How Much Do You Need To Start A Dropshipping Business?
With the development of platforms such as Youtube, Tiktok, Shopify, and Squarespace, it is much easier to launch a business nowadays than ever before.
And if you have just reached 300,00 to 500,000 fans on one of the platforms, you probably start to think about converting the audience's likes into business income.
Dropshipping is a business model that looks very attractive yet highly competitive.
As a sourcing agency based in China that has served 200+ businesses globally, we would like to share our observations so that you can build a successful business without trespassing on the same mistakes your peers have made.
Before answering the question about "How much do you need to start a dropshipping business", let's get back to the basics of doing a business:
What products are you going to sell?
How much are you selling the product?
How much are you going to spend on marketing?
How to handle product returns?
1.What Products Are You Going To Sell?
This is the most critical question before launching the eCommerce shop. We have received many inquiries from new players asking for
"The latest trendy products to sell" or
"The most profitable product on Amazon to sell" or
"A product with at least 80% profit margin"
…
From our experience with successful dropshipping business owners, the followings are essential points to note:
Are you familiar with the product? Do you have a passion for the product you are selling?
Imagine you are a 26-year-old football fan studying computer science in school, and now you want to start your own eCommerce business.
If I'm telling you that, currently, a perfume product ranks top on the selling chart with a 300% profit margin, but you have no knowledge about perfume, would you consider selling it?
Are you aware of the requirements for market entry on the compliance side, fragrance notes, and the pain points of your target customers?
Please do not assume you will be passionate about a product if you sell it. If you are not passionate about what you sell, you will find it very painful to learn the product knowledge.
Since your product knowledge will decide how well you present the product, to whom you are offering it, and whether you understand your customer's pain points.
So, selecting a product you understand best is the starting point of launching a dropshipping business.
Never ask your sourcing agent to decide on your behalf what you will sell.
YOU ARE THE DECISION MAKER.
If you do not know what to sell, RESEARCH, LEARN, and DECIDE.
2. How Much Are You Selling It?
It is not surprising to receive inquiries from new market players asking for "lower-than-the-market product price" with "the best product quality."
Price competition is the last thing to consider when selling generic (non-customized) products.
You will face a lot of competition from around the world selling the same thing by dropshipping from Alibaba and re-sell in your store. Those buying 10,000 pcs in one order will get a much lower price than those purchasing only 2 pcs. We do not have to explain why.
Customers can easily find products at a lower offering price from someone else. How sure are you that you are the lucky one?
If you are selling a Customized Product with your registered brand and a unique design, you are more likely to sell at a higher price because your product is unique, and customers can only visit your store to get that product.
3. How Much Are You Going To Spend on Marketing?
The conversion ratio is critical if you are a Youtuber or Tiktok influencer with 1 million followers since not all audiences will visit your store after watching your video.
To catch up the attention of the audience and convert them into paying customers, you need an extra budget to spend on Google, Facebook, and Instagram advertisements to promote your eCommerce shop.
4. How To Handle Product Returns?
If you are selling physical products, it is not surprising that customers ask for a change of goods or a return of goods, which will incur extra costs.
Do you have a local warehouse to handle the return, or will you send extra products to please the customer?
If your products are produced in China, a simple parcel (i.e., T-shirt) shipping from China to UK/USA will cost around US$ 30 – US$50 by air courier. Does it work within your budget?
Take this extra cost into consideration and be prepared that it will consume part of your profit.
Of course, you can reduce the quality issue by assigning an inspection agent in China to check the goods before the cargo is dispatched to the customer.
After reviewing the above, we suggest you allocate a minimum budget of US$10,000 to start an online dropshipping business for the first 2-3 months.
Prepare a minimum of US$ 2,000 to spend on infrastructure establishments, such as building a website, getting a domain, or establishing a shop on Amazon, Shopify, Squarespace, etc.
Prepare a minimum of US$ 4,000 – US$ 6,000 to spend on product sampling and procurement;
Prepare a minimum of US$2,000 – US$3,000 for digital marketing, such as Facebook, Instagram, Youtube ads, etc.
Till now, we have only addressed the question of "how much" it might cost to start a dropshipping business. It does not mean your online business will surely take off after spending this money.
There are many other factors to consider, such as Pricing.
Many people are looking for made-in-China products that they can sell at US$ 5.00 to US$ 10.00 per piece using the dropshipping business model, so they do not have to keep stock or spend upfront money.
If you have thought about this before, drop the idea NOW.
Simple math will explain why.
If you drop ship one parcel from China to the UK, the shipping cost will be at least US$ 25 to US$50 per parcel. How do you justify the profit by selling at US$ 10 per piece?
Of course, if you have a deep pocket and willing to penetrate the market at a low price, it will be a different story.
From our observation, while we serve dropshipping business owners, a successful business typically sells products with a price range between US$150 – US$500 or higher.
Dropshipping does not mean you can spend 0 to start a business. It is only a business model that can sell globally with the internet. And there is no fixed formula for a successful dropshipping business.
Dropshipping Business ≠ 0 Investment ≠ Very Easy to Make Money
It is the same with every other business:
Serve your customer well with a great product and service at a reasonable price.
We wish you every success in the dropshipping business!
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