Dropshipping. It’s the online business model that we’d see touted so frequently now online as being a fast, easy way to generate large amounts of money in a short time. But what is it? Is dropshipping a useful business model? Is it something that most people will succeed? What is involved? I’m going to walk you through the dropshipping business model, how it works, the benefits of it, the downsides or the cons to dropshipping and we’ll talk about if it’s something that I would personally do and if it’s something I would recommend you do and why or why not. So we’re going to dive deep into this one. If dropshipping is something you’ve been considering, you’re going to enjoy this article. We’re going to dive deep. It’s a no BS look at drop shipping as a business model and everything involved without all the fluff, filler, and hype you see in most articles. So first and foremost, let’s look at how the business model itself works. In a nutshell, Dropshipping is where people will go to AliExpress, a Chinese website that sells thousands and thousands of different products that are low priced, they will go to AliExpress and find a product.
Usually, the criteria are that the product is small and light, meaning it’s easy to post, and it’s either trending or something that they believe will trend with a large audience. Something that appeals to many people and is something that they think will catch on easily. It’s something that’s going to be appealing to a relatively large audience. Fidget spinners are a classic example. Hundreds, probably thousands of drop shippers were selling fidget spinners because they met this criterion. They’re a hot item, small and light, meaning postage was cheap and easy to manage. So they will go to AliExpress and find a product.
E-Commerce Store Specifically
Step two is they will set up a store using Shopify. If you’re not familiar with Shopify, it’s an online e-commerce platform that allows you to quickly and easily set up an e-commerce store. So they’ll go to Shopify, and they will set up an e-commerce store specifically to sell this product. They’ll grab a logo, usually go to Fiverr, and set up a logo, which becomes their brand. And from there, they’ll generally source some product images. Now, most drop shippers will do what they will do because they’re starting with a very minimal budget, so usually, they’ll take the images directly from AliExpress or go around on Google and find images of the product. They’ll use that on their product page for their Shopify store.
Purchase Any Inventory
This in itself eventually causes issues because they get copyright claims and things like that on the images. So usually it’s a short-term fix, but that’s our drop shippers do this. They grab ideas from over the web, articles if they can find them, and they use them on their products store. Now, when it comes to pricing, this is how the business model operates. They will look at how much the product costs on AliExpress. They will then list the product for, usually, three-four times more than that, maybe even more, on their own Shopify store. So if they pay $2 for the development and AliExpress, they might charge eight, 10, $12 from their online store via Shopify.
At that point, once they’ve got their Shopify store up and running, they will then go and run ads, usually Facebook ads, to that product on their Shopify store. When somebody clicks an ad, they go to the store, and they purchase the ad from the drop shipper. The drop shipper will go to AliExpress, purchase one of those products, and send it directly to the customer. Meaning they will purchase the product from AliExpress using the customer’s name and address. AliExpress will then ship that item directly from China to the customer, wherever they are in the world. So the drop shipper themselves never actually touches the product. Now, the drop shipper’s profit margins are quite simply the amount that they sold the product for minus shipping if they didn’t add shipping, minus the cost of the product. So if let’s say, the drop shipper finds a product for $2, and they sell it on their Shopify store for $12. They have a postage cost of $2, they do free postage, so they eat that cost, and the Facebook ad cost them $5 to get that customer, they have a cost of $5 for the Facebook ad, $2 for the product, $2 for shipping, so that’s $9, and they’ve generated a $2 profit on the product. Okay? That’s quite simply how this business mod.
Now, you can probably already see that there are several pros or benefits to this business model. So we’ll start with that, and then we’ll talk about the downsides. This business model’s primary service is that it’s very cheap and easy to set up. And that’s what all of these people promoting dropshipping are going to be telling you first. It’s that you can start with little money down, you can start with no experience, blah, blah, blah and all that stuff, you’ve seen it all. Now, yes, that is true because what happens is you don’t have to purchase any inventory or any stock. As a dropshipper, you only buy merchandise after a customer has purchased the product from you. Somebody purchases from your store, you then log into AliExpress and purchase the product. So there is no downside risk in terms of holding inventory or stock, okay? That’s the key benefit of dropshipping.