific profile of person who may be interested in your product.

For example, you could target 18–30 Year Old Males who have an iPhone 8 and generally purchase things online.

In reality though, although you can be very specific, you are also competing against everyone else who is aiming for exactly the same person which means that traffic cost will be high.

How much does advertising cost?

Using the above calculations, let’s say your real cost of purchasing the good is $5 ($3+0.60+0.30+$1.10 misc). That means that in order to make a profit, you need to spend less than $15 per customer on advertising.

If you are able to purchase clicks at 50c per visitor (I would be very happy with that!), it means that 1 in 30 visitors has to purchase. Or putting it another way, your salespage needs to convert at approximately 3.5%.

3.5% is high, but not totally unrealistic if you have a great product and great copy and credible site.

In my opinion, the above is very positive and is when things are going well. I would be very happy with the results above.

But remember that with the figures above you will only break even.

How to profit from dropshipping

Let’s say that you want to profit $100 a day. That could be achieved through making 20 sales at $5 profit a sale. However, in order to do this, you need to either get cheaper clicks or convert better or increase your average order value (outside of the scope of this article unfortunately). In fact, you need to reduce your costs by one third!

That is far harder to do.

The other problem is, that in the world that we live in, things go wrong…and when something goes wrong, that really sucks as it eats into any possible profit that you may have.

For example, what happens if Facebook were to ban you advertising?

How about if Paypal or another credit processor says they don’t want to work with you?

Or your supplier increases the price?

Or a customer doesn’t receive his product or wants to refund?

These are real things that happen very often and as well as things are going you always need to be aware that they are going to happen.

So, can you make money from Dropshipping?

Yes, you can but I hope that you see now that it is far harder than you may think. I know it sounds ‘boring’, but your REALLY need to know your figures and how much money you are actually making or losing on a daily basis.

You need to know what your expenses really are and not just what you are buying and selling at.

You need to have reserve funds and backup plans for when things go wrong (because they will).

And most important of all…you need to make sure that you are also paying yourself otherwise why do it in the first place?

Tell me what you think about all this and I look forward to discuss it with you more deeply. If you’d like, please book a call on my calendar so we can go through the details — Wsoftpro

Wish you a nice day.
:D.

I’m Tuan. Shopify Expert. If you would like one hour free consultation to figure out together how I can help you, feel free to contact me:

• Book a call
• Tweet me
• Comment this article
• You can refer to Shopify topics in here