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How to Determine If Dropshipping Will Be Profitable

March 14, 2020 eCommerce Tips

Basically, the process of dropshipping can be highlighted as follows:

  • Customers order a product from your store
  • You (store owner) contact the supplier with the order information.
  • The supplier fulfills the order and ships the product directly to the customers.

Now, you might have been wondering if this business is really a profitable one. When you don’t have to store, pack, or ship products to customers, you’d want to know if it’s profitable because, indeed, it really sounds somehow. However, the answer is a positive one. This article will do justice to how you can determine if dropshipping will be profitable for you.

Settle for a Niche

Niche selection plays a vital role in the dropshipping business. This act plays a significant role in determining whether you’d make a profit in dropshipping. They say if you don’t sit down, think, and settle for a niche you’re passionate about and know about, you might just be committing business suicide.

When selecting a niche, always ensure that the niche you selected is a profitable one, and you know all there is to know about these products. Ensure there’s a high demand for the products in this niche. The competition market shouldn’t be very high, and if it is, make sure it’s a market you can get into, and beat the competition.

Most times, you’d have to settle down the line for a sub-niche; this way, you set your brand apart to a specific product. The clearer the niche, the higher chance you have of beating the competition.

Competition Research

As mentioned earlier, if you don’t sit down and think in this line of business, you might just be committing business suicide. It’s a multi-million dollar industry, with the crazy competition, imagine how the competition will be. This is why you mustn’t go in blindly; you need to do extensive competition research before venturing into any niche.

It’s not like you can’t just go into any niche; however, it’s an act to ensure you’re on the safe side. Remember, you’re not the only dropshipper that will be in your niche, the secret is they’ve done some background work too. In fact, they’re still doing it, so why shouldn’t you?

To research and beat the competition, check other websites and see their structure, the reviews, customer service, and how their stores are being run. Of course, it isn’t to steal their work, but to have a cue and work on beating them.

Find Reputable Suppliers

Chances are your suppliers will determine whether your business will be a success or the opposite. After settling for a particular niche, you need to find suppliers, reputable ones, and not just ordinary ones. Remember, they’re the ones to handle all the storing, packing, and shipping products to your customers.

Imagine the kind of damage an unreliable company could do when they deliver bad or defective products to your customers. Unfortunately, there are lots of them out there. One way of finding a reputable one is by careful examination of their website, customer reviews, feedback, and ratings. 

Determine Your Profit Margin

Profit margin is the percentage of total revenue left after all costs, taxes, and expenses have been deducted. It is simply a way to know how much profit you’d be making on every sale. To determine your profit margin or if a niche would be profitable, you should understand the concept behind the common margins for products in your market.

Low margins are associated with high volume products like electronics because many are sold with just little profits from each. High margins are associated with low volume products; they have fewer sales but higher profits.

You can also use keystone pricing to determine your profit margin. In this case, you simply double the wholesale price you pay. Although it may be too low or too high at times, for instance, a recliner of $500 doubled will be too high for customers while doubling the price of a $6 T-shirt is not.

Market Your Brand and Products

How you market your products also have a say in how profitable your dropshipping business can be. As mentioned earlier, it’s a competitive market. If you’re just starting, it may not be wise using paid advertising. However, email marketing and social media marketing are affordable and effective options you could try out to find customers and see how profitable the business can be.

Know Your Shipping Costs and Sales Tax

Knowing your shipping costs and necessary taxes is another way of determining if your dropshipping business will be profitable. Your suppliers will charge you shipping costs, and when they do, it is then left to you to make your shipping costs reflect by adding it to the price, or you’ll be cutting into your profits to pay for it or probably running at a loss.

Before confirming an order, always ensure you have an estimate of the shipping cost, or something close, this is what you’d charge the buyer or your customers. Factors that affect and can help you in estimating shipping costs are destination, product weight, dimensions. If you don’t get your estimates right, chances are dropshipping will not be profitable in the long run for you.

There you have it! Above are some points to note when determining how profitable the dropshipping business is. Yes! The industry is a competitive one. However, it can be profitable if you know your way, and above are some excellent ways to go about it!

For more information, get in touch with us today at Fulfillman. We specialize in providing excellent and top class Drop Shipping services, Warehouse fulfillment, China sourcing, Third Party Logistics, and many more. Our trusted experts will be available to speak with you and discuss your needs. We guarantee you get quality and excellent services that gives complete customer satisfaction. An amazing experience awaits you.