A drop shipping business, like any other business, will always require a good amount of elbow grease. It’s not easy to set up and make money drop shipping, no matter what you may have heard.
So how do you make money drop shipping?
A good place to start is by paying close attention to your unit economics. Below are 5 areas that you should focus on so you can facilitate a good flow of income. These 5 areas are key to establishing and maintaining your drop shipping business flow. Ignore just one of them and you will quickly find yourself in deep trouble. Go about them systematically and you will have taken essential steps toward financial success.
(1) Find Products
The first thing that you need to get down to make money drop shipping is what product you are going to sell. You may already have more than a few ideas. These potential products may be based on what you think is cool, or on what has seemed to sell well based on the competition. The best product to sell is not strictly either of these, or even both.
You want to zero in on potential products that:
You are passionate about – Passion goes a long way, and all your copy and how much effort you put into marketing these products will be fueled by that passion. In addition, when you have the passion, you will be undoubtedly driven to learn more about the products.
Have a record of selling well – You want to know that these products are sellable, of course, otherwise you are taking a big risk. Do some research and don’t forget to also apply some common sense based on your knowledge of the products. Unit economics is all about numbers, but your gut is going to play a substantial role as you develop as an entrepreneur.
So those two points are covered, now let‘s look at two more that can heavily impact whether or not you actually make money drop shipping:
Avoid overly saturated markets – More than just selling well in general, you want to be sure that your product will sell to your target consumer. If too many sellers are already established with certain products, your chances of doing well are not going to be good.
Consider the other factors – Don’t make your final selection until you have the other 4 areas down.
This 5 Step Guide to Start a Drop Shipping Business for Beginners has a great section on where to look and how to choose.
(2) Meet Suppliers
Suppliers are an essential component of any business. It is especially important, however, that your suppliers are more than your average manufacturers. To make money drop shipping, you need suppliers who can not only produce items, but who can ensure consistent quality, consistent supply, and provide reliable shipping to your customers.
For this, you must diligently search for and create good relationships with suppliers. No verbal guarantee will ever be worth as much as proven performance. You will have to go about this with an open mind and leave room for trial and error. But stay calm and focused. You have goals that you need met, and you’ll attract more flies with honey than vinegar. Building relationships takes time and effort, and you need to treat your suppliers with respect and kindness if you want them to take care of you. You depend on them to produce quality goods, and get them to your customers safely and on time.
If you found this information useful, you might want to read more tips about drop shipping for beginners. It talks a little more about the seller-supplier relationship and what qualities to look for in a supplier for your drop shipping business. Our Drop Shipping 101 article on How to Identify Drop Ship Suppliers and Source Products is a more in-depth source of information on avoiding scams and doing research.
(3) Negotiate Pricing
Once you have found a few suppliers who support drop shipping, communicate well, and seem to be reliable, you will want to start talking price. Your margins will be lower in general with a drop shipping business as compared to other business models. To make money drop shipping, therefore, you need to be careful about what pricing you agree to.
A good starting point is to look for pricing that is around 25-50% below the Manufacturer’s Suggested Retail Price (MSRP). This MSRP is what manufacturers will indicate as their take on what an item should be sold for, retail. Talking money is not the easiest thing, but you need to level-up your conversations to know if you can make money drop shipping with this product and supplier.
One negotiating tactic is to ask your supplier what they can offer – if they haven’t already sent you their catalog and pricing sheet. Then you make an offer closer to the 50% off mark and together make your way to an agreeable sum. If you think you can be more aggressive with a supplier, you can directly pitch at the 50% mark and then negotiate a good middle ground.
Finally, don’t forget to do your computations before you agree on any price. Remember, you have to think of not only your cost of goods, but supplier drop ship fees, shipping, and platform fees for where you will be selling.
All that’s left at this point is to get your samples and rank your suppliers based on quality versus price.
(4) List the Product
You are now ready to put up your listing for your new product. Make sure you have your product information and good quality images. For pricing, a good rule of thumb is to list at the MSRP or close to it. You want to have a reasonable profit margin, but you also want to remain competitive. If you list too low, you will not make profits worth your time and effort. If you list too high, you will not make enough sales to justify your costs.
Next, look to your profits to help you maintain a good balance.
(5) Manage Profits
Take your computations and determine your profit margin for your new product. Your Profits are computed as your Sale Price minus your COGS, Shipping, Drop Ship Fee and Marketplace Fee. You can easily end up not making enough profit if you’re not careful here. This is why you need to be meticulous in your computations if you want to make money drop shipping.
Monitor your listing closely and be prepared to make adjustments within what your business can tolerate. If it’s not working well, you can try going back to your suppliers to renegotiate, look for other suppliers, or revisit your search for different products. If you have endeavored to build good relationships with suppliers, they are going to be more comfortable with cutting you a better deal. The manufacturer to retailer chain can be shorter with this model, but you can make money drop shipping only if you have good contacts and good profit management.
Mind Your Unit Economics
These 5 areas are crucial to your business success. You can always go back to the drawing board, but this will invariably equate to a loos of valuable time, effort, and expense that you can’t hope to get back. Be attentive to your unit economics and diligent in working them out. This way, you can guarantee on your own that you will make money drop shipping.
You can always find ways to adjust, and one way to save money and time is to outsource dropshipping tasks. Hire an eCommerce virtual assistant to handle different areas for you so you can lower costs and focus more on management and growth.