What Is The Average Profit Margin For a Dropshipping Business?

Dropshipping has been a hot topic for many years. People have been making money from it like crazy.

You must have probably seen a lot of YouTubers flexing their earnings from their Shopify dashboard. It might be a 6 or 7-figure income, right?

I am not saying that they are fake(while some might be), but that figure is actually their total revenue and not their profit. And the profit will be way lower than that value.

So, what’s the average profit margin for a dropshipping business?

The average profit margin ranges between 20-40% of revenue for a dropshipping business. This will vary depending on things like the product, shipping, marketing costs, etc.

Factors That Influence The Profit Margin

The following are the factors that influence the profitability of a dropshipping business:-

1. Pricing Your Product

Your Product needs to be priced at a nominal rate so that it does seem to be affordable and you do get a good return for each product sold.

Dropshippers on average tries to get at least $20 profit per unit sold.

However, this may not be the case at all times, it can go higher or lower depending on the products’ perceived value.

If it’s a high ticket product, you can profit way beyond $20 and If it’s a low-ticket one, a $20 profit margin is what’s normal.

2. Marketing Costs

Marketing costs can be different depending upon the marketing platform and strategy used.

The most common way of marketing is by using Facebook ads. But there are people who also use Instagram theme pages, youtube influencers, etc, for marketing their products.

The amount spent on Facebook ads can vary depending on the locations, bidding model, and if the product you chose is not a winner.

Youtube and Instagram influencer marketing usually has a fixed fee which is paid upfront before advertising.

3. Shipping

Some products may include an extra shipping fee. This will also depend on the dropshipping supplier you use.

Normally, for Aliexpress, some products do have free shipping. However, this does come with a price. The shipping time will be extremely slow.

But, there is a workaround for that and that is by choosing to pay a little more for shipping and get it delivered to your customer early.

Using other dropshipping suppliers like uDroppy, Doba, Spocket is also a great way to minimize shipping costs and make your deliveries faster.

Related Article – How Much Does It Cost to Build a Shopify Website?

4. Returns and Refunds

For any eCommerce business, returns and refunds are surely expected. Even if you make a world-class product, these 2 things will always be there.

Returns and refunds are surely major factors and will significantly decrease your profit.

You can reduce the rate of returns and refunds by

Minimizing the shipping time
Selling a good product
Selling a product which doesn’t have any electronic parts
Sending the right product to your customer
Providing all the information and specification of the product you are selling on your product page
Return and Refund Policy page should clearly specify the refund and return conditions.

Even if you follow all the above steps, you will still get returns and refunds. That’s just the case with eCommerce!

5. Dropshipping Suppliers

Dropshipping suppliers are one of the most important things about dropshipping. Aliexpress is the most used one. That’s because it’s free and has a lot of cheap products(since they are exported from China).

However, I believe, the time of Aliexpress has come to an end mostly because of huge shipping times and low-quality products.

Due to this a lot of Dropshipping suppliers have come into existence. Suppliers like uDroppy, Spocket are some of them.

The advantages of them are that they offer super fast shipping and do have a lot of products that reside in the US itself rather than in China.

The disadvantage – Product prices are a bit high and you will have to pay a monthly fee for their platform.

Now, Aliexpress is great. It does have good products with fast shipping but you will have to dig a lot deeper in order to find those products.

What I would recommend is – Start with Aliexpress when testing and when you have found a winner, use some other dropshipping suppliers so that you can scale your business.

How To Start a Profitable Dropshipping Business?

2020 was the year when a lot of people started dropshipping. This trend still continues.

To start and maintain a profitable dropshipping isn’t easy. It does require a bit of skill and dedication.

Here’s an outline of how you can start a dropshipping business:-

1. Choose Your Niche

Niche is a very important part of dropshipping. However, if you are a beginner starting with a general store would be your best bet.

This is because you do not know which product is going to be a winner and you will have to test a lot of products to find one.

Starting with a general store will give you the advantage of testing unlimited products in any niche possible which is quite the opposite when you start with a niche store.

So, what I would recommend is to start with a general store and when you find a winner, create a niche store or a one-product store for that product. This will help you increase your sales and will surely help you scale your business.

Related Article – Why is Aliexpress So Cheap? Are the Products Worth it?

2. Design Your Store

Once you choose a niche or if you go with a general store, the next step is to create a Shopify store.

Shopify is the platform that we will use to create the store. To start a store, go to Shopify.com and click on Start free trial (They offer a 14-day free trial and after that, it’s just $29/month)

Once you are in the dashboard, you will be able to design, add products, pages, etc to your store.

To design your store go to Online store -> Themes -> Customize.

3. Find Winning Products

Finding winning products is a bit tricky and there are a lot of methods out there.

A winning product is when you see the following characteristics on the product:-

A product that solves a problem.
A unique product that isn’t available on Walmart and Amazon. (This may not be the case every time.)
Wow factor – It’s just a term that dropshippers use when they find a product that just blows your mind because of its capabilities and uniqueness.

This is how I search for winning products:-

Go to facebook.com.
Search for keywords like “Order now”, “Free Shipping”, “50% off”, “Buy now”, “Order here”, etc…
After you search, click on the videos tab and sort them by “recent” or “most viewed”
You will see that most of these videos are marketing videos of different dropshipping products but these might be oversaturated and may be sold by many people.
Then click on one of those videos and go to the page who posted it. Scroll down and you will see “Page transparency” somewhere. Click on that.
It will open a window and you can now see whether this page is currently running ads or not. If it is running ads, click on “Go to Ads Library”.
You will be redirected to a page where it shows you all the ads that the particular page is running.
If you see an ad that has been running for more than 4-5 days, it may be because the product would obviously be working for them.
So, what you do is write that product down on a notepad.
If you do not see any ads running or if the ad has just started around 2-3 days then find another product by repeating this entire process.

When you finally have a product, you will need to find a supplier and then advertise on Facebook or on any other platforms.

If you want to see another method. Just check out the video below:

Related Article – Is Amazon Dropshipping Profitable in 2021?

4. Finding a Good Supplier

The possible winner product that you found will surely be there on Aliexpress.

Import it to your store using Oberlo and then run ads on Facebook/Instagram.

If you do get sales and if it tends to be profitable for you, search for other good reliable suppliers based in the US or UK. uDroppy, Spocket are some of them.

Check if this product is available. If it is, connect it with your store and start scaling.

5. Market Your Product

Most Dropshippers usually use Facebook ads to promote their product. This is a great way. However, due to a lot of competition the price of advertising has gone up lately.

But this doesn’t mean you shouldn’t use it. Facebook ads is by far one of the best ways to target people.

The way I would recommend would be –

Start with Facebook ads, test the product and if it ends up being a winner, find a good Youtube influencer and send them the video to advertise so that they can include them in the next video. They may charge around $100-$300 or more, depending on the number of subscribers that they have.

Dropshippers also use Google ads. I do not have any experience advertising on Google ads, so I would highly recommend that you find some Youtube videos about it.

Drop Servicing Vs DropShipping? Which One’s Better?

Conclusion

So, as you can see dropshipping is still a good business with a profit margin of 20-40%.

If you are planning to start one, do keep in mind that it is not so easy and you will need to be patient and willing to put effort to see the results.

Hope I did answer your question through this post.

Peace!