The business behind how to make money dropshipping

Welcome to a very long post to dropshipping on the business behind dropshipping. After reading this post,  you’ll know:

  • The  actual economics of  dropshipping
  • The Dropshipping profit equation
  • The KPI’s that matter, the KPI’s that don’t, and where to focus your time

With this information, you should be able to decide whether or not you want to dropship. That’s the goal of this post.

I’m not going to push you to try it then upsell you into a dropshipping course. I’m going to tell you my unbiased thoughts on the above and let you make your own decision.

Before diving in, I’m going to answer some questions.

Why are you qualified to write a post about dropshipping?

Fair question. I’d ask myself.

There are two reasons why I’m qualified to write this post.

First, I’ve done it. Unlike a lot of other posts online, I’ve actually built a dropshipping business that did $10,000 in sales in a month.

Here’s the ubiquitous “earnings proof” screenshot from Shopify.

My best day

 

First 3 weeks of the month (My bad….I guess I didn’t takee a  screenshot of the  $10K! )

Secondly, I’m a business guy. I’m fortunate to have attended the best business school in the world and I now consult for the world-leading Private Equity and Hedge Funds to help them evaluate deals. This experience has taught me to break down business and figure out whether or not it makes sense to take part in. I’m taking that same lens dropshipping.

Why I’m writing this post?

I’m writing this post because I wish I had it when I first started dropshipping. There is a lot of material online about dropshipping that covers highly detailed specifics. For example, how to A/B test a click funnel to drive conversation rates above industry standard.

When I was first learning about dropshipping, that specific detail was confusing and didn’t answer my overall questions about the business model.

I also didn’t realize that most posts were an upsell to a course, typically by some shady looking guy who is out to screw you over. Take a  look at this if  you search “dropshipping” in YouTube.

The bro in #2 is literally holding cash as he tries to convince you he knows what he is talking about! Speaking from experience as someone knowledgeable about how to sell consulting work, that’s really not a good way for him to upsell his dropshipping course.

And check it out….his course is the first thing in the video description!

 

This post is not an upsell to a course. In fact, if you don’t want to read this whole post and just want my opinion: don’t dropship.

If you still want to read more, then let’s be honest: becoming an entrepreneur is one of the most challenging, nerve-wracking things you can do. My goal is to hopefully make things easier for you as you launch your own online store. Or, give you visibility into why you shouldn’t start your own store.

Can you make  $10,000 a month dropshipping?

Yes, you can. I sold $10,000 my first “legitimate” month dropshipping. I’ll explain what I mean by “legitimate” month later in the post- it’s a key part of the Dropshipping profit equation.

Is dropshipping as easy as people make it seem?

Not a chance.

Search anywhere online, and you’ll find countless people happily talking about how dropshipping is incredibly easy and passive way to make money. You saw those screenshots up there.

Nothing could be further than the truth. Dropshipping is a business, and it takes time and money in order to succeed. My general advice is to budget at least $500 and ~3 months of significant effort in order to make any kind of money. To really make money, expect to take a year or more and significant cash.

Think of it like riding a bike. In the beginning, it took many tries to figure out how to ride a bike effectively. You tried and failed. You probably fell a lot and scraped your knee. But, after enough practice, it became easy.

Dropshipping is the exact same. You’ll need to invest significant time and energy in order to get a dropshipping business started up.

However, it can be pretty passive once you are a pro and know what you are doing.

Section #1: Dropshipping overview

Let’s start at the very beginning by answering the key question: what is dropshipping?

Dropshipping can be defined very simply. I define it as:

Dropshipping: buying a product for a customer after they bought it from you

Let’s unpack what that definition means with an example.

Dropshipping Example

Hypothetically, you own an online store that dropships basketballs. You don’t actually own any basketballs. A customer, let’s call them Bob, goes onto your website and purchases a basketball from you for $20.

The kicker: you don’t own any basketballs.

Fear not. You simply buy a basketball from another seller for $5. However, and this is key, you don’t have the basketball shipped to you. Instead, the basketball you purchased is shipped to Bob.

Dropshipping complete.

Here’s how the money flowed in this example:

PLEASE CREATE AND BUILD A GRAPHIC THAT SHOWS THIS EXAMPLE HERE!!

  • Bob paid you $20 for a basketball
  • You don’t have a basketball, so you paid another company $5 for the basketball. That basketball was then shipped to Bob
  • You made $15

Benefits of dropshipping

There is one huge benefit to dropshipping: it’s much cheaper than opening another type of business. If you wanted to open up a sporting goods store in your town, you would need to pay a lot of money:

  • Rent for a store
  • Salary for employees (to help customers)
  • Inventory (for customers to see when they walk into your store)

Dropshipping avoids all of these costs. There is no rent, no salary, and no inventory. You don’t need hundreds of basketballs “in the back” for customers, or one of those Wire Pits at Walmart that has hundreds of balls.

Dropshipping can, therefore, be very profitable without these expenses. We’ll talk more about dropshipping profit in a bit in the Dropshipping Profit Equation section.

How was dropshipping popularized?

If you really think about it, dropshipping has components of a really simple business model: Buy something at a low price, then sell at a high price somewhere else.

That’s the business model of spice traders like Marco Polo. They made long and difficult trips from Europe to China under this model. They went to China to buy spices because they were very cheap there. Then, they brought their spices back to Europe because the spices were very expensive there.

Then, they pocketed the difference.

Of course, Marco Polo and other spice traders didn’t call that dropshipping. They didn’t have the luxury of things like the internet to make it easier for them and reduce their need to hold inventory. The “innovative” piece that dropshipping  added to this formula was the lack of need to hold inventory

Modern dropshipping has been popularized since Four Hour Work Week, where Tim Ferriss talked about dropshipping as a good way to set up a “muse” business. Since then, there’s been an explosion of dropshippers. I’m included in that group, which leads to our next point.

Section #2: How to make money dropshipping

Before we get to Section #3, which involves getting started and is the longest section of the post, we need to answer one more question. The most important question to answer is: “how do I make money dropshipping?”

Well, the answer is to understand the Dropshipping Profit Formula.

PLEASE PUT IN SOME SORT OF GRAPHIC THAT HAS THE FORMULA MENTIONED BELOW

The Formula is this: Profit = Sales-Product-Advertising-Fixed cost

Let’s unpack each part of this equation and understand what that means

Profit

This is the key part here. My guess is you’re exploring the idea of dropshipping because you’re interested in making extra money. Dropshipping would be an unusual hobby if it didn’t make you any money.

We’re defining profit here as the money you keep at the end of each month. These are dollars that you can spend and use in your day to day life. Whether that be for things like paying a mortgage or buy a car, what you’re looking for is profit.

Sales

Also pretty self-explanatory, so we’ll keep it brief.

Sales are how much your customers pay you. In the example above, we shared the example of Bob, who bought a basketball from you for $20. In that case, your sales were $20.

Your goal is to increase sales as high as possible. However, there is a pretty well-established rule here. The rule is this: ~1.75% of people who go onto your website will buy something.

Product

Product is what you need to spend in order to fulfill orders. Going back to our example, you sold a basketball to Bob. In order for Bob to get his basketball, you need to go buy a basketball from a supplier for $5.

Advertising

There are LOTS of places online that you could buy a basketball from. Why did Bob go onto your website to buy it from you instead of anywhere else?

The answer is advertising.

There’s a lot of ways to do advertising (Google Adwords, Facebook ads, Instagram Influencers, Organic SEO, etc.). The reality is though: you will need some sort of advertising to make money.

Fixed Cost

This section is brief because it’s relatively cheap. In order to dropship, there are a few small expenses you’ll need to pay. One example is the Shopify fee. Shopify is online software that managers your dropshipping store and makes things easier for you.

It’s pretty impossible to dropship without Shopify. Because Shopify is so important, you need to pay them a fixed fee in order to use their software. They update their prices regularly, but it’s cheap.

Why is the Dropshipping Profit Equation so important, and what do I need to know about it?

There is something incredibly important above within the equation. Did you pick up on it?

Let’s look at these components again:

  • Sales
  • Product
  • Advertising
  • Fixed Cost

As a dropshipper, you only really have control over one component.

Here’s what I mean:

  • The amount of sales is relatively fixed around that stat: 1.75% of customers will buy.
  • You are buying a product (the basketball) from a large, established online player such as Alibaba. This means you cannot negotiate: if they charge $5 for a basketball, you’re paying $5
  • Fixed cost, such as the Shopify fee, have to be paid.

This means advertising is the biggest driver of profitability and the most important part of the dropshipping profit equation.

Before I get to advertising, let me dispel a myth here for you to help emphasize  why advertising is what matters. Trying to “boost conversion” does not make you more money. Increasing conversion rates only matters if we are talking about significant amounts of traffic.

Check out this example:

In this example, your base conversion rate is 1.75%. That’s actually pretty damn good. Said differently, for every 100 people who come to your site, you’ll end up selling something to 1.75 of them.

If you break your back A/B testing things, you might be able to increase your conversion to 2.5%. But in that world, you don’t see a significant dollar increase (>$1,000) until your website has over 50,000 hits a month.

It’s worth it for Amazon to figure out how to get that extra percentage point of conversion because they have millions of hits a day. At that volume, the percentage points matter. But starting out, it doesn’t matter.

That means the only way to control how much you make depends on how many people you drive to your site.

This is back where the advertising comes in.

If your advertising is expensive, you will not be profitable. If you can decrease your advertising cost, your profit will increase.

Say it with me: the key to making money dropshipping is to lower your advertising cost as much as possible.

Earlier, I promised that this post would teach you the key KPI’s you need to know. The biggest KPI’s here are advertising.

Here are some key questions this section might have sparked for you:

  • Does advertising online interest you?
  • Would you be good at advertising online?
  • If you answered “Yes” to both, then dropshipping could be for you! In that case, let’s move onto section #3.

Section #3: Setting up your Dropshipping store

You’ve decided to go ahead with dropshipping. Congrats. Now, let’s set up your store so you can get up and running.

What should I sell? Also known as: What should my niche be?

Finding a niche actually doesn’t matter

If you Google “Dropshipping,” you’ll see this question asked a lot. In fact, the majority of pages about dropshipping online focus on what your “niche” should be.

The concept of a niche is simple. If you find something very specific, you will be the only website online that sells it. That means you would get all of the sales.

An example of a niche could be multi-colored fishing bobbers. Specific, right? You’re probably the only game in town, and people would buy from you.

Here’s why niche’s don’t really work:

  • When people buy niche products, they typically check large players (e.g., Amazon) first. While you could do something on Amazon (called FBA and the topic of another post), you won’t get that sale
  • You truly need to be an expert to succeed in a niche. Because so few people in the world actually care about the niche, they can spot a fraud in a second. Ask yourself: are you truly a world-class expert on this niche? If the answer is no, then don’t do it!

Here’s what you should do: skip all the “niche” talk and start a “general store.” Every website you know online (Amazon, Walmart, Overstock.com, etc.) sells lots of different products. Set up a general website and you can sell everything.

Your store theme doesn’t matter either

Probably the second most frequently asked question is: “What theme should I use?” Again, if you Google this question, you’ll find thousands and thousands of opinions on this.

The real answer is this: it doesn’t really matter, with one exception.

Before going any further, let’s define what a theme is. A theme is essentially a website design. When you use Shopify (which we’ll get to in a second), the website is blank and doesn’t have anything on it. You could use a theme as a pre-built website design. A few clicks and the website is designed and ready to go.

A lot of beginners spend weeks on this decision. They’ll evaluate lots of different themes and change their mind a few times.

It genuinely doesn’t matter!

The reason why is statistics. Again, we talked earlier about how ~1.75% of visitors on your website will end up buying from the store. This is an average across all websites. “High converting” websites might be at 2% conversion and “low converting” might be at 1.5%.

We’re talking about .25% of a difference. Unless your website is getting 100,000 people a month on it, the .25% is worth nothing. It’s not worth your time to worry about a theme at this point. This is the example we talked about earlier.

There is one exception to this theme rule: it needs to be fast.

(Graphic from Neil Patel)

Have you ever tried to log onto a website and said “screw it” because the page took too long to load? This is an extremely common phenomenon. If your website takes 3 seconds or more to load, then people just won’t use your site.

Some themes take longer to load than others. There’s no point in hurting your website by using a theme that’s so slow that no one is clicking on it.

Your goal should be to find a theme that loads in under ~3 seconds. Other than that, it doesn’t matter which you use. There are literally thousands of available designs, so it’s up to you to pick the one you like best.

The way you check load speed is with a website called gtmetrix.com. It’s free. All you do is go online and plugin your URL to Gtmetrix, and it will run a test to tell you how long it takes to load.

What software should I use to dropship?

We’ve talked about one thus far. There are really only two pieces of software you need to use in order to be successful dropshipping. As time goes on and you want to do more “fancy” things, you can. However, these are the only two that are “required.”

The first is Shopify. Shopify already did all the complex coding necessary to set up an online store for you. If you create an account with them cheap), you can get years of complex coding already done for you. Shopify takes care of difficult aspects of things like:

  • Managing inventory
  • Taxes
  • Collecting Payment
  • Tracking Orders

I said it before, and I’ll say it again: dropshipping does not work without Shopify.

There are dozens of tutorials and other lessons available online regarding Shopify and how to use it. For our purposes of a high-level overview of dropshipping, just know that Shopify is a necessary tool for you to learn. It’s not very difficult, but you should plan to devote some time to it in order to learn it.

If you aren’t super technical, there are other solutions as well. For example,  I just paid someone $85 on Fiverr to set it up for  me for each  of my three sites.

The second is called Oberlo. This nifty app works with Alibaba, which is the website from which you’ll purchase sold products. In our example above, this is where you’d buy the basketball for Bob.

Oberlo integrates into Shopify. What you’ll need to do is download Oberlo from the Shopify App store and create an account. The Oberlo account is free (at the time of this writing) and only starts charging you once you have sales. Don’t worry; the fee is pretty nominal when compared to the fact it’s only being paid when you make money.

The first use of Oberlo is to import products. Oberlo has a catalog of every single product it can support, which is most of the products on Alibaba. All you need to do to add products to your store is to go onto Oberlo and click through their catalog. When you find a product you’d like, all you need to do is click “import.” The product you clicked on is now imported into your store and ready to be sold!

(INSERT PHOTO OF ALIEXPRESS LISTING)

Most people stop here, then wonder why they don’t have sales. You have to remember that Oberlo will import the product description written in Mandarin, or in English by a non-native speaker. Depending on where your target customer is and what language they speak, it probably makes sense for you to re-write these automatic Oberlo descriptions.

However, the fact that Oberlo will automatically import the product and description for you is quite nice and will save you lots of manual time on the back-end trying to figure this one out.

When you make a sale, Oberlo will automatically order the product you need from Alibaba and send it to your customer. There is a Chrome extension as well that helps to automate this entire process.

Section  #3: How to get  your first Dropshipping Sale

If you’ve been following along chronologically, you’ve set up a store, imported products, and are ready to sell. Of course, an entire book could be written about each step of that process. As we’re sticking with a high-level overview for you to decide whether or not you want to dropship, we’ll move ahead to the next part: getting sales.

This section will be all about how to get your first sale. In practice, this means how to advertise. Remember from the Dropshipping Profit Equation: advertising cost is the single largest driver of your profitability.

Before going any further, let’s discuss a key component: Google.

You definitely have used Google thousands and thousands of times in your life. Every time you type in the search bar, Google magically knows what you are looking for and gives it to you. It’s an unbelievably simple user experience on top of an incredibly complex piece of coding.

However, Google is not your friend when it comes to dropshipping. Or, at least in the beginning.

Google Organic Search

Here’s what I mean. Google does something called “Indexing.” To simplify, this essentially means Google will “evaluate” your website. As part of this evaluation, Google will determine what kind of information you have on your site. That way, if your site is about basketballs and someone Googles “basketballs,” Google will know your site could be a good search result to show.

There’s a lot more complexity that goes into it. For now, there’s something key to know: Google doesn’t index your site for 6-12 months.

What this means is you can legitimately Google the exact words on your website, and your website won’t show up as a search result.

Here’s an example: I Googled “$10K a day at 30”, which is the entire point of my site. Here’s the result I got:

You might be saying, “Okay, so someone can’t find my website by searching for it. What’s the big deal, Dean?”

The big deal is this: Searching for a website is free. If people can’t find your website by searching for it, that means you need to pay to get people on your website.

That’s why Google isn’t your friend. It means you need to pay for people to find your website for at least 6-12 months, if not longer.

Google Index and the Dropshipping Profit Equation

The profit equation tells us we make more money when advertising costs are lower. We now know, because of Google’s indexing, that people won’t find your website for 6-12 months for free.

That means your first 6-12 months are probably going to be your most expensive for dropshipping because you have to pay more for advertising.

Keep this point in mind, though as you decide whether or not you want to get into dropshipping. Are you okay with waiting 6-12 months for things to become comfortably profitable? Do you have enough of a financial cushion to advertise until then?

Earlier in the book, I mentioned you should have a couple hundred dollars and a couple of months of hard work budgeted in order to make it in dropshipping. This advertising situation with Google is exactly why I make that recommendation.

If you do decide to go ahead with dropshipping, that means you need to find a way to advertise for at least 6-12 months. In that situation, there are a couple of different things you can do.

Google Ads

Ahh, we’re back to Google. One strategy is to pay Google so your website appears first in search results. This has historically been my favorite strategy.

For example, you sell basketballs on your website. You set up Google ads in order to drive people to your site.

Bob comes along and Googles “Basketballs.” Your ad is the first result Bob sees, so he clicks on that and is on your site. Now, he’s on your website and could buy from you to generate sales.

Of course, there is some nuance here. In particular, there are two things to highlight.

The first is how Google charges you. Google will charge you when Bob clicks on your advertisement. Let’s say Google charges you a dollar for that click. This is an important point to remember, for which we’ll explain why later.

The second thing to highlight is the dropshipping profit equation. Remember, not every customer who goes onto your website will buy something. Let’s use our basketball example again here.

The basketball sells for $20. You’ll buy a basketball from Alibaba (via Oberlo) for $5. You pay $1 to Google for every person who clicks on your ad.

So here’s what happens:

Potential Customer #1: Clicks on ad, doesn’t buy

Potential Customer #2: Clicks on ad, doesn’t buy

Potential Customer #3: Clicks on ad, doesn’t buy

Potential Customer #4: Clicks on ad, doesn’t buy

Potential Customer #5: Clicks on ad, doesn’t buy

Potential Customer #6: Clicks on ad, doesn’t buy

Potential Customer #7: Clicks on ad, doesn’t buy

Potential Customer #8: Clicks on ad, doesn’t buy

Potential Customer #9: Clicks on ad, doesn’t buy

Bob: Clicks on ad, buys the basketball.

Let’s do the math. In this scenario, you made $20 in revenue when Bob bought the basketball. You paid $5 to get the basketball from Oberlo. However, you also paid $10 to Google to get ten potential customers on your website. You made only $5.

Let’s change the scenario slightly. Let’s say that your advertising cost can go down to zero (people find your site by searching for it). Here, you made $20 when Bob bought the basketball, and you paid $5 for the basketball. Here, you made $15. That is 300% more than what you would have made earlier when you had to pay for advertising!

This is why advertising is the key component of the Dropshipping Profit Equation!

It’s also why I like Google Advertising the best. I’ve found, in my experience, Google ads to be the cheapest. However, that can change by a lot of different factors. Some of those factors include the type of product, core customer, etc.

If you want to try different types of ads, there are other options.

Facebook Ads

This is another really common way to advertise for dropshipping. Facebook ads are very popular amongst dropshippers due to the flexibility they offer. If you know exactly what your target user is, Facebook is probably your best bet.

Here’s what I mean: Google will show your ad to whoever types “basketball” into your search bar. Facebook can be tweaked so it only shows your ad to exactly who you want it to.

For example, you can go online and create a Facebook ad with the following rules. Your ad will only appear in the newsfeed of people who fit the following criteria:

  • Aged 18-35
  • Interested in fitness
  • Is a fan of Steph Curry (for context: famous basketball player)
  • Makes $50,000/year
  • Lives in Utah
  • Has a dog
  • Etc. You get the picture

If you have all of this detail about your target customer, then Facebook is golden! You won’t waste money on ads for people who aren’t your target customer and will make more money.

However, if you are wrong about your target customer, you’re in trouble. Let’s say you are advertising to people who live in Utah, but people in Utah aren’t buying basketballs. The people who will buy basketballs actually live in Maine. You will just waste money.

So the question you need to ask is: do you know your core customer?

There are two other nuances worth highlighting for Facebook ads. Most Facebook ads will show up in people’s Timelines. How many times have you scrolled your Facebook and not stopped to look at everything?

To make sure that people stop and look at your ads, they need to be interesting. As a result, the data is pretty clear you need to have a video in your ad. This will get people to stop and look at your ad. An example of something interesting could be a video of someone shooting hoops with the basketball. This is now an added complexity to think about that Google ads don’t have.

The other nuance is how Facebook makes money. Remember, Google gets paid when someone clicks on the ads. Facebook gets paid when people see the ad. That’s a key difference because lots more people see advertisements than click on advertisements.

Facebook is paid per thousand views. So for every 1,000 people who see your advertisement, Facebook could make $10.

The cost to advertise on Facebook and Google aren’t totally different in terms of the dollar amount. However, it is important to understand that they make money slightly differently.

Other advertising strategies

There are other ways to advertise your website as well! These are often more difficult and aren’t used nearly as frequently by dropshippers. However, if you are really good at one of these platforms, it could be for you.

For example, you have a blog. You could advertise your products on your blog in order to get free advertising.

The blog is without a doubt the most profitable way to do this. If you blog about products, are diligent about  SEO, and are patient, you can get people on your site without paying anything and make significant money.

However, it will take 6-12 months for SEO to kick in. In most cases, closer to 12.

In that situation, you are paying the monthly Shopify fee for all of the months you are blogging.

So, can you afford to wait? Can you also write 200,000 words of content for SEO?

Another option is to pay an Instagram influencer to post something that advertises your product. This is a common strategy but can get very expensive. The Kardashians make a couple hundred grand per post.

My guess is you won’t pay the Kardashians to advertise your dropshipping store. But you could probably find someone who posts a lot on Instagram about basketball and has a couple thousand followers. You could reach out to the influencer and offer $100 if they make a post about how your basketballs are great!

Testing Ads

Now that you have the site up and running with some ads going, it’s time to test. You now have some data to understand how the ads are working.

Let’s say you’re running two different types of ads in the first month of your store. They are:

Google Ads: You spent $100, and that led to $1,000 in sales

Facebook Ads: You spent $100, and that led to $100 in sales

You are planning to spend $200 on ads in the second month of the store. Based on the results in month #1, it’s clear you should spend all $200 on Google ads.

But, what Google ad copy should you use? What picture of the basketball is going to convince people to buy?

As you move forward each month, you should constantly be running your store and checking to see how the ads are developing. If things are getting more affordable and more effective, you’re going in the right direction.

Once a store is up and running, tweaking ads is going to be one of your main jobs.

Section #5: Fulfilling Dropshipping Orders

We just mentioned one of your main jobs once a store is up and running: tweaking ads. Now let’s talk about one of your other main jobs: fulfilling orders.

Fortunately, fulfilling orders is actually quite easy. This is based on the fantastic software that you installed earlier. However, it’s a main responsibility that you need to do. If a customer has paid money to you, then you need to send them the product.

You’ll fulfill orders via Oberlo software. This will be the Oberlo app that you’ve installed on the Shopify app store. There’s also a very helpful Oberlo Chrome extension I’d recommend installing.

Once you have this software installed, things are relatively straight forward. I’d recommend the Oberlo how-to manual that describes how to do it.

For our purposes, there’s a couple of principles to keep in mind about dropshipping at a high level.

The first is shipping time. Customers have been trained by Amazon to expect delivery of products within 48 hours. However, dropshipping is different. Dropshipping takes ~2-3 weeks for a product to arrive because the product comes from China. Because of shipping time, customers can get upset (more on that in a second). What that means though is you should fulfill orders within 24 hours of them being placed. Every extra day you can save a customer is a happier customer!

The second is time. It will take about one minute to fulfill each other. With ten orders coming in each day, that’s about 10 minutes each night of fulfillment. At that point, it’s easy to fulfill those orders.

Hopefully, you’re extremely successful and have 100’s of orders coming in each day! In that scenario, you might want to consider another option.

Virtual Assistants

Also made popular from Four Hour Work Week, Virtual Assistants are online experts who can assist with dropshipping. There are many pros online who are extremely affordable and very knowledgeable.

To hire a Virtual Assistant, I’d recommend an online platform like Fiverr or UpWork. I’ve used both to hire VA’s for dropshipping. After trying a few different experts, I found an assistant who could help with fulfilling orders. He charged $9/hour for his time.

When orders were 10 per day, I was happy to spend 10 minutes per day to fulfill them. However, when order volume increases, it could make sense to hire a VA to spend a few hours a day to fulfill orders.

When it makes sense to hire a VA is up to you. For me, once order fulfillment took more than an hour a day, it was time to hire a VA.

 

Section  #6: Customer Service for Dropshipping

This is a key component of your ongoing work as a dropshipper. Whenever customers part with their credit card expiration date, they expect to be taken care of.

Take however many questions you expect to get from customers. Then double it. That’s how many questions you’ll get from customers.

I think it’s fair to assume that ~25% of customers will have a question for you after ordering. This could be things like:

When will my order arrive?

  • I have a problem with my product
  • I want to send the product to another address
  • I want a refund
  • I want to return
  • I just want to chat

Customer service will be, by far, your largest ongoing job. Say that with me again: dropshipping will be about customer service!

There are ways that you can make things easier but at a cost.

  • There’s a service you can pay to have chatbots on your site so customer’s chat live chat on your website to get their questions answered.
  • There’s a “track my order” functionality you can put on your site so customers won’t need to reach out and ask questions about it.
  • There’s a service you can set up to simplify the return process

Here’s the trade-off you need to consider: the cost for all of these will be pretty dramatic. You could handle customer service yourself, but that could be a couple of hours a day once you reach 100+ orders/day.

Alternatively, you could have several Fiverr VA’s on the site who take care of customer service for you. However, that means you’ll need several VA’s and need to manage them. You’ll also have to make sure that they are doing customer service correctly. You’ll probably find the VA’s handle things correctly (e.g: not making a mistake with the store finances when refunding customers) only ~75% of the time.

Or, you could pay for software that does a good job of customer service. However, you could easily expect to pay $500 a month for this functionality.

So, when deciding about whether or not you want to dropship, make sure to think about customer service. Plan to spend a fair amount of time answering questions for customers, or plan to spend $500/month to handle customer service!

 

Section #7: Automating and Scaling

One of the things you constantly hear online is that “dropshipping is easy” or “dropshipping is passive income.”

Well, kinda.

Hopefully, by now, you recognize that dropshipping is difficult and can take a substantial amount of time to set up correctly. It will take six months for Google to index the site. You’ll also need to plan to handle advertising adjustments, order fulfillment, and customer service.

So it could be automated and passive. But it will take a few things:

  • 6-12 months for Google to index AND/OR significant spend on ads
  • Investment in virtual assistants to handle order fulfillment
  • Investment in software to handle customer service

So there are two ways you can automate and scale dropshipping:

Spend <$500 to set up a store and spend a little on ads while you wait for the site to be indexed. You handle all work yourself for ~6 months, but eventually, invest all the money you make from sales back into the store to hire VA’s and get customer service software. The store becomes passive after ~6-12 months of hard work

Spend ~$5,000 to spend a lot on advertising. You hire VA’s and customer service support immediately. The store is passive pretty quickly.

It’s up to you to decide how you want to do it. But the truth of the matter is this: dropshipping will take significant work and time to become passive unless you want to pay substantial money upfront.

 

Section #8: Closing thoughts

In this post, we’ve talked a lot about dropshipping at a high-level. We walked through the business model and the Dropshipping Profit Formula. We talked about how you can set up a store, how to make money, advertising, and scaling.

The key question is now: do you want to get into dropshipping?

I, unfortunately, cannot answer the question for you. That question is entirely up to you and your risk profile. I’m not a financial advisor, and a fiduciary so I can’t tell you how to spend your money!

But I think it’s important to share my opinion on how dropshipping can work.

Personally, I did a little bit of both. I sold over $10,000 of goods in my first month dropshipping. I handled most of the ongoing activities (advertising tweaks and customer service). However, I spent more on advertising to make sure I got people onto the site.

Here is a list of key questions I’d think about as you decide whether or not you want to get into dropshipping. The questions are:

  • Do I like the idea of advertising online? Would I find advertising interesting?
  • Do I like the idea of order fulfillment?
  • Do I like the idea of customer service?
  • Am I willing to do advertising, fulfillment, and customer service for at least six months?
  • If I answered “no” to any of the above questions, am I willing to invest money, so someone else handles these?
  • With these questions, you hopefully have a good understanding of whether or not you want to move forward with dropshipping.

Final Thoughts

I hope you’ve enjoyed this overview of the dropshipping business model and know more about what “dropshipping” is. Even more, I hope you know whether or not it’s something you want to try!

Dropshipping is a unique business, and it could be something that works very well for you. However, there are lots of “gurus” online who offer to teach you all about it for the “low” price of $999. Unfortunately, it’s not until you pay any money that you learn more about dropshipping and if it’s something you actually would want to do or would be good at!!

To that end, my hope is that this post provided as much value for you as one of those ridiculously expensive courses.

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