It’s with much excitement that I outline my journey to sell over $25 million drop shipping on Amazon.com.
It certainly didn’t come without hard work and years of experimentation, but it is an accomplishment that came true and which can be replicated by other eCommerce entrepreneurs looking to get into the exciting world of drop shipping on Amazon.
In this article, I’ll dive into a short overview of the drop ship business model, the landscape of the Amazon Marketplace as I started selling on it, the growth strategies that I used to sell over $25 million drop shipping on Amazon, and the struggles that we ran into along the way.
By the end of this article, you’ll have a good understanding of how you could replicate my success with your own business drop shipping on Amazon.
As is the case with many business models, there is a beauty in that they can be replicated in hundreds, if not thousands, of different ways by different entrepreneurs based off their experience and expertise.
Without further ado, let’s talk a little bit about the drop ship business model.
What is Drop Shipping?
If you’re super new to eCommerce, drop shipping is probably an eCommerce term that you’ve heard of in passing, but you may not know the intricacies of how it functions as a business model.
To simplify it as much as humanly possible, let me use an example then I’ll present a chart that depicts the actual process of how it all works.
Drop Shipping on Amazon Example
You are a customer shopping on Amazon for a new water bottle. You search “water bottle” into the Amazon search engine and you are presented with thousands of results.
You choose one of the water bottles that looks appealing to you (maybe it has a color that you love or a top that you prefer over others) and you open the product page for that water bottle.
You look at the details of the product and you are really impressed with the details, reviews, videos, and price of the water bottle. You decide that you want to purchase the water bottle.
At this point, you have two options.
Option 1: Click on the “Add to Cart” button which automatically allows you to buy from the Buy Box owner of that water bottle. (We’ll get more into the Amazon Buy Box in later articles.)
Option 2: You click on the “View all sellers” link and search among the 10 or so sellers that are offering this water bottle for sale. You find one that has the best reviews, and you are most confident in buying from.
Regardless of which option you choose, let’s assume (for the purpose of this example) that this seller you are buying from is obtaining that water bottle from the supplier through a drop ship relationship.
What this means is that the seller is not actually “holding” the water bottle in their own warehouse or in the Amazon Prime warehouse. In fact, they’ve never touched the product, nor will they ever have to.
The seller has a drop ship relationship with the supplier, or manufacturer, of the product. The supplier/manufacturer is the actual maker of the water bottle and they keep the water bottles stored in their warehouses.
Once you submit your order, the shipping information goes to the seller and it is the seller’s responsibility to forward the shipping and product information along to the manufacturer.
This may come in the form of an email:
Seller to manufacturer…
I just received an order for the Water Bottle. Please ship the product to the following address and send tracking information as soon as it is available.
The manufacturer receives this email and they process the order. They send that information to their warehouse who then prepares the water bottle for shipment to the customer shipping address that was sent by the supplier.
Once the manufacturer has shipped the water bottle to the customer’s shipping address, they will send tracking information back to the seller. The seller then places the tracking information into the Amazon order and you, as the customer, receive the tracking information so you can see when it will arrive.
Are you following?
In the background after you clicked the “Purchase” button, this exchange of information happened between the seller and the manufacturer that they have a drop ship relationship with so that the water bottle that you ordered will be shipped to your home address.
That interchange of information is at the core of a drop ship relationship.
In the case that you want to return the product, you will naturally contact the Amazon seller that you bought it from. You will explain your reason for returning and another exchange of information will happen between the seller and the manufacturer.
Seller will send the manufacturer the reason for the return, the manufacturer will set up a return label for the water bottle to be sent back to their warehouse, and the seller will provide you with that information via an email.
You ship the product back to the manufacturer and the manufacturer refunds the seller for the cost they paid to purchase and ship the water bottle to you.
The seller then refunds you for the amount that you paid them to purchase the water bottle off Amazon.
As you can see, drop shipping on Amazon is an intricate process that takes organization, communication, and dependability upon your manufacturer relationships.
If you and your manufacturer can’t communicate at a high level and depend on each other for the services you are providing to each other, then the relationship can become sour very quickly. (And I’ve seen that happen plenty of times.)
However, if you can communicate at a high level and hold true to your side of the contract, you, as a seller, can make a lot of money on Amazon without ever touching the products that you are selling.
Would that be a business model that you’d be interested in running?
It surely was for me.
Are you starting to understand the drop shipping business model a bit more?
If I lost you are at all during that example, no worries! Here is a diagram that more closely explains that process that I just outlined in the example.
This should clear the process up a bit more.
My one argument against this diagram is that your job does not end as a seller after forwarding the order to the manufacturer, or as they depict “drop shipper.”
As I explained above, you, as the seller, are still responsible for the customer service associated with the order once it has been shipped to the customer.
And when drop shipping on Amazon, customer service is everything so you absolutely need to have processes in place to keep all of your customers happy with their purchases.
Now that you have a good understanding of the drop ship business model, I’m going to explain how I was able to sell over $25 million drop shipping on Amazon.
Keep in mind that all of this started out of the college dorm rooms and houses of me and my business partners.
We didn’t have thousands of dollars in funding, any knowledge of eCommerce, or anyone coaching us to become amazing Amazon sellers.
We just had a desire to be entrepreneur, learn about the Amazon Marketplace, and make some extra money for our college fun.
How I Sold Over $25 Million Drop Shipping on Amazon in 4 Years
It all started as an experiment to sell on the Amazon Marketplace.
We were a group of hungry college entrepreneurs that weren’t entertained enough by the business courses that we were taking.
We saw some value in what we were learning, but we were ready to get our hands dirty and Amazon presented itself as an opportunity.
Fast forward 4 years, and we had built an eCommerce business drop shipping on Amazon that was working with over 1,000 drop ship suppliers and selling over 500,000 products on our Amazon store. We had hired a team of over 60 people from the United States and the Philippines and our sales were booming.
We were in our early 20s.
But let’s back up a minute so that I can explain the steps that we took to get to that point where we had become top level experts at drop shipping on Amazon.
Understanding Drop Ship Suppliers and Manufacturers
One of the greatest challenges that we first faced as we started selling on Amazon was the process of researching, contacting, and creating drop ship relationships with suppliers from around the United States.
There are thousands of manufacturers located around the United States that are selling a wide variety of products (baby products, toys, home goods, outdoor products, clothing, jewelry, etc.), but we didn’t know which of those had the capabilities to drop ship.
You see, now all manufacturers want to drop ship as it requires extra manpower in their warehouse. Instead of shipping 500 units to a retailer who wants to stock those products in their online store, a drop shipping supplier needs someone on their team that can pick, pack, and ship items on a 1 by 1 basis.
Do you see how that would be more time consuming and potentially more expensive for the supplier?
We found that as we started to reach out to manufacturers within the toys and baby categories (that is where we started as the Amazon Marketplace was just expanding into those categories), many suppliers would tell us that they don’t drop ship anymore.
They had in the past with other sellers and they had a poor experience.
They were tainted by the experience and didn’t want to do it again. 🙁
But we didn’t let that discourage us. Rather, we allowed it to fuel our want to perfect the drop ship business model and show suppliers that we could indeed support a profitable drop ship partnership between our companies.
And that is exactly what we did.
We built a system and a team that was responsible for researching suppliers within our niches and reaching out to them with our custom sales pitches to express how we could help them to increase sales on Amazon while also having an extremely organized drop ship relationship.
Of course, there were some suppliers that were still not interested and it took us about a year to really get our sales pitch down and have enough supplier relationships that we could legitimize our efforts of selling on Amazon, but it all came around.
We discovered other competitors in our space of selling on Amazon that were also utilizing the drop ship business model and we started to reach out to the suppliers that they were working with.
As we reached out to these targeted companies (who we knew were already working through a drop ship relationship), we started to see a huge amount of success.
By demonstrating our intelligence around the drop ship business model and explaining our current systems that ensured inventory, orders, and customer service were handled on our end, supplier started signing up to work with us at rapid paces.
I think that at a certain point, we were adding over 20 new suppliers every week to our business and that meant hundreds to thousands of new products that we could offer to sell on our Amazon store.
Listing All of the Products We Were Allowed to Sell from Suppliers
The next step in reaching our success was listing all of the products that we were gaining access to from the suppliers we were creating relationships with.
And again, we created a system and a set of processes that we could teach to other people.
We figured out the most efficient way to go from a new relationship through the following tasks, which are required to accurately list new products on your Amazon store while drop shipping.
- Get the product information and pricing from the supplier. This could come in the form of Excel, CSV, PDF , Word files. It all depended on the supplier.
- Organize the product information and move it into our own special inventory template only including products that were in stock.
- Price the products based off of an internal formula that took into account Amazon’s percentage of each sale, shipping costs, and our costs to purchase the product.
- Transfer all of the product information into Amazon’s standard bulk listing template.
- Uploading the file to our Amazon store so that the products could be listed on the correct ASINs.
- Following up with errors that occurred as a part of the uploading process.
In order to list the products as quickly as we were creating drop ship relationships, we had to perfect this set of steps to get the products listed as quickly and efficiently as possible.
If you are going to start drop shipping on Amazon, you will need to do the same.
These steps are critical to the process of drop shipping on Amazon and is one of the biggest areas of trouble for new sellers.
Keeping Inventory Up to Date on All Products
Next in our system of drop shipping success was making sure that we were only selling products that were in stock from the suppliers that we were working with.
This is an aspect of drop shipping on Amazon that other FBA, private label, and wholesale sellers do not have to deal with. They know their stock levels because they are holding the inventory in their own warehouse or at FBA warehouses.
When drop shipping, you must stay in touch with your suppliers and receive inventory updates on what they have in stock, what is going out of stock, and what is being discontinued.
Depending on the supplier, the frequency of how often you need to receive updates will greatly vary.
We worked with some suppliers who we never had to receive inventory updates because they were just always in stock or they were building custom products, meaning the product wasn’t created until they received an order.
We worked with other suppliers where we needed to receive inventory updates every week because the supplier had many hot products and the would go in and out of stock often.
In order to manage all of this communication on inventory with over 1,000 suppliers, we had a system and schedule with someone in charge who was solely responsible for receiving updates from suppliers and updating inventory levels on our Amazon store.
If you are drop shipping on Amazon, you will need to do the same.
If you don’t manage your inventory closely, you will run into situations where you sell a product that is no longer in stock with your supplier and you have to either (1) cancel the order, which could lead to an angry customer or (2) tell the customer that there is a delay on their order, which again could anger them.
When you run into these situations, it impacts your Amazon Seller Metrics.
Seller Metrics are statistics that Amazon records on your store and requires you to stay within certain levels of the metrics in order to stay a seller on Amazon.
Many people struggle drop shipping on Amazon because of out of stock issues which then mess with their metrics and leads to them being suspended from selling on Amazon and in some cases even kicked off entirely.
But that doesn’t have to happen to your drop shipping Amazon store as long as you set up a good system and have strong communication with your suppliers.
After using a number of inventory management softwares, we decided to develop our own unique program that allowed us to closely manage our inventory with our drop ship suppliers.
Building custom software isn’t for everyone, but I wanted to let you know since this article is about how I was able to sell over $25 million.
Optimizing Pricing For All Drop Ship Products
Another crucial step when drop shipping on Amazon is making sure that all of your prices are optimized at any given point in the day on their respective ASIN.
Because you are competing with other sellers and you want to always have the best price on the listing so that you have a chance of winning the buy box.
The buy box means that you are the seller that a customer buys from if they simply click Add to Cart instead of browsing among the sellers on the listing.
By using a repricer technology (many of which are available online), you can set specific rules for how your products will be repriced on a consistent basis to try to win you the buy box.
When I was running my business drop shipping on Amazon, we used three different repricer technologies.
I recommend the two available to the public as options for you to utilize while growing your Amazon store.
1) AppEagle: solely focused on repricing for Amazon sellers. Very easy to set up.
2) ChannelAdvisor: large software platform with different Amazon solutions, but has a strong repricer as well. A little bit more work upfront.
3) Our own custom built repricer software. After spending 3 years using AppEagle and ChannelAdvisor, we weren’t satisfied with the solutions they were offering and so we built our own based off rules we had created to best get us the buy box.
At the peak of the business, we were maintaining a buy box percentage of over 20%.
We were selling 500,000 products. Buy box percentage at 20%. You do the math.
We had a lot of opportunities to make sales while selling on Amazon.
As you build your drop shipping business on Amazon, you need to make sure that repricing and optimizing your prices is a core part of your strategy.
When you optimize your pricing, you’ll quickly be bale to make more money with the products that you are selling.
Of course, there are other sellers you will be competing against, but repricing is going to make a big difference.
Ensuring All Customers Are Happy With Their Purchases
Amazon is crazy about their customers.
As a seller, you have to make sure that you are providing your Amazon customers with a good shopping experience and that you are meeting all of Amazon’s customer metrics specific to customer service.
What are customer metrics?
Outsourcing All Systems and Processes on Amazon
Once you get all of this set up, you MUST MUST MUST look to outsource the day to day tasks to freelancers.
If you don’t, you could get caught up into the business and become stuck IN the business instead of working ON it.
When we were hiring, we were using Upwork.com and what used to be Odesk.com. We were also using various college websites and US based job boards where we could post jobs for part time workers to join the company.
Today, my recommendation is to use one of my companies called FreeeUp.com. It is a website where you can hire freelancers that specialize within eCommerce skills, especially on Amazon.
Different from other hiring platforms, FreeeUp receives hundreds of applications from freelancers every week, puts them through a unique interview and vetting process, then only accepts the top 1% of applicants into the network.
Those freelancers then make their skills available to business owners , like you, for hourly and fixed rates between $5 and $50 per hour.
You fill out a simple form explaining exactly who you are looking to hire, submit it through your FreeeUp account, then get introduced to a top level freelancer matching your needs within 24 hours.
To outsource everything, it can be a bit overwhelming at first.
My advice is to start slow and do 1 task at a time, diversifying across multiple freelancers.
For example, start with customer service. Hire a customer service freelancer that specializes in Amazon and implement them into your business. That will take a couple of hours off your plate that you can spend on other things.
Next, hire someone to manage your orders. With drop shipping, it’s important that you have someone in place that can forward the order information to the correct supplier and follow up for tracking information.
Next, hire someone to manage your inventory…
Are you seeing the pattern?
All of the tasks that I outlined in this article (the ones that allowed us to drop ship on Amazon and sell over $25 million) should be outsourced so that you aren’t the one performing the tasks each day. It’s not worth your time.
As your drop shipping grows on Amazon, create systems then pass the task off to a freelancer. It will always allow you to stay focused on growth. Which means more money for your company in the long run.
Expanding to New Product Opportunities
After having all of the systems set up within the business and the freelancers implemented into the company, we were able to focus our time on expanding into new product opportunities.
We looking to expand into selling all types of products, not just toys, baby, and home goods.
We expanded to sell outdoor home goods, sporting goods, fangear, outdoor adventure products, electronics and much more. You name it and we were probably selling it!
And this is just one way that you can expand once you get all of the drop shipping systems and processes set up within your business.
There are plenty of other ways that you can expand your sales and profits once you get everyone set up.
The challenge is getting to that point then the door is wide open to grow, grow, grow.
Get Started Drop Shipping On Amazon
I often get asked the question by young eCommerce entrepreneurs if there is still an opportunity in selling on (insert the name of the eCommerce channel)…Amazon, eBay, Shopify, etc.
“Is it still an opportunity?”
“Can I still make money?”
“Is there too much competition out there now?”
There is 100% still an opportunity to build a massive eCommerce business and sell millions of dollars worth of products online.
I don’t care if it’s Amazon, eBay, Shopify, or any other eCommerce platform.
The industry is continuing to grow at rapid paces year over year and more and more people (around the entire world) are becoming more accustomed to ordering products to their homes from the comfort of their laptop or mobile phone.
The question you should be asking isn’t “is there still an opportunity?”
It should be “how am I going to carve out my niche in the market?…and create an amazing experience for the people that are shopping from my online store?”
If you can answer those two questions and you focus on perfecting the eCommerce business model that you choose to utilize, you will have a strong change of reaching success with your eCommerce efforts.
As I said at the beginning of this article, it will be hard work and you won’t find success overnight, but if you stick with it and become an expert in your business model, you will find success in time.
Happy To Answer Any Questions
Go ahead and drop them in the comments 🙂
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