I had wanted to write on dropshipping course ads for quite some time but other topics took precedence. These dropshipping course ads seemed to have died down and the “guru course” flavour of the month seems to have shifted to options trading nowadays. However, I recently saw another of these ads saying that we can sell something for multiple its cost. This prompted me to write about dropshipping. In this article, we will look at what these dropshipping course ads are not telling you.
What Is Dropshipping?
Dropshipping is similar to other e-commerce businesses except it differs in how the product flows. There are no inventory purchases until a sale is made unlike a typical business, where you will need to hold inventory before you can sell it.
As the seller, you will send the customer order to the supplier and they will send the products directly to the customer without the inventory going through you. The fulfilment part of the business is handed over to the supplier.
| Typical Business | Seller buys inventory from supplier
Inventory is received by seller Customer places order Seller sends inventory to customer |
| Dropshipping | Customer places order
Seller sends order to supplier Supplier sends inventory to customer |
What Dropshipping Course Ads Are Saying
You are watching YouTube and an ad pops up. A speaker appears either in a warehouse or in a mansion. They then start their sales pitch.
So what are these dropshipping course ads saying?
- You can source a product from China for $X
- If you look on Amazon or Shopee, you can see the said product sold at $4X – $5X
- Boom, you make S$100,000 of sales a month
- Sign up now
In a “few easy steps”, you can also be a successful dropshipper and be just as successful as them.
Can I Really Sell Inventory for Multiples Of Its Cost?
On the surface, yes. According to the SGUP e-commerce course I went to, typically you need to price your product 4-5x to make a profit. However, it is only a portion of the truth. The cost they are referring to is just the product cost. There are many other expenses that you will need to take into account in calculating your profit margin.
The average profit margin is about 15 – 20% after taking into all the other costs, not what the dropshipping course ads insinuate you will make multiples of the cost.
What Are The Other Costs Involved In Dropshipping?
On top of the raw product cost, here are some of the other expenses that you need to take into account in a dropshipping business.
Sourcing And Samples
You need to find a good product for dropshipping that have enough margin and demand. You can do it manually but there are also paid subscription software out there to help shortlist suitable products.
After sourcing the product, you will need to pay for samples to do some quality checks and feedback to the supplier if you are satisfied with the product. You might also want to customize the product based on your needs like different sizes or colours.
Licenses And Testing
Depending on what product you are importing, you might need to send in samples to the authorities for testing to make sure that they are safe.
Listing Costs
Some platforms have a listing cost for every item you list on their platforms. Even if there are no listing costs, you will need to do copywriting and product photography to make it look attractive to buyers. If you are unable to do it yourself, you will need to hire someone to do it for you.
Copywriting is important to help convince consumers to buy your product plus it will help in the searchability of your product. If you just copy-paste the pictures from the supplier, some of the smarter consumers will do a reverse image search and buy directly from the supplier, bypassing you.
Platform Fees
Listing your products on an e-commerce platform gives you access to their existing users so you do not have to build your audience from scratch. However, these platforms will charge platform fees for every transaction made.
Website Costs
Even if you are not listing your products on an e-commerce platform, you will need preferably need your own website for branding or sales or both. You will need to pay domain fees, hosting fees, website design and maintenance if you would like your own website. You can get fuss-free options like Shopify and Squarespace but they cost quite a sum each month.
If you list your products on your own website, you will not need to pay a platform fee whenever you sell a product, retaining a larger margin. But the downside to this is that you don’t get a constant stream of consumers from the platform.
Marketing Costs
Even if you have the perfect product, you will need eyes on your item or else there will be so sales made at all. This is especially important if you have your own website as compared to listing on a platform. Marketing costs will make up a high proportion of your costs.
This website estimates that it will take US$250 of Facebook ads to just make 5 sales.
Payment Gateway Fees
When customers pay using online payment methods, there are also charges involved. These charges will be paid to the different payment gateways for facilitating online payments.
Supplier Fees And Shipping
If the supplier will be sending the products directly to the consumer, you will need to pay the supplier to handle the logistics like packing and freight.
Other Business Expenses
Similar to any other business, there are also business expenses like incorporation fees, manpower, accounting, taxes to take into account.
Can I Really Make Money On Dropshipping?
Making Less Than Minimum Wage
This video talks about FBA but it should provide a ballpark comparison to dropshipping. Most people do not make minimum wage. Similar to running a business, there is no guarantee of success. Don’t let the gurus psycho you that you are the special one after getting mentored by them. A big difference for Amazon FBA is that you will need to handle warehouse costs when you hold your product in Amazon warehouses and they handle the logistics. This allows consumers to receive their products quicker as compared to dropshipping as the warehouses are usually in the same country or state as the consumer.
Suffering From Success
If you are too successful in your dropshipping business, people (including your guru mentor) can steal your ideas and even the platform can undercut you. There are stories of Amazon creating their own version and rigging the search results after seeing the success of certain products.
Constant Research
You also need to be constantly looking for products to list and sell. Not every product will be successful and even if they are successful, their success might not be permanent. You cannot wait for your item to drop in demand before starting to look for more products to sell.
Useless Middleman
Nowadays, the suppliers are also directly listing their products on platforms, what are the chances that you can beat them?
Savvy customers can now also go directly to the Chinese websites to buy it for themselves, skipping you, the middle man. Alibaba plans to serve 2 billion customers by 2036 so making its platforms accessible globally is inevitable.
High Failure Rate
80 – 90% of e-commerce businesses fail due to multiple reasons like competition and poor marketing.
Try To Exhaust Free Options First
Before deciding whether you even want to be in the business of dropshipping, search for arguments on both sides. You must know how to filter out where the reviews are just there to sell you the course. Once you understand the basic ins and outs and still decide to go into dropshipping, I recommend exhausting free options before going for a paid course. Don’t spend hundreds or thousands of dollars to find out dropshipping isn’t your cup of tea.
There are plenty of free resources and discussion boards online to learn from before paying for a paid course.
Don’t think that just by attending the dropshipping course by these gurus, you will definitely be successful in your e-commerce business. The paid courses might be structured and can bring you up to speed quickly but they can only take you so far. A lot of work still has to be done after the course, these “mentors” won’t be there with you forever.
There are also cheap dropshipping courses on Udemy that costs maybe about S$20 – S$30 that you can explore first. You can also use ShopBack on Udemy to get 10% cashback on the course fees.
TL, DR
Although dropshipping course ads states that you can sell a product for multiple of its cost, there are many other costs involved that are not mentioned. The average profit margin is about 15% to 20% for a dropshipping business. Also, 8 out of 10 e-commerce businesses will fail due to multiple reasons.
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