Dropshipping is a strange business. And if you have spent any amount of time on Youtube or personal finance blogs you will see people from all over cite it as one of the best ways to make passive income. So I decided to give it a shot. Worst case scenario, I fail, best case scenario, I become an overnight millionaire. So here is how my experience went with dropshipping, and why I don’t think you should do it.
What is Dropshipping?
Dropshipping is the process of owning and operating an online store without physical merchandise. Rather than buying a large amount of a certain item wholesale you buy them one at a time from China (usually via Aliexpress) and enter the person who bought it from you as the shipping address while keeping the profit.
As an example, let’s say you see this watch on AliExpress:
You think to yourself that that is an amazingly good price for that watch and I would happily pay 3x more if that were available here.
You would make a website, sell this watch (and likely others), for $100-$120 apiece. And then, when someone places an order you would purchase the watch directly off AliExpress, ship it to them, and keep the $60 – $80 in profit for yourself. No inventory sitting unsold, no shipping costs, no boxes, nothing. Just being the middle man between someone who doesn’t know about AliExpress and AliExpress.
1. KNOW the Space
Much like everything you pursue, especially when it comes to making money you should make sure that you know the space well. Spend tons of time researching it, learn every aspect you possibly can. Make sure you know what you are getting into long before you start, and especially before you spend even one penny that you’re not willing to immediately lose.
I made sure this was no exception. I spent hours on Youtube, focussed my reading, and tried to learn everything I could about dropshipping. From how it worked, to the best ways to advertise, to research about the type of individual to target for certain products.
But if all of this taught me anything it is that researching isn’t enough. To truly be successful in a space you have to know it. This means doing it, living it, making mistakes, making successes, and everything in-between. You can’t just research it, dabble in it, and move on. You have to get involved and stay involved.
2. It Takes ALOT of Money to get Into Dropshipping
This isn’t a secret. It takes money to advertise your products to people so they can buy them and you start making money by dropshipping. But what is a relatively unknown aspect is the amount of money that it takes to get into dropshipping. Especially now. Not only do you have to pay for advertising, but you also have to pay for hosting, plugins, domain names, and a host of other fees, all before you make any money.
While if you are successful you could get all of this money back plus more if you aren’t successful this large amount of upfront capital is as good as gone. So before getting into it make sure that you are prepared to lose everything you put in.
How Much Money Should You Expect to Spend to Get Started Dropshipping?
In short, $1,000 to $3,000. While most of this money will be spent on ads there are several fixed costs that will have to be paid for, totalling about $500 upfront, and about $150 monthly. All without touching advertising.
When you begin to include advertising the costs can balloon quickly. According to Oberlo, you can expect to spend approximately $50 per sale. at least when you are first starting, on advertising alone. this means that to get only 5 sales you’re likely going to spend $250+!
This isn’t a small amount for many looking to start a side hustle, and if it’s a risk you’re willing to take then it may work out. But going into it you should be prepared to lose it all.
3. Information is Everywhere
Like many side hustles that are touted online, there are tons of various opinions from across the spectrum. From those that hate it to those that absolutely love it. From those that think it’s a surefire bet to those that think it is essentially gambling and everything in between. While that amount of information can be amazing in your initial research stage it can also be terrible when it comes to actually executing.
To have opinions and strategies and testimonials flying all directions, telling you anything and everything you could have the desire to know can quickly get overwhelming. It is important, especially when learning about dropshipping to take a step back and analyze what you’re reading. It’s easy to get swept up in the hype and the hatred and have that alter your opinion.
4. Shipping is a Nightmare/Keep it Local
Initially, I had this as two separate points but they both get at the same core idea. One of the biggest hurdles you will have to figure out when you start dropshipping is how you are going to ship things. Assuming your items are made and shipped from China (which most will be), it can be a bit difficult to figure out the best shipping method, the cost, etc. And this task gets even harder when you’re shipping to a place you’re not familiar with, or worse, doesn’t even have addresses!
So while it may be tempting to just jump right into shipping worldwide it is best to at least start in your local area, at least your local country. It will make it easier to figure out shipping, easier to figure out taxes, and easier to market to.
5. Great Marketing Without Targetting Does Nothing
As someone who has a sense of pride from being able to create a fun and captivating ad, I thought it would be a simple process to market these to people and encourage them to buy a product. But developing and creating the ad is only half of the battle, and it’s not even the most important half.
When marketing for dropshipping it is important that you market for both the product and the people. Since most of the advertising for dropshipped products happens on Facebook it is key that you market towards a very specific group of people. The ability to do this is what sets people apart, and changes a losing strategy, like what I did, to a winning strategy. But it isn’t easy. And it isn’t cheap. The best way to learn it is to spend money trying different ads on different people and see which ones work the best, and that takes a lot of knowledge and cash.
6. High-Profit Margin = Success
Because of all of the costs associated with dropshipping, especially at the beginning, you will need a high-profit margin item to succeed. While you may think it will be easier to sell a couple of dollar items for profit, flipping a $0.90 coffee mug for $4, the numbers just don’t add up. You would have to sell an absolute ton of items with profit margins that low to even begin to make a profit. All while spending an average of $50 per sale.
According to Oberlo during startup, you can expect to spend $250 on your first 5 sales. So having a low-profit margin of a couple of dollars is a recipe for disaster. Having a higher profit margin on higher ticket items can make developing and sustaining a dropshipping business much easier.
7. High Credit Limit
The final thing that no one mentions about dropshipping that I learned by trying it is the large amount of credit you will need. Especially when you are first starting. Everything you do will be paid for on a credit card. even if you have the funds in your account (which you should) you will still have to pay for everything on credit, and then wait for your credit card payment to go through. This includes not only the products themselves, as well as all of the associated website costs, but also advertising.
In addition to the ned to put everything on credit, when you first get started you will likely be using Paypal as your credit processor for payments on your account. And after receiving your first payment it can be days, if not weeks before the money is actually in your account. This means that while you also need to float all of your expenses, while waiting for payments from your bank to go through, you won’t receive any of the profit for weeks after you begin. This means you will need ALOT of both credit and capital to get started.
What I Did Wrong With Dropshipping
So with those seven things I learned. what did I do wrong?
In short, everything.
I had low funds when I started. While I researched, I didn’t put what I learned into practice. I sold low-margin goods. And I flip-flopped on my hosting and fixed costs. All of this led to me wasting a bunch of time and money, neither of which I had, on a business doomed to fail. If I were to do it again (which I wouldn’t), I do know what I would change, and I would use this article as a starting point.
Should You Pursue Dropshipping?
Dropshipping is a complex and often overhyped means of passive income. It is an extremely large amount of work and requires a very unique set of skills to excel at it. If you are willing to put in the time, and the cash, I say why not?
But know that you may, and probably will fail. You will stumble, and you will, most likely, lose money along the way. But with these 7 things that I learned, you will be able to avoid the mistakes I made. Or at least be more prepared for them when they pop up.
Dropshipping is one example of an overhyped side hustle idea. Do have any others you can think of? Let me know by reaching out on social media or in the comments below!