Understanding dropshipping; Budget and breaking even.

In this tutorial, it’s all about understanding dropshipping, the average budget it takes to dropship successfully or just break even in 2022. I’d detail what print on demand (POD) is and how it intersects with the dropshipping business model.

Understanding dropshipping 

Dropshipping is an order Fulfillment business model, where a dropshipper promotes a product which he does not have inventory and when he gets orders, the orders are fulfilled by a third party known as the “supplier”.

The dropshipper sets a price for the product such that once he makes a sale, he is able to pay the “supplier” for the product and its fulfillment and earn a profit margin for himself.

Dropshipping is mostly done by setting up an ecommerce store, finding a dropshipping supplier and promoting the products digitally to make sales.

Dropshipping is a low entry business model because it does not require you to produce or even buy products in bulk and stock them.

You’re also not concerned with packing, shipping and keeping inventory as this would be the job of your supplier.

Dropshipping in theory looks like a get rich quick online business but in reality it is not. It takes a fair share of hard word work, data analysis and consistency to succeed as a dropshipper in 2022.

I say 2022 because right now dropshipping isn’t a new concept as it was years ago and the market is pretty much saturated with many entrepreneurs constantly launching a dropshipping store and many giving up too soon. 

Nevertheless, there is also a lot of hype about dropshipping with people saying they make millions of dollars running a dropshipping store.

These claims are most times perceived to be “too good to be true” especially with most new dropshipping stores failing. 

This and more has raised both optimism and doubts around dropshipping as a business model and many beginners wanting to know realistically if dropshipping is worth it?

Well, the summary of my answer to the question above is that;  dropshipping is still very much worth it but it does require hard work, being strategic, learning, experiencing, testing and differentiating your dropshipping store from the sea of other stores. 

Honestly, there are a lot of variables to success but success is inevitable if you start dropshipping with a business mindset and have realistic expectations.

Don’t expect to become a millionaire overnight. Success takes time and consistent effort. 

Business Summary of Dropshipping

  1. Research a niche and find marketable products to sell.
  2. Find a reliable supplier for those products who support dropshipping and have a dropshipping partnership with them whereby they agree to ship product orders to your customers in white label packages or packages that has your brand on it.
  3. Set up a professional looking ecommerce website and list the products with prices set competitively but higher than the actual price you’re getting it from your supplier.
  4. Get ads creatives and start marketing the products online to your target country audience. You can choose any country, thats why its ecommerce but make sure you can relate to the audience and that you understand the country’s tax requirement for ecommerce merchants.
  5. Whenever you get a product order on your ecommerce website, your supplier ships the product to your customer, you pay your supplier for his product and keep your profit margin.

Now let’s look into what an ideal budget for dropshipping is in 2022.

Realistic dropshipping budget in 2022 and breaking even.

Gone are the days when it took $100 to start and scale a dropshipping business. Wait, if you’re dropshipping on a platform where you don’t have to pay for ads like Amazon or Facebook marketplace because this platforms bring in traffic from their user base then okay! You might be able to start and break even with a $100 budget since you will need to pay your supplier only when you get a product order.

The significant disadvantage of dropshipping on a marketplace platform (i.e Facebook marketplace, Ebay, Amazon etc) over dropshipping on a self owned website (i.e Shopify, Woocommerce, Ecwid etc) is that you’d be in competition with other sellers on the platform and your customers can easily navigate over to your competitor’s listings.

It’s harder to stand out and build a brand on a marketplace. More so, you’d have to play by the rules of the platform or risk getting your seller account suspended.

Alternatively, if you’re tight on a $100 budget and still like to dropship on your own website, it’s possible if you build your e-commerce website on a free platform and grow organic traffic to your store.

This is a rather slow and steady process but will work if you’re patient, focused and consistent. We have a detailed guide on starting a dropshipping store on a tight budget.

However, if you want classic dropshipping where you are pretty much in control of your website, user data, user experience, branding, business policies and you drive conversions both organically and by running Facebook ads or ads on other platforms, then keep reading and take everything I say with a pinch of salt but know that I say it with love.

Let me mention now that this article is part of our free dropshipping course which details step by step how to start and scale a “classic” dropshipping business built on Woocommerce, Shopify or Ecwid ecommerce platforms.

The 2021 IOS 14 update has somewhat affected the estimated cost of starting a classic dropshipping business. I’d explain further.

The IOS 14 update requires Facebook and other apps to expressly ask iPhone users for permission to track their data.

Prior to the IOS 14 update Facebook and other apps tracked user’s data by default. Although users can opt out, the process wasn’t as straightforward because it would require users to go to their settings to opt out and most users didn’t bother.

Users now get an express message to choose whether they want their data to be tracked, making it easy for users to decline the request.

The bottom line is that it has become slightly difficult for Facebook to efficiently track the data of iPhone users after the IOS 14 update.

This means less effective retargeting for iPhone users, decrease in return on ad spend, increase CPM and it’s just not a good day for dropshippers.

The reality is with the current IOS 14 update making retargeting for iPhone users more difficult, it may take an average estimated budget of $500 – $1500 to break even in dropshipping.

We have seen some stores break even with less or more of this budget. This estimate only represents the “average” based on the stores we’ve worked with.

The budget for dropshipping will vary depending on which platform you use to build your dropshipping store, what paid apps or plugins you use, your ad spend etc.

For example, you can build a dropshipping store on Shopify, Ecwid, Woocommerce etc and each of them will vary in cost.

You can read our review of our top 3 e-commerce platforms and their relative cost here.

Understanding Print on demand vs dropshipping

Print on demand also known as POD which is an ecommerce business model whereby a dropshipper agrees with a supplier to print specified designs on a product before shipping to a customer.

For example; if a dropshipper wants to sell t-shirts or joggers with his own artistic design on them, he could agree with a supplier to print those graphic designs on the T-shirts before shipping them out to customers.

There are no minimum viable products for print on demand. A dropshipper may decide to have one or more designs for print on demand. This depends on the Dropshippers business model.

There are various print on demand suppliers but I do recommend printful My experience with their service has been painless with 3-5 days to get ready to ship and 3-4 days after shipping for most delivery within North America and EU. Standard shipping to North America is only $3.99

Printiful also offers private label service for an extra cost. Private labelling means putting your branding on the product packages.

Another print on demand service that I recommend is printify. They basically connect you to many print on demand vendors.

Printify gives you the flexibility to choose which vendor to work with and you can choose based on the vendor’s location to get a faster shipping time to your target customers.

I hope this article helps you have an understanding of how dropshipping works!

If you have any questions please, feel free to leave a comment.

This tutorial is part of our free dropshipping course. You can check our dropshipping course outline here.


FAQ

Does anyone really make money through dropshipping?

Yes, people still make money dropshipping in 2022.
We know this from our own experience and some of the stores we’ve worked with. 

To get a real sense of how much people are making with dropshipping, Empireflippers is a site where people trade digital assets, take a look at how much successful dropshippers are selling their store for, it’s usually not less than $100,000!

Should you dropship on your own website or a marketplace like Amazon, Ebay, Facebook marketplace?

It depends. If you have a significant budget, dropshipping on your own website is the best option because you’re not at risk of the platform banning your seller account for one reason or the other. You ultimately have control over your website and business, from SEO, to revenue, to policies and even domain name recognition. It’s just like farming on your own land as opposed to farming on someone else’s land.

If you’re tight on budget then dropshipping on a marketplace can be a preferable option since it’s quicker to list your products and you can benefit from the traffic and conversion rate that the marketplace attracts.

A multi channel approach will be to dropship on your own website and other marketplace platforms as well. In this case you should first focus on one channel and become successful with it, before expanding to other channels.

Is drop shipping dead in 2022?

Dropshipping isn’t dead in 2022.There are definitely some Dropshipping stores that fail but dropshipping is still very profitable in 2022 if you are consistent. 

Is physical store the same as dropshipping in a way.

No, a physical store isn’t the same thing as dropshipping. Dropshipping involves having an online store and not a physical shop. You don’t also keep inventory of the products, instead orders you get on your ecommerce store are fulfilled by someone else, who is your dropshipping supplier.

Is dropshipping easy?

In reality Dropshipping isn’t a walk in the park or a get rich quick online scheme. That’s why not every new dropshipping store succeeds. 
The business of dropshipping is actually “e-commerce”. This is to say that dropshipping is only the fulfillment model. E-commerce, like every other business, requires hard work, consistency and strategy to stand out and succeed. 

This means it’s important to offer value to your customers, value could be in terms of your delivery, your customer service, your professionally designed and easy to navigate website, your convincing marketing approach, your product quality, or just selling a product that is appealing to your customers.

Can dropshipping make you rich?

Yes, it is possible to get rich from a successful dropshipping store.

What is the success rate of Dropshipping?

A study we conducted in 2021, where we did a survey of 10 new dropshipping stores. Only 2 stores reported making at least 1 sale a day after one month of launching their store. This shows us that 20% of new dropshipping stores succeed.

From our experience most dropshipping stores, including stores that didn’t succeed right away can become successful if the owner is consistent, keeps tweaking his marketing approach and web design and testing his products selection and audience reach to figure out what works for his store.

As the e-commerce billionaire and Amazon founder, Jeff Bezos rightly puts it;

“If you’re not stubborn, you’ll give up on experiments too soon. And if you’re not flexible, you’ll pound your head against the wall and you won’t see a different solution to a problem you’re trying to solve.”

What is the dropshipping success formula?

In our experience, the dropshipping success formula is 80% research and testing and 20% consistency.

What is the dropshipping average daily income?

The average daily dropshipping income is $10-$100  a day. That’s if you sell a product with a $10 profit and sell at least 1-10 products per day.

Is dropshipping legal?

Yes, Dropshipping is a legal business model. There are laws governing e-commerce businesses in most countries. This includes the obligation to pay sales tax and respect intellectual property laws.  It’s important to dropship ethically to avoid lawsuits. For example you shouldn’t dropship replica fake products as though they were original brands.

Do Dropshippers lose money?

Yes it is possible for a dropshipper to lose money. For example, during the testing phase of a product. He might invest money on ads to test a product that ended up being unprofitable.

To get a real sense of how much money a dropshipper can lose, take a look at this reddit discussion where real dropshippers shared how much they lost!

The only way to avoid wasting money is by doing proper research before going into dropshipping! That’s why we put up our free course so you can learn from real dropshippers at no cost! No gimmicks.

Can I dropship products to any country in the world? 

Absolutely yes! That’s the beauty of e-commerce. You can dropship to a different country than where you live.
For example, you can live in India and dropship to the US. It’s important to understand your tax obligation to the country where you dropship.

Should I try to start another business before going into dropshiping?

Dropshipping is a low capital entry business meaning it doesn’t take a lot of  capital to start a dropshipping business. So it’s okay to start dropshipping as your first business but if you feel like starting another business before going into dropshipping then that’s fine as well.

Do you get tired of dropshipping and want to sell your own product ?

It’s common to get tired of dropshipping when your store is already successful. You may want to go into e-commerce inventory (that’s selling your own products inventory), to increase your profit margin and
have more control of the product quality and delivery time.

Is dropshipping a long term business?

No, In fact we see dropshipping as a means to an end. Meaning dropshiping is a good way to go into e-commerce business with a low capital and test products, finding out what products are marketable, gaining web design skills, research and analytics skills etc.

We recommend leveling up to an ecommerce inventory business either by using a 3pl or Amazon FBA program once your dropshipping store becomes steadily profitable. 

Is Amazon FBA better than dropshipping?

Neither Amazon FBA or dropshipping is better than each other.

Amazon FBA requires shipping large quantities of a product to Amazon fulfillment center (warehouse), if it sales, your profit and if it doesn’t sale, your loss!

When you’re dropshipping, you don’t need to pre-purchase large quantities of a product, you only pay your supplier to ship the product to your customer when you get an order, so the risk of losing money is less with dropshipping compared to Amazon FBA.

This is why we recommend dropshipping as a fulfillment model for starting an ecommerce business with low capital and risk of loss. You can even dropship on Amazon as an FBM seller.

Once you’ve validated your business strategy and your dropshipping store becomes steadily profitable, we advice scaling your store to an e-commerce inventory. You can do this by using a 3pl or Amazon FBA program or both!

Can you be successful without completing a dropshipping course?

Yes definitely! You can be successful without completing any dropshipping course. You can learn on the go from forums, random YouTube and blog guides!

The problem with learning on the go, is that there could be a number of trial and error! Everybody’s method is different, combining different approaches from different people can be confusing and it’s not a coherent approach. 

This could results in so much time or money spent on testing different approaches. You can definitely be successful going this route, However it saves you both time and money and it even makes things more straightforward to have someone who has been there to guide you through the process of building a dropshipping business.

Please know that we don’t encourage taking paid courses because most of the ones we’ve seen are very expensive yet they have very basic information that can be found for free by searching the internet and it’s hard to differentiate what’s a quality course from what’s garbage information until you’ve paid.

This is why we created a free dropshipping course which is regularly updated and has a coherent approach. In fact this article you’re reading is a tutorial that forms part of our free dropshipping course.

Since we don’t charge anyone a penny for taking this course, our tutorials contain affiliate links. These are links to products we’ve tested or used on our own dropshipping stores and can confirm that it has worked for us, so we recommend them to you only where necessary. 

If you click on our affiliate links and purchase any of the recommended products, we get a little commission at no extra cost to you at all.

We use a good sum of the commissions earned to maintain the website, provide free support, regularly update and keep the course free for everyone!

What’s the wrong mindset for starting a dropshipping store?

The worst mindset for dropshipping is thinking you can sell garbage products from China to the US with one month delivery time, on a poor looking website and become the fastest raising millionaire overnight.

This tutorial is part of our free dropshipping course. You can check our dropshipping course outline here.

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