What Is It?
There are several different types of online stores a person could use to make money online. Online dropshipping stores are ones where the owner simply manages the online storefront while all the packaging and shipping is managed by the manufacturer or wholesaler.
How Does It Work?
Before we start, I should highlight that dropshipping is usually excessively oversold. Often YouTube marketers make it sounds excessively easy and you can make insane money with little effort. They are just trying to get your affiliate marketing link clicks or have you pay for a costly online seminar/training program. This doesn’t mean you can’t make money with this approach, only that it is a lot harder to launch a successful store and the margins for dropshipping are thin.
With online stores there are three main parts to running one; selling products, inventory management and shipping. If you are selling large volumes of 3rd party products then it can get very costly to do it yourself. You would need to purchase products up front, store them somewhere, keep accurate track of them, package them up, ship them to customers and handle any returns that occur.
Online dropshipping stores simply offload the inventory management and shipping to a supplier. This means you would only manage the online storefront. When a customer purchases a product then behind the scenes you place the order with the supplier at a much lower price, and the supplier packages it up and sends it to the customer. It is packaged to not appear like it is coming from the supplier so for all intensive purposes a customer believes you sent it to them.
What is extremely beneficial from this type of store, compared to the others, is that you don’t pay up front for a lot of products you may or may not sell. This significantly lowers the bar for starting this up and it allows you to scale up very quickly.
To set this up, first you would need an online store. Typically people use an online store like Shopify or BigCommerce. These relatively easily allow you to setup the store, taking care of online payments and support dropshipping.
Next you would need to find companies with products that fit your niche and support dropshipping. To facilitate this there are companies like AliExpress that act as a middle supplier so you get access to hundreds of suppliers. As there are a lot of fees with dropshipping, you would need products that are heavily discounted (typically from China) and ideally not something people can easily find on Amazon.
Finally you would need a way to send orders to the supplier and allow customers and suppliers to track them. In this case online store owners often integrate their online store to a dropshipping program like Ordoro or Oberlo.
Once setup it should be seamless to customers and your work is very minimal in terms of handling new orders.
There are a couple gotchas with this model. One of them is the costs. You need to pay for the online store (monthly costs and per transaction), payment processing (such as visa), dropshipping program costs and a special fee suppliers charge (which can be as much as $5 per item). This means the margins can be very small.
The other gotcha to be aware of is that not all suppliers are reliable. Some have cheap or knock-off products which leads to returns (on average 5% of orders are returned). Others take many weeks to ship a product and don’t provide accurate tracking information. Remember that to the customer they are dealing with your company so any problems with quality or shipping comes back on you.
How Much Money Can You Make?
This is not a get rich quick gig. Most stores make less than $200/month profit the first couple months once you factor in all the expenses. Many make none at all. More successful, well advertised ones can eventually make $1,000-$2,000+/month in profit. There are cases of people making $10,000+/month in profit but they are very rare.
Websites – Online Stores
Websites – Dropship Suppliers
Websites – Inventory & Dropship Management Systems
- Even though the supplier takes care of shipping, don’t forget that you are the face of the business. If a client asks for help with a shipping problem and you refuse to provide assistance then it will damage your brand.
- Establish a tight niche that offers high quality products not easily replaced on Amazon. This will help you stand apart and develop a loyal client base.
- Advertisement and marketing is key when starting out. Many sites fail as they simply don’t have enough traffic going to their site. With dropshipping the margins are so thin that you need to make up with it with a lot of quantity.
Categories: Passive Income