It doesn’t matter what others are doing. It matters what YOU are doing – Hyacil Han
The old adage about some things being too good to be true should be at the forefront of your mind while you’re in the initial stages of planning your dropshipping business.
We’ve all heard the staggering success stories about the shippers who started with nothing and within two years were making one hundred thousand dollars per annum with a business model that just seems to keep on making more and more money.
It’s probably one of the stories that made you want to start your own dropshipping business, hoping that you’d follow suit and be making the same sort of profit in a similar amount of time.
The problem is, those sort of rollercoaster rides to riches and prosperity are the expectation to the rule and the one in a thousand tales of instant triumph.
Even though it probably sounds like we’re trying to dissuade you from starting your dropshipping business before you’ve even started it, nothing could be further from the truth.
We don’t want you to walk away, we want you to succeed, but the first step on the road to success is the realization that in all likelihood, you won’t become a millionaire overnight, and that the unparalleled fables of dropshipping wealth are, for the most part, just that. They’re fables.
As long as you enter into your dropshipping business with your eyes wide open and a realistic ambition and idea of what you want to earn, then you’ll probably achieve that within twelve to eighteen months.
And the biggest misconception about dropshipping and the one that you need to kick to the curb straight away if you really want to make it work for you is that you don’t have to work hard and that it’s easy money for doing nothing.
That just isn’t true. However, if you do put the effort in, you can make a good living and a healthy profit from your dropshipping venture.
How Much Profit Is A Good Profit?
Let’s cut to the quick and get straight to the point.
A good profit margin for any dropshipping business is around twenty percent and if you earn less than ten percent in the first six months to a year, it’s probably a good indicator that you might need to rethink your business model, or at the very least the products that you’re selling.
That said, what might be considered an unsustainable profit margin in one dropshipping model, might actually be successful in another. Confused? Don’t worry, we’ll explain.
But Cheap, Sell High – The first model is the one that most drop shippers seem to be attracted to.
Once they’ve found their product, they add their profit margin (in this case twenty percent), so it doesn’t seem like, even with the added percentage, the product is unrealistically priced.
That way, they’ll sell more of the product, but because the price is relatively low, even though they’re making a twenty percent profit, they won’t actually be making a lot of money. Profit percentage doesn’t always equate to cold hard cash.
High Price, Low-Profit Percentage – The second model involves finding a more expensive product to sell, aiming for a five percent profit, and adding that on before listing the price on your chosen site.
Because of the higher price of the product, the five percent profit margin on the more expensive product might make just as much money for a drop shipper, if not more, than the twenty percent profit on a lower-priced product.
The percentage of profit that you can make, while being important, isn’t as important as finding the right product to sell. That’s the real secret to success in dropshipping.
How Do You Calculate Profit Percentage?
Once you’ve found your product, and you’ve established a working relationship with the manufacturer, who will also ship the product to your potential customers, it’s relatively easy to work out the final price that you’ll NEED to sell the product for in order to make your desired profit.
You need to add the cost of the item and shipping charges to the fees that the site you’re using charges and any other applicable costs, and when you’ve got a final figure, calculate the percentage of that you want to make as a profit and that will give your final selling price.
For instance, if the product that you want to sell costs (including fees and shipping) eighty dollars and you want to make a profit of twenty percent, you’d charge your customer ninety-six (sixteen is twenty percent of eighty and eighty plus sixteen is ninety-six) dollars for the item.
Providing that is, that you want to follow the twenty percent profit per item rule.
You might want to charge less for a higher turnover product, which should theoretically make you more money with a lower percentage profit.
The percentage of profit, or more accurately the percentage figure isn’t as important as the number of items you sell and the amount of money that you could potentially make.
Success is more about profit than static percentage figures.
What Is A Good Profit Margin For eCommerce?
A good profit margin for any eCommerce store is roughly in line with that of a successful dropshipping business.
The general rule of thumb is that a twenty percent profit margin per item sold is a good one, and if you’re aiming to make somewhere around that figure, then your business is in good shape and should continue to grow.
What Is The Average Profit Margin For Dropshipping?
While twenty percent is generally considered to be a good profit margin and five percent is usually considered to be low (depending on your business model) the average profit that most drop shipping businesses make is around ten percent.
It might seem low, but if the business has a high turnover of goods, the ten percent that you’re making as a middle-man (even though it can be an exhausting role that expects you to work twenty-four hours a day) can provide a steady and reassuringly good income.
Remember, the percentage isn’t as important as the amount of product that you sell, and the money that you make so try not to fixate on it too much during the initial, and formative stages, of your business.