[00:00] In this video, I'm going to answer the most commonly asked questions about dropshipping, including the questions that most people won't give you a straight answer on. So here's the ugly truth about dropshipping.
[00:16] Now, dropshipping has a reputation for being a debt-rich quick scheme because it sounds way too easy. You don't need to store inventory, you don't need to ship with full orders, you don't need much money to get started, and you can run a dropship store from anywhere in the world.
[00:29] Now, while all these statements are technically true, a common misconception is that running a successful dropship store is easy. But in reality, successful dropshipping has many pros and cons and isn't as straightforward as you are led to believe.
[00:42] So in this video, I answer all the in-depth questions related to dropshipping to provide you with a complete view of what it takes to run a profitable dropship store. Now, what is dropshipping? Dropshipping is an e-commerce business model where an online store does not carry inventory for the products itself.
[00:56] When an order is made, the online store purchases the product from a wholesale supplier who then ships the order directly to the end customer. So as a result, the online store owner does not have to deal with physical inventory or perform any shipping and handling.
[01:10] There's no upfront inventory cost because all products are purchased on demand. Now, is dropshipping legal and legit? It is 100% legal as long as you use legitimate dropship suppliers. So, for example, if you sell Disney merchandise on your online store and your supplier dropships fake Disney merchandise on your behalf, you could be liable for fraud.
[01:29] Now, as long as you're careful about who you work with and only use officially licensed distributors for the brand you carry, dropshipping is legit and safe. Now, does it require a seller's permit and a business license? Well, in the U.S., you absolutely need a seller's permit in order to legally sell online.
[01:45] Now, most states require you to charge sales tax to customers where you have economic nexus, and dropshipping is no exception. If your locality requires a business license, then you must get a business license as well. Remember, dropshipping is simply a method of order fulfillment.
[01:59] Your dropshipping business is a real business and must be registered as such. Now, how profitable is dropshipping? Well, because your supplier is doing most of the heavy lifting when it comes to fulfillment and inventory, the margins for dropshipping are much less than other e-commerce business models.
[02:15] So typical margins for dropshipping are between 10% and 30%, compared to 50% to 66% for private label and traditional wholesale, which makes dropshipping far less profitable. Now, the best price to dropship are higher ticket items that yield more revenue per sale.
[02:31] Now, is dropshipping worth it? Well, despite the low margins, dropshipping can be a great way to get started selling online. For less than $3, you can start a fully featured e-commerce business that carries hundreds of products.
[02:43] And dropshipping is worth it for product research as well. Without any upfront risk, you can list many products online just to see what sells. And then, based on your own sales data, you can private label or carry inventory for your best-selling products and keep more of the profit.
[02:58] Now, the best part is that dropshipping can be automated except for the customer service. Now, most established dropshipping suppliers support EDI, which stands for Electronic Data Interchange. EDI is an electronic system that allows your website and your supplier's website inventory to automatically stay in sync.
[03:15] So, for example, if your supplier runs out of stock on a particular product, your website's inventory will automatically be adjusted. In addition all orders placed on your website are automatically transmitted to your dropshipper fulfillment However even though order fulfillment is automated you are still responsible for answering questions and performing customer service
[03:35] Now, here's how dropshipping from your own website works. Now, if you use a well-supported e-commerce platform like Shopify, BigCommerce, or WooCommerce, setting up dropshipping is a straightforward process. Here's exactly how you dropship from your own website and how it works.
[03:49] A customer places an order on your site and you accept payment. The customer's order is electronically transmitted to your dropship supplier, where you are charged the agreed-upon wholesale price for your goods. Your dropship supplier then ships the order to the end customer,
[04:02] and you pocket the difference in cost as profit. And you don't have to dropship on your website. You can also dropship on Amazon. And here's how Amazon dropshipping works. You list your products for sale on Amazon as a merchant-fulfilled seller,
[04:14] and then when an order is placed on Amazon, you electronically send the order to your dropship supplier, who then ships the product to the end customer. Now, overall, Amazon dropshipping is a much riskier business model than dropshipping from your own site
[04:26] because you have to follow Amazon's terms of service to the letter. First off, you must source your products from a legit wholesaler. You are not allowed to dropship your products from another marketplace like AliExpress, eBay, or Walmart.
[04:39] Otherwise, you're going to get banned. As a result, AliExpress dropshipping on Amazon is expressly prohibited. Amazon also imposes very strict requirements for shipping and fulfillment that must be met. If you have a series of late shipments or inventory mishaps, your account is going to get banned.
[04:54] But outside of following Amazon's terms of service, dropshipping on Amazon works much the same as dropshipping on your own website. You can also dropship on eBay. You simply list your products for sale as an auction or a store listing,
[05:06] and then when an order is placed, you electronically notify your supplier who fills the order. And similar to Amazon, you must source your products from legit dropship suppliers and not marketplaces like Amazon or Walmart. Otherwise, you're going to get banned. So as a result, get-rich-quick schemes like buying products from Amazon and dropshipping them on eBay at higher prices is prohibited.
[05:25] Now you're probably wondering how dropship payments work. Well, when you sign up with a dropshipping supplier, you'll be asked for a form of payment. And typically you can pay by credit card. Your supplier keeps your credit card in file and simply charges your card when an order is placed.
[05:38] You can also use ACH or direct transfer. This is where your supplier keeps your bank information and automatically places a transaction at the end of the day, week, or month for all products purchased. The best way to pay a dropshipping supplier is through payment terms.
[05:51] Some suppliers will offer you payment terms, which means that you don't have to pay for your products until 30 or 60 days later. Now, whenever an order is placed on your website, two payment transactions occur in the background. The first transaction takes place when you accept payment from your customer and deposit the money into your own bank account.
[06:08] The second transaction takes place when you pay your supplier for the raw cost of goods and any related dropshipping fees. Now, where do you find dropshipping suppliers? There are four main ways to find suppliers, depending on your budget and the type of product that you want to sell.
[06:21] And by paying a fee, you can perform a search and instantly have access to hundreds of pre-vetted suppliers. You can also use a dropshipping company. A dropshipping company acts as a middleman who automatically connects you to a dropship supplier.
[06:34] You simply list the products that the dropship company offers, and they handle the entire fulfillment process. As a result, you do not have to find or interact with any suppliers. You can also go to a dropshipping trade show. By attending local wholesale and dropshipping trade shows, you can form dropshipping arrangements
[06:50] face to face. You can also use a print-on-demand company. Print companies allow you to print your own designs on select merchandise to sell online without any upfront cost Now how do you find wholesalers through Dropship Well the easiest way to find Dropship wholesalers is by using Google a directory like Worldwide
[07:06] Brands, or by attending wholesale trade shows. Now, many wholesalers are reluctant to Dropship for your store unless they know you can move product. So, if there's a brand who refuses to Dropship for you at first, you should purchase and
[07:18] sell the product wholesale to start. And then, once you've demonstrated a track record of sales, you can request a dropshipping arrangement. Now, where do you find products to sell for dropshipping? Well, more than half the battle of starting a successful online store involves finding the right products to sell online.
[07:33] And the best way to find profitable products to sell online is to leverage sales data from Amazon. Because Amazon owns over 50% of e-commerce, you can get an accurate view of the supply and demand for practically any product sold online.
[07:46] To perform product research on Amazon, I recommend a tool called Jungle Scout. Jungle Scout is a software tool that tells you how much revenue a product listing is generating on Amazon for the last 30 days. All sales information is collated for you in a nice table for your review.
[08:01] Here's a video I put together that gives you a quick demo. Now, when should you use dropshipping? Now, because the margins for dropshipping are low, dropshipping is generally not a good long-term business model. Furthermore, because you're selling other people's brands,
[08:15] you'll be directly competing with other sellers offering the exact same product. As a result, dropshipping is best used to collect data for potential products for private label or to buy wholesale. Because dropshipping allows you to instantly sell hundreds of products online without any upfront costs,
[08:30] you can easily test a bunch of products, find out what sells, and then private label your winners. In other words, you should use dropshipping as a stepping stone to create your own branded products for sale. Dropshipping is also an excellent business model for dipping your toes in e-commerce waters without a large budget.
[08:46] Now, what are the best dropshipping companies? Most dropshipping companies are middlemen who help online store owners quickly list products from e-commerce marketplaces like AliExpress, Taobao, and 1688. Now, the main advantage of using a dropshipping company is that you instantly have access to millions of products without having to build relationships or negotiate for pricing.
[09:06] Simply install a plugin to interface your store to your favorite dropshipping company, and you can instantly sell hundreds of products at the push of a button. Here's a list of my favorite dropshipping companies. Now, a question I commonly get asked is, who pays for shipping when dropshipping?
[09:20] Well, every dropship supplier charges their own shipping rate. So, for example, Principal charges $3.99 for the first t-shirt, and $1.25 for every additional t-shirt shipped using USPS first-class delivery. Now, when it comes to places to order on your own website,
[09:34] you can either eat the shipping cost yourself or pass the shipping cost along to your customer. Now, using the t-shirt example, you can either choose to charge your customer $3.99 for shipping or offer free shipping and cover the cost yourself.
[09:47] Now, for our online store, we charge a flat rate of $5 for all orders and offer free shipping for anything over $75. Now, do dropshippers ship internationally? Well, some dropshipping suppliers will ship packages internationally at an additional cost.
[10:01] However, international shipping is extremely expensive, and getting accurate shipping quotes that account for customs duty, VAT, and other fees is actually quite complex. So as a result, it can take longer for a dropshipper to process an international order.
[10:15] Now, how do returns work with dropshipping? Even though dropshippers take care of product fulfillment, you are actually responsible for processing returns and providing customer service for defective merchandise Here how a typical return is handled for dropship merchandise The customer contacts you for a refund You ask your supplier for a return authorization number The customer
[10:35] sends the product in its original packaging back to your supplier with the RMA number clearly marked. Then your supplier refunds the wholesale cost back to your account once the package is received. And then finally, you refund your customer after you've been refunded by your
[10:49] supplier. Now, some dropship suppliers will charge you a restocking fee, which you must pay or pass onto your customer. You're probably also wondering, can you use multiple dropship suppliers? Well, you can use as many dropship suppliers as you want
[11:02] as long as your orders are routed correctly and as long as you set the proper expectations with your customer. So for example, let's say you sell three different products that are sourced from three different dropship suppliers. Now if a customer buys all three products
[11:15] in a single order, here's how the order is to fill. Your shopping cart will route product one to dropshipper one, product two to dropshipper two, and product three to dropshipper three. In other words, your customer is going to receive
[11:27] three separate packages in the mail, and because three packages are shipped, you must pay the cost of shipping for three packages in the mail. In every sense, you should notify the customer to expect three packages instead of one.
[11:39] Now, most e-commerce platforms will handle order routing among different dropshippers automatically. Now, why is dropshipping good? Well, it's a good business model because it's a risk-free way to sell products online. You don't have to handle inventory, shipping, or fulfillment.
[11:53] As a result, you can run your business from anywhere in the world. There's little or no upfront investment, and you can literally start a dropshipping store for free with ShiftWarshop. Your store is also infinitely scalable.
[12:05] It's approximately the same amount of work to make $100 a month as it is to make $100,000 a month. And most importantly, dropshipping can be used to research products to sell that you can eventually private label to maximize your profits.
[12:17] Now, here's why dropshipping is bad. Dropshipping is a bad business model because the margins are low at 10-30%. As a result, you have to generate a large amount of traffic and revenue to make a significant profit.
[12:29] Furthermore, customer service, tire quality, and delivery is entirely at the mercy of your dropship supplier. If your supplier is flaky or ships orders out late, it will reflect poorly on your company. If you dropship on Amazon or eBay, late shipments can result in a suspension.
[12:44] And most importantly, there's little or no brand recognition with a dropship store. Because you are selling other people's products, you will face pricing pressure from other competing retailers offering the exact same goods.
[12:56] Now, what big stores use dropshipping? Well, almost every large retailer leverages dropshipping to a certain extent. So, for example, big box stores like Home Depot often dropship large products from their catalog. Wayfair is a multi-million dollar e-commerce company that is entirely dropshipped.
[13:11] So, bottom line, you can make money with dropshipping when it's done at scale. Now, is dropshipping profitable? With warehouse space and inventory at a premium, dropshipping will still be a profitable business
[13:23] model. However, it will be much more difficult to make a significant profit due to poor margins. Ultimately, the best ecommerce business model is to start your own private label brand. By being in control of the product design and the entire supply chain,
[13:37] you can future-proof your business and command the highest profits. Hope you enjoyed this video. Now if you like what you saw, there's actually a lot more where where that came from, if you subscribe to my channel below. And if you are interested in learning
[13:49] how to sell physical products online, then click over here and take my free six day mini course where I'll walk you through everything that you need to know to get started in e-commerce. Thanks for watching.