This is a guest article contributed by Bilal Uddin.
If someone gives you $500, what would you do?
- Buy a new phone
- A domestic flight
- Start a business
What? Start a business, seriously.
Well, it may sound absurd, and it should be. According to research, it takes around $3000 to start a small business.
But, there is a million-dollar business that you can start at just $500 – Dropshipping!
For those who have absolutely no idea what the heck dropshipping is, here is a quick introduction:
What is Dropshipping?
Dropshipping is a retail fulfillment method where the online store just shows the inventory and does not keep it. When a customer purchases the suppliers delivers the product to the customer.
You can earn from dropshipping by keeping the difference in wholesale and retail price – that’s your profit.
A dropshipping business does not require hefty investment because you do not need to keep any inventory.
But, is it really that profitable?
Yes, it is, and I have some fantastic stats about dropshipping to back up my point.
- In 2017, Almost 23% of online sales were made via dropshipping stores that are roughly $85.1 billion.
- Approximately 33% of online stores are running on dropshipping model
Dropshipping is a billion-dollar business that is getting even more attention with every passing day, and why is that? Because it is easy to start and can be started in under $500.
Here comes to the main question, what is the cost of starting dropshipping?
Many people are willing to invest as much as they can to enter this trillion-dollar ecommerce industry. However, you can penetrate in this industry with just $500.
Dropshippers are earning hundreds and thousands of dollars and in some cases, even millions.
So without further ado, let’s break dropshipping cost step by steps.
Dropshipping Store Setup Cost
Store setup cost varies and it highly depends on the medium you select to build up your store. Although, you can start dropshipping without an online store by selling on Amazon as an individual, I am taking the high road by calculating the total cost of setting up an online store.
To setup an online store, you need an ecommerce platform to build your store website.
Shopify is the leading ecommerce platform so I go for it.
It has different plans for the setup, however, I find the Basic Shopify $29 dollar plan ideal for startups.
Let’s say you take the $29 plan from Shopify and the $15 domain name. Your store establishes at a cost of $45. That’s it. Welcome to the ecommerce market!
You can even select Shopify Lite plan ($9/month) that allows you to sell directly on Facebook and Instagram without an ecommerce store.
Dropshipping is very easy on Shopify. You can install the Oberlo app on Shopify that is free, its chrome extension allows you to import products from Aliexpress in just one click.
Shopify’s cost depends on the theme you select for your business but for a startup, you do not need to get those premium themes. First, learn to drive a car then modify it later.
Free Shopify themes are absolutely fine, and there is enough to make your store look absolutely amazing. However, there is some extra investments that are optional yet considerable to establish your new business.
Get a Logo Design & Branding
If you are familiar with graphic designing then you can escape this point and the cost as well.
A logo is compulsory for your business and for that you would definitely need some expertise from the design department. To make your store look credible you need to hire a professional designer.
There are several free online logo making and graphic design websites such as Canva and Snappa. But I recommend hiring a professional designer from freelancing platform like: Dribbble or Upwork etc. to work on your logo and branding. Or hire Jacob at a higher cost.
Store Optimization Cost (Apps)
If you start an ecommerce store, you would require multiple plugins that would help to run the business functions smoothly. Here are some apps that are very essentials to have for a dropshipping business.
The best is that majority of Shopify Apps are free to use. So, it does not increase the burden on your budget.
Images take a lot of time to load on a website and that affects the website speed, and that becomes the ultimate cause of the decline of your Google search ranking.
So, it is better to address before any unforeseen tragedy. To optimize images, Shopify offers number of free plugins/apps. You can use this SEO image optimizer to reduce your website load time.
Facebook Feed Generator
You need to market your product on Facebook to generate sales, but what if an app helps you to do it for you at zero cost?
For that you can Shopify’s App – Flexify
It helps you to show your product to millions of users of Facebook and Instagram by just integrate with your Shopify dropshipping store. Flexify creates a product feed for your shop’s product, and you can use that for every major social media ad.
You can use a similar ad on different by generating the same feed on Flexify.
Upsell App (optional but Significant for marketing)
To sell more online, upselling is one of the best options, especially for new business where it is initially hard to persuade customers for your product. If you do not know, what Upselling is here is a brief definition:
Upselling is a marketing tactic that convinces customers to spend more on your product by offering him/her an upgraded version of their selected item.
Example of Upsell
Spotify makes the difference apparent by greying out the 5 features in the free plan to entice the customer to go for the premium plan.
Upselling is the tool to make your conversions. You will require it in the initial phase of your business but once you run a couple of ad campaigns and generate data of your target audience then you can easily retarget them with Upsell.
So, I recommend to include this cost in the start of your business!
Although there are many upsell bundles available on Shopify including Bold Upsell, Smart Upsell and In-cart Upsell.
For the beginners, I suggest SMAR7 Upsell bundle that comes in the plan of 47$/month.
I recommend it to get make the maximum chances to boost your sales.
Yes, it is a bit costly, but once you find your winning product (post-marketing) and put Upsell on it you will surely get a higher percentage on your return on investment.
Marketing Cost (Facebook Ads)
So far your online store has cost you around $97. After that you have two options.
Either you wait for free traffic that is quite slow or you go for paid traffic for products. I’d rather go for the later one.
Let’s go back a little bit.
Previously, I have mentioned our thoughts on finding out the winning product on which you will put your upsell plugin. In starting this business, the primary purpose of marketing is to identify that winning product.
In the online selling business, there is always one product that sells better than other products. You need to find that product and market it in your niche to make the maximum products.
The only way to do it is through product testing with Facebook ads:
There is what you need to do;
Test your products:
By testing, I mean is to set up a budget for each of your product and runs ads accordingly. Then scratch out the profitable ad and you will find your star product.
For example, You set up a store to sell chocolate. You have 5 different chocolate products to market. Set up a budget for 5$/day and run your single campaign for a week.
To test a single chocolate product for seven days for $5 per day would cost you $35 week. Similarly, to test 5 different chocolate products, it is going to cost you $175 for your all product testing.
The most profitable ad would turn out to be the winning product. Even if you cannot identify your star product, it will definitely give you many sales from the Facebook ad.
If you cannot afford or not willing to spend that much money in one month here are some tips for that.
- Do not run the ad on all of your products at once. Split your budget to spend it in 2 to 3 months and run the ads according to your pace.
- Figure out some secondary source of income. Work from home and do part-time jobs to save some extra cash for your business marketing.
This cost is based on how many ad campaigns you are willing to run; here, I took 5 campaign for $35/week per campaign. Your calculation may differ from mine for an average dropshipper beginner 5-10 ad campaign is enough to start testing the winning product.
It’s time to calculate costs here:
Store Setup ($50) + apps ($47) + marketing cost ($175) = $272 (Total cost for starting a dropshipping store).
Oh, I said $500, but this is just half cost. Does it mean I can start a dropshipping at only $270?
No, that is where the majority of beginners make the mistake.
Yeah, you can start your store in ASAP, but you will need some extra cash to keep the cash flow cycle running. You will understand me in the next point.
Hidden Cost – The Cash Flow Problem
Every business runs on credits; there is some running cash required after business setup and marketing to keep the business running.
In an online business, transaction clearance takes some time. You do not get your hands on the payment instantly, and in the meanwhile, you need cash to continue your purchases in the business.
The most used payment methods in the online world are PayPal and Stripe who take three weeks and one week, respectively, to clear the payment. In between, if you do not have the cash to purchase the items that customer buys, then you’d better say farewell to your business.
Cash flow issue is one of the major reasons for startup failure. If you do not want your business to sink in financial burden, then you must follow either of the following options before you go ahead with your business.
- Keep a deposit of around $200-$250 to make sure that after the business setup and marketing you still have some budget left to keep the cycle of cash flow running.
- Own a credit card. It will help to keep the cash inflow as the credit card gives five weeks to pay the dues, in that time you can have your money from the customers.
From start to end, I have examined every possible cost that could occur in your dropshipping business.
Collectively, a fair setup will cost no more than $450-500 as per our calculation. A deposit of $200-300 is required to keep yourself safe from cash flow issues; otherwise credit cards are there for help.
I know that some of you may consider $500 a lot of money but it is a fair amount for a startup. But we should consider the fact that we are actually entering a retail business and if we rewind back a couple of decades and compute the cost, even a thousand dollars was not enough to think about opening a retail store.
We should count ourselves extremely lucky to breathe in this digital era where an ecommerce business can be started with just 500 bucks.
Bonus: Tips to Select the Best Products for Your Dropshipping Store
Your earnings are highly dependent on the product, and the suppliers you are choosing for your business, so here are some tips:
- Always choose the product in which you can sell at 200 – 400% profit margin.
You can get this banana teether for infant on Aliexpress for less than $2.
The same product has been listed on Amazon for $7.
That’s the kind of product you should sell to get massive profits from dropshipping.
- The product price should be in the range of $4 – $45 so you can easily have a good profit margin. The online buyer quickly purchases any product within this range.
- Sell on multiple platforms; never lose the opportunity from leveraging the audience of different platforms. You can easily integrate your online store with various marketplaces such as Amazon, eBay, and Etsy.
You can find a potential audience on these giant marketplaces for your product.
See you on there!
That’s all from my side. I hope that you get the answer you were hoping to get.
If you have any concerns about this post, feel free to show your interest in the comment section. I would love to hear from you 🙂
Author bio: Bilal Uddin is writer @withintheflow. He likes to write about ecommerce, digital marketing, advertising and social media marketing. Also love watching creative ads and designing. You can connect with him via Linkedin.