Written as a ghostwriter for a private client. The original publication is no longer available. Shared for portfolio purposes only.

08 January 2021

15 costs to consider before starting dropshipping

Dropshipping is an awesome way of running an online store without needing to invest in a warehouse full of stock. It’s been growing in popularity in recent years as people look to make more money from the comfort of their homes, and thanks to the rise of online shopping it shows no signs of going anywhere soon.

In fact, Ecommerce and dropshipping profits reached over $4 billion in 2020, a 7% year-on-year increase for the last 10 years![1]

But while dropshipping is seen as an easy and convenient way of running an online store, there are many things you will need to think about before you get stuck in… It’s a long way from a get rich quick scheme!

What is dropshipping?

Dropshipping is an innovate way to run an online store, transforming you into a ‘middleman’ who fulfils customer orders and passes them onto a supplier. The supplier will then handle the stock, packaging, and shipments. So, while you’re the face of the company, the actual product handling is done by a third party.

This method of Ecommerce is popular as it avoids vendors from having to invest in loads of stock that may or may not sell, in addition to avoiding the costs associated with warehouses, packing, etc.

What’s more, vendors using a dropshipping service don’t need to pay up-front for the stock, they simply pay for the products customers have actually ordered, often at a discount.

This means that all you’re responsible for, as a vendor, is:

Finding a great product to sell
Finding a supplier for the product
Choosing a marketplace
Branding and marketing

Sounds simple, right?

Dropshipping Costs to Consider

While dropshipping is often seen as a convenient way to set up an online business while avoiding huge sums of money investing in stock as well as the day-to-day running of your store, there are several costs that you’ll need to consider before you throw everything you have into running a dropshipping business.

These can be broken down into 4 major categories: the store, the supplier, the marketing, and the business. You may also come across additional costs as your business progresses.

In a bit more detail, these costs could include the following:

Your store

Website and domain
Contact Details (phone number, registered address, email)
Branding

In the absence of a physical store, your website will become the front of your business. Therefore, it needs to be of the highest quality with decent branding everywhere. Even if you’re not a professional web designer, there’s loads of advice available online to help you build a professional-looking website, or you could consider hiring a professional to help you with the branding of your business (although this can be fairly expensive, and it’s definitely worth paying more for quality if you don’t want to do it yourself). https://www.dragdropr.com/how-to-design-your-own-website/

In addition to the website creation, you’ll also need to pay for your domain. It’s worth doing this early and gathering all the variations of the website (.com, .net, .biz, etc.) to ensure nobody else can poach your success and you don’t come under any trademark problems.

Once you’ve got your website looking good, you’ll also need to think about contact details. You’ll want a proper business line (not a cell phone) to ensure your store appears as professional as possible. While this will incur a cost, business lines can usually be installed for a relatively low fee and providers offer lots of customization options.

Most website hosting providers will provide you with the option to add a business email to your site, so this is quick and easy. Even if your website provider doesn’t offer this service, there are plenty of ways to make a free business email address[2].

You should also think about the registered address of your business.! Using a UPS mailbox for business purposes can be an excellent solution to ensure you don’t end up with customers at your doorstep and can cost as little as $10 per month.[3]

Supplier fees

Shipping
Personalization
Returns
Product testing

While you should never pay to work with a supplier, and the benefit of dropshipping is not needing to pay up-front or bulk-buy products, working with a supplier will inevitably bring up some costs that are unavoidable and need to be part of your budgeting plan.

These costs will likely vary on the supplier(s) you’re working with, and some may include services such as shipping and personalization in their general charges.

Remember that dropshipping might be cheaper than a straightforward sale, it’s unlikely to be quite as discounted as wholesale.

When you’re starting out with a new supplier, you will want to spend a little time and money actually ordering some of the things you intend to sell. This gives you the chance to experience the customer journey first-hand and can answer questions like:

How long does it take the product to arrive?

What is the packaging like?

Is the product free from defects?

Is the product high-quality?

Completing this step doesn’t just give you an opportunity to vet the supplier but can also offer an excellent marketing opportunity. Take your own pictures of the products and ask friends and family to provide their opinions. You could even run giveaways or online competitions with your ‘test’ products as prizes once you’ve established you’re happy with the supplier. https://www.dragdropr.com/creating-viral-online-competitions-for-beginners/

Marketing

Social media
Emails
Copywriting
Customer service

While a dropshipping supplier will deal with the product, packaging, and shipping on your behalf, you will still be expected to handle the marketing and customer service elements of your business. This includes advertising, emails (marketing and customer service), and any other marketing.

Social media is an excellent way to enhance your brand reputation and awareness, and there are many tools you can utilize to help you use social media to it’s full potential.

A blog is also a great way to help increase traffic to your store, and understanding SEO is vital for attracting new potential customers. If you’re not confident using SEO or writing isn’t your strong point, you might want to consider hiring a copywriter to help you out. The fees associated with copywriters, social media managers, or any other marketing assistance can vary greatly, but it’s generally worth paying a little more to for high quality. https://www.dragdropr.com/8-seo-hacks-for-your-website/#comment-9346

Other business expenses

Tax ID
Business credit cards
Local business licences
Legal fees

In addition to your website, supplier, and marketing expenses, you should also be sure to budget for the more formal elements of running an Ecommerce business. These can include things like registering your business for tax, securing the relevant local business licences, and any legal fees involved in the start-up. The costs for these will vary from state-to-state, but are generally deductible expenses.[4]

Is dropshipping worth it?

Although there are numerous fees to consider when it comes to dropshipping, it is still considered a far more affordable and convenient way to start an Ecommerce business. The benefits of not needing to pay up-front for goods and relatively inexpensive business costs make dropshipping an accessible and popular choice for many start-ups and small businesses.

[1] https://www.cloudways.com/blog/is-dropshipping-business-dead/#:~:text=Yes.,for%20the%20last%2010%20years.

[2] https://wpforms.com/how-to-setup-a-free-business-email-address/

[3] https://www.usglobalmail.com/ups-mailbox-cost/#:~:text=Breaking%20Down%20UPS%20Mailbox%20Costs&text=Small%20size%20boxes%20from%20UPS,%2430%20and%20%2450%20a%20month.

[4] https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses