How to Make Money Dropshipping on Shopify in 2022?
- Keren Dinkin
- Apr 3, 2021
- 16 min read
Updated: Aug 23, 2022
Making money with a dropshipping store on Shopify has never been easier! In this post you'll learn how to:
Set up your Shopify store
Choose products for dropshipping
Find reliable dropshipping suppliers
Market your new eCommerce business
Table of Contents
Did you know that there were 2.05 billion online purchasers in 2020? It might even surprise you more to know that the number is expected to reach a whopping 2.14 billion this year.
Along with this unprecedented increase, comes several eager opportunists. If you’re someone looking towards making a small fortune in online e-commerce, chances are that you’ve come across the term ‘dropshipping’ - usually followed by promises of massive returns on investment in minimal time.
Contrary to what most people believe, dropshipping isn’t a get-rich-quick scheme. Sure, you might think it sounds like easy money - selling other peoples’ goods and taking your cut. Once you consider the obstacles, drawbacks, and daily management, you’ll soon notice that it’s not so simple. Nevertheless, the right approach and the adoption of proven strategies will produce a successful business… just not as fast as you’d like.
Before you invest your savings into a dropshipping business, it would be wise to invest some time in learning the basics. A prudent entrepreneur researches thoroughly before making any business decisions, after all.
In this guide, we take you through the ins and outs of dropshipping, how to launch your business, and the benefits/cons of the process.
You can also check out this free webinar offered by Shopify titled: "How to Get Started with Dropshipping."
What Does Dropshipping Mean?
This retail fulfillment technique doesn’t involve keeping products in stock. Instead, when you use this model to sell products, you purchase the items from a third party, which ships the items to a customer directly.
Consequently, you don’t need to worry about direct product handling and inventory management.
The business model is extremely popular for new entrepreneurs, particularly, millennials and Gen-Zers with internet marketing skills that surpass their financial capacity. Since you won’t need to handle or stock the products you’re selling, it’s possible to launch this business with restricted funds.
How Legal Is Dropshipping?
The business model itself is legal. However, you must consider numerous aspects of legality when developing and operating an online business. It’s equally important to note that certain issues depend on the geographic location of the business proprietor and the clients.
This implies that based on the country where you’re conducting business operations, some requirements on the business taxation and registration must be in place. Simultaneously, clients’ residence countries might have particular regulations on the kind of products that can undergo safe importation.
Here’s a lowdown on some of the legal questions you may have surrounding dropshipping:
Business License
The first question that comes to anyone looking to get into this business is whether a business license is necessary. In this case, a license isn’t necessary to create a store and start product selling. Nonetheless, it doesn’t mean you can’t consider it in your business dealings.
Based on the country in which you intend to run your business, various options exist when it comes to registration. Just make sure you assess your options diligently to determine the best option.
Taxation
Based on your geographic location, taxes and duties may vary when considering catering to clients in other nations. This element remains one of the most significant in legitimizing a business and having your country and customers recognize it.
Some taxation elements to consider are the sales tax on products and income tax on profits. Since e-commerce law is ever-evolving, ensure you consult an accountant and tax attorney before proceeding.
Liability
The absence of a license means you're personally responsible for any issues your clients encounter after buying an item from your e-commerce store. To ensure full protection from liability, you'll require more than a business license.
It's advisable to also buy liability insurance to protect you against legal risks in case the product you sell ends up being low quality. In case you need defense in a lawsuit where the claimant cites property damage, injury, or financial losses, the insurance will cover the legal expenses.
You can protect yourself against liability by ensuring you only collaborate with reliable suppliers.
Along with the business license decreasing personal liability, you can consider obtaining product liability insurance. This type of general liability insurance guards your business against legal and financial risk stemming from poor quality products.
It's worth noting that product liability cases can be very costly to litigate. You might want to inform your clients of your business practices as well. This might include the refund policy and the way you'll conduct exchanges or returns.
Legitimacy
If you're looking to forge solid relations with suppliers, or come across as a trustworthy product source, having a license legitimizes your business in consumers' eyes and any other businesses you intend to work with.
Over time, you'll need to file supplier documents or conduct other business transactions. Authenticating your business will permit you to enhance legitimacy in these situations and avoid future problems.
Legal Agreements
Your online store must incorporate your terms & conditions along with your privacy policy. The law needs you to create privacy policies in case you're gathering personal information. Since it isn't possible to complete an online transaction without obtaining personal information - addresses, names, or banking information - you'll want to integrate this into your website.
Some jurisdictions might lack a legally-enforceable privacy prerequisite, though users will access your website globally, so you'll need one. The law doesn't necessarily require terms & conditions. However, taking the time and effort to put this down provides a strong legal framework for your business.
This section will also delineate the rules for using your website. This can be another form of protection if you own anything that could be affected through stolen IP or intellectual property, or if a user attempts to deface your website.
Refund Policy
Your online store doesn't need refund policies. However, you simply can't indicate 'No refunds' - this is certain to drive customers away.
Since variability and changes in situations will probably arise, you must put in place protective measures for consumers.
By delineating your store's policies, customers will know beforehand what they're entitled to in case a product doesn't fulfill their expectations or is possibly flawed. In case disgruntled customers need a product exchange or a refund, a policy will permit you to refer to the document and reach a common agreement.
Disclaimers
Disclaimers describe statements made for customers to understand your business practices and website better. They aren’t agreements. Rather, they frequently appear as warnings to customers in case a dispute arises.
You might want to have a section solely for disclaimers as a preventative measure. Just don’t oversaturate your website with disclaimers.
What Is The Minimum Amount Of Money You Can Make Through Dropshipping on Shopify?
If you’re a budding entrepreneur, the first question you’ll probably ask yourself is 'How much can I make in this business?' It makes sense to understand the reward you can expect for the hard work and money invested.
The last thing you want is to spend a lot of money and countless hours only to end up worse off than when you started. While no guarantees exist on what you can make, you can get a clue of what’s possible.
You’ve probably come across testimonials online from drop shippers claiming to make 6, 7, or 8 figures using the business model. While they sound exciting and might prompt you to invest all your hard-earned money, are they genuine? With tools out there, it’s easy to manipulate figures, so you want to be cautious before believing whatever content or figures you come across on dropshipping.
Here's the truth on the amount you could make dropshipping.
Regardless of how appealing the business model might seem, you must understand that it’s never a straight path or truly easy. It’s worth noting that this model yields a lower margin than a conventional e-commerce store.
Generally, margins range between 10% and 30%. However, the figure can differ considerably based on the kind of products you sell online. Overall, your margin depends on how crowded a market is and what level of competition you're up against.
When it comes to high-ticket dropshipping, it isn’t unreasonable to expect between $200 and $3000 in the initial month or two of launching your store if you’re willing to invest time and effort in marketing, along with choosing a good product.
Remember, the amount of money you earn hinges on one main factor - the number of suppliers you can secure and forge relationships with. If one supplier’s products could take off, it’s possible to make 5-figure profits.
Remember, not all suppliers will be a win, but you could have smaller suppliers instead. The best part about this model is that you’ll have an infinitely scalable business once you obtain traction.
How to Start Dropshipping on Shopify
Create a Website
Launching a dropshipping business is an excellent step when venturing into entrepreneurship. However, it only works if you have an excellent website to link your clients to your products.
When it comes to website creation, there are two approaches to consider.
You could develop a store on a major marketplace such as eBay or Amazon or simply develop your store from scratch using a platform provider such as Shopify.
The former approach is the fastest and you don’t require a tech background to get it up and running. Even if your budget can accommodate a web development to produce a custom solution, it’s wiser to choose one of the plug-and-play choices, particularly in the beginning.
Once you’ve established yourself and you have revenue coming in, you could explore website customization further. Here’s why a website is necessary:
Manufacturers and suppliers typically work with resellers on an existing website and a customer base.
A website will work in your favor when looking for suppliers in which case you’ll come across as trustworthy.
The lack of a website could affect your business negatively since competitors run websites as well.
A website reveals the services and products you offer.
Since dropshipping is particular to the kinds of selling goods, retailers must beware of certain criteria. These guidelines will help you select the appropriate solution for your e-commerce website:
It should be easy to use and cheap to maintain.
The platform must offer 24/7 customer support.
It must be scalable and offer seamless management.
It should support drop-shipping plugins.
Choosing Dropshipping Products to Sell
Determining a niche is useful for linking with a target audience and sourcing appropriate products. While niches are significant, products are even more crucial to run a successful dropshipping business. Perform market research, determine ways of adding value, and consider the kinds of customers you want your store to attract.
Remember, the failure or success of your business hinges on the right product selection. While it might be tempting to choose the latest craze, choosing unrelated and random products based on a trend is rather common and frequently succeeds in the short term - though trends change every week in the digital world.
It can be difficult to sustain high sales when simply following what's in vogue. Generally, the best strategy simply requires you to focus on a good niche and stick to it. Product research is significant to locate products that are in demand and will yield high sales - try to stick to products that you know and like to use yourself - this will give you an edge when it comes to marketing and understanding audiences.
Of equal importance will be the need to choose products that can sell for a healthy mark-up and for which there’s low competition. Choosing the most popular products might appear like a winning tactic. However, if you’re in a crowded market, you’ll find smaller retailers with squeezed product margins, making it less profitable for a new business.
Here’s what to look for when selecting dropshipping products:
Competitor Research: Examine possible competitors, research their items, and how they sell and source their products. See whether you can decipher their price strategy or possibly predict possible new products they’ll sell. If you can remain one step ahead, you’ll remain competitive.
If you discover that competitors are selling an item you’re considering and you can’t source it at a comparable cost, issues could arise. This shouldn’t take a whole day. A fast product search on Google can highlight an array of competitors in seconds. Subsequently, a swift website scan will offer sufficient information to determine what to sell.
Join Communities Online: Numerous forums and communities exist where you can research high-demand products. For instance, platforms such as Facebook have communities that can help you identify the wants and needs of people in specific areas worldwide. Don't be afraid to engage with others and ask questions!
If you decide that you want to restrict your dropshipping business to a region or country, you could limit your research to groups in those regions. Alternatively, you could search numerous areas or simply search for niche groups comprising people from different parts of the world.
Check out these groups and pay attention when they mention products or discuss problems. If that’s the case, you could look for a product to solve their problem and pad out your item list.
A Case Study in Keyword research
One way to decide which products to sell is to investigate search queries using the Keyword Magic Tool on SEMRush.com and find popular phrases that have low competition. This strategy was the inspiration behind the popular Shopify store Amazon Adult Toys.
Their CEO, who has asked to remain anonymous, came up with the idea for the store while doing keyword research.
She realized that people were searching for the phrase "Amazon Adult Toys" over 2,400 times every month and that the phrase had zero competition.
So she bought the URL AmazonAdult.toys and imported the best-selling adult products she could find on AliExpress that were stored in warehouses within the United States.
She now ranks #1 on Google for the phrase "Amazon Adult Toys" and she attributes most of her success to her creative keyword strategy.
Searching for Dropshipping Suppliers
Supplier selection is a vital step that all dropshipping businesses need to make. However, you must consider numerous factors in your decision. Even if you’ve already established the products you want to sell, and are certain that they’ll offer a great ROI, you must ensure you have suppliers who can offer sustainable, high-quality services.
When choosing suppliers, many can appear great when you examine their reviews and the items they provide, but upon further investigation, you might discover that they’re unsuitable for your audience. Perhaps it could be because of how they conduct business, the raw materials they use, or how they handle returns. Always order a test product before going ahead - if you're not satisfied, your future customers definitely won't be.
You want to talk to prospective suppliers and understand how they conduct business before committing yourself. Although you can discontinue your business dealings after an issue arises, the damage might have already impacted your business and brand.
Suppliers to Avoid
While it’s difficult to identify which suppliers to select, some tell-tale signs reveal the kind of supplier you want to avoid. Besides negative feedback, bad reviews, and cheap products, other factors signify a bad supplier. They include:
Ongoing Charges
If a supplier insists on ongoing or monthly fees to conduct business, be wary. Ongoing charges could imply a supplier is part of a directory rather than a single supplier.
Poor Communication
It can be quite frustrating if you can’t contact your supplier when an issue arises or if you have a question. If you can’t turn down a supplier’s products because of their high quality, you might want to deal with just a few of their products to resell.
Alternatively, you could purchase the item for yourself and be informed, so you can answer any questions that might arise.
Delayed Shipping
A good supplier should be able to provide different shipping techniques that are dependable and fast. Unlike what most people believe, not all items should arrive in less than two days. This is only feasible with Amazon Prime.
Businesses with 2-3 weeks shipping duration perform well if their customers recognize the duration it will take their product to arrive before purchase completion takes place. You might want to consider issuing alerts and a tracking number to monitor the order so that customers remain informed and secure in their purchase.
You want to avoid a supplier whose delivery is too slow or reports incidences of lost products. You’ll end up with bad reviews and numerous return requests.
Exaggerated Prices
A major factor to consider when seeking a supplier is the product cost, especially when products are bought in bulk. If you find their costs are extremely high, either you decrease the markup to maintain appealing prices and you’ll barely generate net profit, or your unmodified markup will cause skyrocketing prices.
In such a case, customers will quickly lose interest and won’t click on items, resulting in decreased revenue on your end. Ensure you research costs for similar items from various suppliers and determine the average prices, so they don’t take advantage of you.
Advantages of Dropshipping
Cost of Setup
A major attraction of this business model is that you could easily launch a store without investing thousands in inventory. For numerous retailers, one of the hardest facets of launching a business is determining how to approach inventory.
Conventionally, merchants spend considerable money on inventory investment, which could eat into their starting capital considerably. With this model, you don’t need to purchase products or be concerned about the low stock. This means decreased upfront expenses, fewer responsibilities, and less stress.
Furthermore, you’ll have more money and time to allot to facets of your developing business. Without considerable upfront investments, you can begin sourcing items and initiate a successful business with minimal money.
Also, you won’t need to spend time organizing your inventory or hiring personnel to fulfill orders. This implies that the model has a low entry barrier. This means that you can launch a business eCommerce when you lack the necessary funds to operate a conventional retailing operation.
Location-Independent
Today’s consumer demands unequaled shipping and will quickly dissolve their association with businesses that don’t meet their expectations. A drop shipping company will help you acquire a geographic advantage.
For instance, businesses situated in the Central U.S. can gain from a West Coast supplier. Consider having your items next to customers who buy them places you in a position to provide exceptional service from the order point to the delivery.
Low Risk
Launching a business comes with numerous risks. With this model, if things don’t work out as planned, you could make a comparatively clean break without worrying about being stuck with inventory worth thousands of dollars.
While taking a calculated risk pays off at times, it’s much harder to become a risk-taker when you’re sustaining your inventory. When you aren’t burdened with an inventory expense, you’ll discover that risk-taking won’t have such a negative impact on your income.
Also, if you include a new product category and your clients aren’t interested, you aren’t at risk of losing considerable money. You’ll simply remove the products from your store, and quickly shift gears to suit audience tastes.
Issues Associated with Dropshipping
High shipping cost
If you collaborate with numerous suppliers, inefficient shipping can become a major issue.
For instance, take a case where a customer orders three products and each is from a different supplier. In this situation, you would need to cover the shipping cost from three suppliers while charging the customer for a single shipment.
This will eat into your profit margins and make shipping management more tedious for you. Moreover, international shipping can bring challenges associated with elevated shipping expenses, poor trackability, delivery delays, and taxes distinct to each country.
Problems With Logistics
Numerous suppliers underrate the complexity and expenses involved with this model. Picking, packing, and shipping an item demands a distinct skill set. It demands the ability to retrieve items individually in a warehouse, ship them correctly to customers, and handle post-fulfillment issues such as invoicing and taxes.
No Control Over Customer Service
When a problem arises with an order, offering customer support to resolve the issue is much harder for retailers who lack inventory control. If a customer claims the item was defective, has a question regarding the product, or claims that the item never arrived, the retailer might have to collaborate with the 3rd party seller to settle the matter. This generates extra management overhead than if a supplier wasn’t involved in the fulfillment process, and significantly delays response time.
Types of Dropshipping Models
The different types of dropshipping models are:
Product reselling
This kind is the most popular. It’s when a company sources items from different places and avails them for online purchase in the same place, making it easier for the public to locate and buy these products.
They further offer extra value through comprehensive product reviews, distinct product content, or a curated resource library for the items. This type is ideal for anybody with a decent amount of industry knowledge or a specific demographic.
It’s equally suitable for those who excel at marketing. Since this type is common, establishing a way of attracting customers can be hard. If you can devise unique business marketing ideas, you’re more likely to succeed with this model.
Product Creation
Some businesses decide to bundle products together and avail them for purchase as a single product. For instance, you could locate a supplier with a large line of craft supplies and create their crafts using the supplies.
By developing new ideas, you could bundle the supplies and sell a 'develop your craft' kit. You could then drop the supplies and email instructions to the customer. Alternatively, you could provide the instructions for download on your website after purchase.
Developing new products by merging current ones can be hard and needs a certain creativity level. Remember, if you develop an item that comprises dropshipped items from various suppliers, the products will arrive at various times. It's preferable to develop new products out of items that originate from one supplier.
Business Extensions
Numerous retail stores lack an online presence. This might be because several lack the funds, time, or knowledge to market their business online. Therefore, they request the retail store to ship a product to a customer whenever they get a sale.
Dropshippers who decide to be a business extension usually have a recognized association with the retail store. With this model, you need access to product details, inventory levels, and to take quality photos of the items.
This type of model is appropriate in smaller cities where businesses might be eager to consider market expansion. The model demands more effort since you have to forge a connection with the retail store. Bear in mind that obtaining suitable inventory levels and taking photos can be time-consuming.
The benefit however is that you’ll experience less competition by gaining exclusive access to a retail store’s items and can collaborate with them on marketing and branding.
Print On Demand
In this model, a company sells items with a printed image or text. Most services provide a wide choice of products on which to print, for instance, mugs and T-shirts. This model requires that you have an idea of what you wish to print on items.
Like product reselling, you should recognize how to market the item you develop. The model is common though it can be ideal if you can access a particular group of people with a common interest, and develop unique and attractive designs for them to purchase.
Shopify offer a free webinar about Print-on-Demand businesses called: "How to Quickly Start a Profitable T-Shirt Store."
How to Make Money Dropshipping on Amazon
You can make money by dropshipping on this marketplace, and it’s perhaps one of the least costly ways to start online, with almost zero monetary risks. In this model, you sell products on Amazon without dealing with inventory, handling, shipping, or customer service. That is, Amazon handles the heavy lifting on your behalf.
When you generate a sale on Amazon, you just inform your dropshipper and they’ll ship your items to the Amazon customer directly. The low risk of this model makes it appealing because anybody can do it and you don’t need to be tech-savvy. Some of the benefits of using this platform for dropshipping include:
The Amazon marketplace is huge.
It’s easy to set up.
It’s not risky.
How to Make Money Dropshipping on Shopify
Shopify is an e-commerce solution that allows ambitious entrepreneurs to set up an online store and sell services and items. The solution is flexible, easy, and powerful. You can set it up in a short period with minimal web design knowledge.
The solution has a great system of experts, allowing you to scale your business and include add-ons to your store. You can make money in these ways:
Begin Your E-commerce Store And Sell Items To Generate Money
If you’re an ambitious entrepreneur who wants to begin an eCommerce business, this platform is the most flexible business solution. You’ll discover that it can handle all scale forms, whether you’re simply starting or selling millions and looking to migrate your software.
Become an Affiliate
If you want to earn extra money, you could become a Shopify affiliate. The program is easy to sign up for and once you obtain your link, you could earn up to $2000 per new store/merchant referred to the platform. You must apply to join the affiliate program. Once the application undergoes review and approval, you’ll obtain a unique link, which you’ll use to promote across various channels.
Bottom Line
If you’re looking for a low-risk business model that allows you to build your own business without spending considerable money, you might want to consider dropshipping. While it has its drawbacks, it’s an excellent way of kickstarting your business.
Just remember that this model takes considerable work and a huge learning curve exists. Don’t be too quick to jump into the business simply because you’ve seen tempting figures all over the internet. Just take your time to study the business and consult relevant experts before making a decision.
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