Drop shipping Profit Margins

[MarcusUK21]

I was speaking to a business start up company and in conversation I asked do they get many Dropshpping starts ups. He said they do but they are high risk with margins of 2/3 % which seems very low but returns of products affect any profits. I wondered if we have any drop shippers here who can confirm this?

 

[apricot]

I don't mean to post a question to question but I am sooo curious about this!
Dropshippers buy my products on Amazon sells only 0.25p more on ebay and I don't understand how they could be making a profit!

 

[UKSBD]

Obviously product dependent but when I was drop shipping I was working on 30 - 40%

Not worth the risk for much less than that unless you have a product that is rarely rejected or an understanding with your supplier that they will take back returns.

 

[MarcusUK21]

Obviously product dependent but when I was drop shipping I was working on 30 - 40%

Not worth the risk for much less than that unless you have a product that is rarely rejected or an understanding with your supplier that they will take back returns.

Yes I think it’s down to having a good returns policy with the supplier I would not sell with less than 40% margins. Of course the product is important too. Did you work full time or part time with your business?

 

[MarcusUK21]

I don't mean to post a question to question but I am sooo curious about this!
Dropshippers buy my products on Amazon sells only 0.25p more on ebay and I don't understand how they could be making a profit!

Don’t seem worth the effort does it.

 

[UKSBD]

Yes I think it’s down to having a good returns policy with the supplier I would not sell with less than 40% margins. Of course the product is important too. Did you work full time or part time with your business?

Always only a little side business, was working full time in building industry for 1st 3 or 4 years the business was going, then started doing other things but always kept the business going until recently.

 

[MarcusUK21]

Always only a little side business, was working full time in building industry for 1st 3 or 4 years the business was going, then started doing other things but always kept the business going until recently.

Yes I work full time and wanted something to try as a sideline too. Still hoping to start my site soon.

 

[UKSBD]

Drop shipping was a lot easier 20 years ago, the harder a product was to find, the more chance you had of selling it if you were top ranked.

Nowadays, people can find virtually anything in lots of places, but what really killed drop shipping is manufacturers cutting out the drop shippers and selling direct themselves.

 

[japancool]

I was speaking to a business start up company and in conversation I asked do they get many Dropshpping starts ups. He said they do but they are high risk with margins of 2/3 % which seems very low but returns of products affect any profits. I wondered if we have any drop shippers here who can confirm this?

They're high risk because they're working on 2-3% and therefore have a high failure rate.

 

[MBE2017]

I think you will find different approaches and models regarding dropshipping.

Many years ago I looked into dropshipping, to be hit with awful margins as the reality, mainly when a company offers you a website, etc. I see this version more as affiliate marketing in many ways, except the orders come to yourself through the provided website.

I eventually settled on my own version, I would approach companies who did not sell via the web, remember those days? I got agreement to have goods delivered direct, I made the website, decided on prices etc. Doing things that way, I made a good living for a few years until I ended up doing other things. I used to make 100/300% markup, but was very competitive at the same time, mainly large heavy items such as wardrobes, beds etc.

 

[Socio South West]

It's all a part of the very common start up scenario where Gross Margin is confused with Profit, and Fixed Costs and Return to Investor/Entrepreneur are totally ignored.

All in all, as Private Fraser would say... 'They're doomed!'

There are, of course, some scenarios where this sort of margin is acceptable in a larger business, but for standalone dropshippers most certainly not.

 

[Deleted member 335660]

Well we do a mixture of purchased and drop shipping.

I use drop shipping for personalised goods and some odd goods that ain’t would not want to stock but my customers might by.

As a normal retailer I need margins of 40-50% although international branded goods can be down to 30%.

So as I do not have to stock the drop shipping then I look for around 20% art least. Depends on the product.

 

[MarcusUK21]

Well we do a mixture of purchased and drop shipping.

I use drop shipping for personalised goods and some odd goods that ain’t would not want to stock but my customers might by.

As a normal retailer I need margins of 40-50% although international branded goods can be down to 30%.

So as I do not have to stock the drop shipping then I look for around 20% art least. Depends on the product.

I think it depends too on offering something different a niche market but it is very cut throat out there. To make a decent margin you need to be aiming for 35/40% at least.

 

[thetiger2015]

Dropshipping needs to be niche but the margins are small, they're supposed to be. Your workload is less than a company that has warehouse staff and storage costs. So, dropshippers can operate on 20% or less margins. A company with warehousing will need 40% upwards minimum.

The problem comes in marketing. Marketing costs are easily 15% upwards for PPC etc. So you'll be left with a 5% net profit, factor in returns and you have to be hitting high volumes to make a profit.

I think dropshipping now only works as a way of bulking up your website. Too much competition, tiny margins, suppliers aren't really interested because they need to be selling in bulk, not 1 or 2 orders a day from each online retailer. Customers shop around a lot too, so you have to be price competitive and if you factor in Amazon fees .... I don't see any point. We tried it but we made no profit after 3 months, it was running at a lost because of the advertising costs and constant discounting to try and get orders.

 

[UKSBD]

For a typical product I sold, I would pay around £300 and sell for £420

The problem is, they were bulky and because I did so few deliveries my rates were terrible (about £60 delivery)

By having delivered direct we used our suppliers delivery rates (£14) but returns were charged double which meant any returned product cost us £42 plus my supplier had a 20% handling and restocking fee (they waived this for me though)

It was also a product that people could often order the wrong one.

The way I got around was I didn't have an option to buy online without speaking to the customer 1st to find out exactly what they needed, I also only ever sold the absolute top range and fortunately doing this resulted in very few wrong orders or returns.

The market eventually got flooded with cheap imports closer to £200 for similar products, but I worked it out that it just wasn't worth me selling them.

The profit was far less, the margin far less, quality of product would have resulted in more returns and you only need 2 or 3 returns to wipe out the profit from 10 sales, plus the profit doesn't justify the time you can spend advising people.

The sad thing is, it really is a product where people need advising, it's almost a separate service itself

My website is a good information site, still gets lots of visitors but I rarely sell anymore so have instead removed all the products and make money via AdSense and affiliate ads.

Makes nowhere near as much as drop shipping but it's money for nothing now.

One day I will probably find a new supplier and set it up again, it will only be selling top range products though, I would rather sell one top quality product than 20 cheap naff products.

 

[Deleted member 335660]

I think it depends too on offering something different a niche market but it is very cut throat out there. To make a decent margin you need to be aiming for 35/40% at least.

Yes Marcus, I agree. Just seeing if these unique products we are doing through the drop shipper works and will then try and improve margins.

 

[MarcusUK21]

Very interesting views and experiences here. Very competitive too and Amazon etc offering virtually same day delivery that’s another issue too. Customers don’t want to wait 3 weeks for delivery. Although I’m looking at U.K. based suppliers only so we get the 2/3 days delivery in. Has anyone got any website I can look at? Are we allowed to share on here?

 

[Ray272]

DS is massive in the US and even the largest retailers are using it. Couple of examples based on yesterdays sales from dropshippers.

Product 1 sold to DS reseller for 995 and sold on their site for 1495.

Product 2 sold to DS reseller for 199 and sold on their site for 329.

Shipping is additional cost to reseller and consumer.

 

[Chris Ashdown]

DS is massive in the US and even the largest retailers are using it. Couple of examples based on yesterdays sales from dropshippers.

Product 1 sold to DS reseller for 995 and sold on their site for 1495.

Product 2 sold to DS reseller for 199 and sold on their site for 329.

Shipping is additional cost to reseller and consumer.

A link would be handy