12 January 2021
15 costs to consider before starting dropshipping
Dropshipping is an awesome way of running an online store without investing in a warehouse full of stock. It’s a popular option for selling products online as people look to make more money from the comfort of their homes, and thanks to the rise of online shopping, it shows no signs of going anywhere soon.
In fact, eCommerce and dropshipping profits reached over $4 billion in 2020, a 7% year-on-year increase for the last 10 years!
But while dropshipping is seen as an easy and convenient way of running an online store, it’s a long way from a get-rich-quick scheme and will still require plenty of time and effort to get right… Not to mention a handful of unavoidable costs that will need to be considered before you get started.
What is dropshipping?
Dropshipping is an innovative way to run an online store, transforming you into a ‘middleman’ who fulfills customer orders and passes them onto a supplier. The supplier will then handle the stock, packaging, and shipments. So, while you’re the face of the company, the actual product handling is done by a third party.
This method of eCommerce is popular as it prevents vendors from needing to invest in loads of stock that may or may not sell, in addition to avoiding the costs associated with warehouses, packing, etc.
What’s more, vendors using a dropshipping service don’t need to pay up-front for the stock; they simply pay for the products customers have actually ordered, often at a discount.
This means that all you’re responsible for, as a vendor, is:
- Finding a great product to sell
- Finding a supplier for the product
- Choosing a marketplace
- Branding and marketing
Sounds simple, right?
Dropshipping Costs to Consider
Dropshipping is often seen as a convenient way to set up an online business while avoiding vast sums of money investing in stock as well as the day-to-day running of your store. However, there are several costs that you’ll need to consider before you throw everything you have into a dropshipping business.
These can be broken down into 4 principal categories: the store, the supplier, the marketing, and the business. You may also come across additional costs as your business progresses.
In a bit more detail, these costs could include the following:
- Website and domain
- Contact Details (phone number, registered address, email)
In the absence of a physical store that people can actually visit, your website will become the front of your business. Therefore, it needs to be of the highest quality with decent branding everywhere. Even if you’re not a professional web designer, there’s loads of advice available online to help you build a professional-looking website. Alternatively, you could consider hiring a professional to help you with branding (although this can be reasonably expensive, and it’s definitely worth paying more for quality if you don’t want to do it yourself).
You’ll also need to think about the domain hosting and gather all the .com variations (.biz, .net, .org, etc.) to ensure nobody else can trade on your successes.
Once you’ve got your website looking good, you’ll also need to think about contact details. You’ll want a formal business line (not a cell phone) to ensure your store appears as professional as possible. While this will incur a cost, business lines can usually be installed for a relatively low fee, and providers offer many customization options.
Most website hosting providers will provide you with the option to add a business email to your site, so this is quick and easy. Even if your website provider doesn’t offer this service, there are plenty of ways to make a free business email address.
You should also think about the registered address of your business. Using a UPS mailbox for business purposes can be an excellent solution to ensure you don’t end up with customers at your doorstep and can cost as little as $10 per month.
- Product testing
Although you should never pay to work with a supplier, and the benefit of dropshipping is not needing to pay up-front or bulk-buy products, working with a supplier will inevitably bring up some costs that need to be part of your budgeting plan.
These costs will vary depending on the supplier(s) you’re working with, and some may include services such as shipping and personalization in their general service, while others might charge extra if you want your own branding on the package.
Remember that dropshipping might be cheaper than a direct sale; it’s unlikely to be quite as discounted as wholesale.
When you’re starting out with a new supplier, you will want to spend a little time and money actually ordering some of the things you intend to sell. This gives you the chance to experience the customer journey first-hand and can answer questions like:
- How long does it take for the product to arrive?
- What is the packaging like?
- Is the product free from defects?
- Is the product high-quality?
Completing this step doesn’t just allow you to vet the supplier but also offers an excellent marketing opportunity: take your own pictures of the goods and ask friends and family to provide their opinions. You could even run giveaways or online competitions with your ‘test’ products as prizes once you’ve established you’re happy with the supplier.
- Social media
- Customer service
While a dropshipping supplier will deal with the product, packaging, and shipping on your behalf, you will still be expected to handle your business’s marketing and customer service. This includes advertising, emails, and more.
Social media is an excellent way to enhance your brand reputation and awareness and can be adjusted to suit your budget. Facebook ads, for example, tend to be charged on a per-click basis.
A blog is also a great way to help increase traffic to your store, and understanding SEO is vital for attracting new potential customers. If you’re not confident using SEO or writing isn’t your strong point, you might want to consider a professional copywriter to help you out. The fees associated with copywriters, social media managers, or any other marketing assistance can vary greatly, but it’s generally worth paying a little more for high quality.
Other business expenses
- Tax ID
- Business credit cards
- Local business licenses
- Legal fees
In addition to your website, supplier, and marketing expenses, you should also be sure to budget for the more formal elements of running an eCommerce business. These can include registering your business for tax, securing the relevant local business licenses, and any legal fees involved in the start-up. The costs for these will vary from state-to-state and are generally deductible expenses.
Is dropshipping worth it?
Although there are numerous fees to think about when it comes to dropshipping, it is still considered a far more affordable and convenient way to start an eCommerce business.
The benefits of not needing to pay up-front for goods and relatively inexpensive business costs make dropshipping an accessible and popular choice for many start-ups and small businesses.