It was quite possible to earn money selling various goods without preliminary investments, thanks to a trending business-model – the dropshipping. However, we need to consider the prospects of its further existence. Is it still possible to make money on dropshipping in 2020?
Continuous business development
Business models don’t stand still. They’re always updated and improved. And all areas of digital entrepreneurship are affected, including dropshipping.
The technology is becoming more intelligent, rather it’s information technology in general, or Search Engine Optimization, and advertising services – anyways we must keep up with it, adapt to new algorithms for doing online business, and improve the quality of the services provided to the customers. The familiar approaches are quickly lost in history – and it’s sad but true.
Regarding dropshipping – it’s the same here. Everything’s moving too fast, so you should keep the hand on the pulse and adapt or just leave it to the more flexible entrepreneurs.
What does Google say?
The trend is talking by itself – the quarantine and job cuts made it all-times-high recently and there’s no really obvious reason for it to drop its gains. Here’s the worldwide trend represented – but it doesn’t really matter – choose whatever country you want and you’ll find pretty same.
What about AliExpress?
We can see here that the AliExpress marketplace has indeed lost its former popularity. However, all developer’s powers are aimed at modernization and further attraction of customers, as well as meeting their needs with the help of a profitable shopping system.
It should be noted that despite the jumps in popularity and relevance of the site and AliExpress products, many are still loyal fans of this source of direct supplies. But, frankly speaking, although it may be slightly different from country to country, the main trend is obvious – people don’t want to buy Chinese shit anymore. And it’s very possible this is going to be a new normal in the post-corona world.
So, should I..?
If you’ve been thinking about side-hustle – that’s a good option. Be aware that dropshipping should be mainly taken as additional income. In order to earn significant profits, you need to invest in active advertising, spend a lot of your time on selecting the assortment and analyzing the work of partners, and also work for an interesting and unusual supply of goods. Be trendy in other words. At least, be ready for the fact that this story is not about fast, high and easy income.
Consider the aspects that should be taken into account for the successful development of dropshipping:
- optimal delivery times;
- reasonable prices;
- availability of customer reviews;
- high quality of products;
- avoidance of return of goods (and do it ASAP if happens);
- sellers qualification.
You should always remember that you work for your lovely customers and must impress them so that they come back to you again and again. Only in this way, profits will increase and an engaged audience will appear.
There are plenty of successful dropshipping websites on the internet which are a good example of thriving online stores with well-established dropshipping systems. We let you find ones you like yourself. But what we want to convey to you here is – the secret of their success lies in love and respect for their customers.
Will Dropshipping survive in 2020
This question is asked from year to year in different forums (Quora, Reddit) and often turns into a real discussion. The correct conclusion from such discussions is that dropshipping cannot die at all, it can change its standards and working technique. This means that it is developing! Now, not only AliExpress wears the conditional crown of the world’s main dropshipper because other retail suppliers are also open to cooperation.
If you still doubt whether it is worth starting this type of business right now, carefully read its advantages:
- e-commerce has covered the whole world;
- online shopping has become more relevant;
- a large selection of well-known suppliers;
- easy work with online payments;
- the entry-level to the business is almost zero in terms of money (yet require the knowledge of how the online-business works).
The main advantage is the absence of investment in wholesale purchase of goods, which will save you from a severe risk of becoming bankrupt.
The financial aspects
It is necessary to evaluate the financial side: benefit and profit. It is worth noting that dropshippers themselves decide how many percent of margin should be put on the goods they’re selling. Thus, you will get the difference from the sale and this amount depends on you.
In other words, a product at a wholesale price of $20 will be sold by you for $40. Then the remaining $20 will be for your gross profit.
Think about this $20 like the covering of your ad spending and operational costs – what is left then, it’s a pure profit.
Let’s assume you want to earn $100,000 per year from your dropshipping store. What is the quantity of the products that should be sold then?
Let’s also assume that you make the markup 100 % from the wholesale price.
Then the calculations will look like this:
Wholesale price: $20
Retail price: $40
Your gross profit after the sale is made: 20$
Let’s say your ad spendings and operational costs are 1/4 (25%) from the retail price (it’s a normal assumption): $10
Your profit then (after deduction of ad/operational costs): $10
So, we see here that in order to make $100K in profit per year we should be making about $8500 per month in profit OR $34K per month in revenue. As you may already see, it means we need to sell 850 products per month ($34K/$40 or $8500/$10) or about 28 products per day.
As you may see, it’s not Mission Impossible, right?
“Wait a minute!”- you may say. “And what about taxes?” Yes, we didn’t take taxes into consideration in this equation. But we’ll talk about how to minimize taxes while growing your business simultaneously in the other article.
A hard decision: Dropshipping or Affiliate Marketing
The choice will not be difficult at all if we consider the results of these two business models in comparison with each other.
We analyzed the approximate financial result of the dropshipping, which brought us a targeted income of about $100K per year. Now let’s compare it with affiliate marketing.
In this case, we will earn not on the difference, but on the commission on the goods sold. The regular commission is about 5-10% now (and it can be drastically reduced as it happened recently with Amazon partner program).
So you’ll get only $2-4 dollars from the purchase of similar goods (the cost is $40 as in the example above), which means that in order to make $8500 per month, 4250-2125 purchases per month should be made with the use of your affiliate link.
At a first sign, it looks like much more complicated comparing to only 850 purchases per month by the dropshipping model, right? But let’s look at this from a little different angle: in case of affiliate marketing, you literally don’t have to do anything except putting the link in front of your audience. On the other hand, while you make dropshipping, you have to serve the customer from the very beginning and to maintain the relationship afterward.
So, the right answer would be: Dropshipping and Affiliate Marketing together is better than something alone.
The example of this approach can look something like this: you’ve got your dropshipping (DS) store where you sell the products with a good margin from the reliable supplier by DS-model and you recommend some relevant and suitable products using your affiliate link. So, in tandem, it’ll work the best way.
Here is the article regarding some good affiliate programs on the internet and how you can make your own affiliate program. So, read it to get knowledge on the theme more deeply.
Cooperation with Alibaba and AliExpress
Today, cooperation with the Alibaba website isn’t for retailers which are the dropshippers. So, Alibaba is more suitable for the ones who want to sell in bulk and form the wholesale chain.
It is what makes it different from other platforms, such as:
The risks of this business
Unfortunately, disappointments can be waiting for us, even in such an uncomplicated form of business. You should avoid them.
You need to try to find the fastest delivery method so that customers do not wait for the desired package for weeks and then forget about it at all.
The seller cannot be 100% sure of the quality of the goods sold, because only the supplier is responsible for it. The same applies to the size of the clothes, the tone, and the general state of the product because reality does not always bend to a beautiful photo. You can avoid such dangers if you work only with verified suppliers who have never let you down.
You need to be a coolhunter and be interested in what the audience wants to see in your assortment – this will help to remain relevant. And remember that the higher the number of goods you’re selling, the more profit you’ll get!
One more thing to keep in mind – refunds. If the number of refunds will be great – it could affect your work with the payment gateway provider.
Amazon and eBay for dropshipping
These platforms are very popular for selling goods in various categories. No doubt, you can start your online business with these services, this is completely legal. However, there are some nuances needed to pay attention to.
eBay authorizes the sale exclusively to people who live in the US and doesn’t allow publishing ads containing any products from Chinese suppliers.
In turn, Amazon sets different condition: delivery of the order must be completed within one week.
If you are able to meet these requirements, eBay and Amazon are open to your business.
Dropshipping within the law
Your main role in this type of business is to be an intermediary who connects the buyer and the supplier in one simple way — the transfer of goods. At the same time, you do not have contact with the product itself.
Before you’ll jump into this with all your effort, read the laws of your country. We assume that a customer complaint about fraud can be the only drawback for which it will be necessary to be responsible. Of course, your assortment should only consist of legal products so that the business is absolutely clean.
Feel free to move in the direction of dropshipping business, as this industry is not only popular but also beneficial for modern entrepreneurs who are ready for a fast online business start!