Wondering how to save fees when dropshipping? Then you've come to the right place!
Although dropshipping has the potential to earn large profits, it's highly competitive. Operating costs such as shipping, hosting, and transaction fees can eat into your margins quickly.
Learning how to save fees when dropshipping will lower your operating costs and give you a competitive advantage. And some of the best ways to do that are using a local supplier, an in-house payment provider, and the right product packaging.
Curious to know more? In this article, you'll learn about the different dropshipping fees and ways to reduce them to keep your business profitable.
6 Types of fees that influence dropshipping costs
Before we explain how to save fees when dropshipping, it's important to know the expenses you might need to pay when running a dropshipping store.
There are two platforms you can use to display your products online:
- Dedicated ecommerce platforms
- Online marketplaces
Let's explore what these platforms are and the costs associated with them.
Dedicated ecommerce platforms
Dedicated ecommerce platforms allow you to build an online store. They can be either fully managed or self-hosted platforms.
Fully managed solutions host your website on their servers, and in return, you pay a monthly subscription fee.
On the other hand, with self-hosted platforms, you must take care of hosting and security.
Since you need some technical skills to use self-hosted platforms, it can be better to stick with fully managed solutions so that you can focus on growing your dropshipping business.
Now, let’s look at the following price comparison chart of the best ecommerce platforms for dropshipping:
As you can see, the minimum amount you'll pay is $19 a month.
That said, the most popular way to build an online store is by using Shopify since it offers many built-in ecommerce features at an affordable price. Using Shopify, you can expect to pay at least $39 a month in platform fees.
If you're not sure what an ecommerce platform is, check out this guide article and this one to learn how to choose the best one for your business.
Online marketplaces are platforms that connect sellers to buyers. The most popular online marketplaces for dropshipping are Amazon, Facebook Marketplace, and eBay.
Unlike ecommerce platforms, online marketplaces charge various fees, such as listing, subscription, and commission fees. In exchange, you get to display your products in front of millions of visitors.
Here's a breakdown of the fees you can expect to pay when using online marketplaces for dropshipping:
|Online marketplace||Listing fee||Subscription fee||Commission fee|
|Amazon||–||$40||8% to 15%|
|eBay||<250 items a month = free|
>250 items a month = $0.35 per item
|(Optional) Starts at $5/month||3% to 15%|
Note: Amazon allows dropshipping only if you use Fulfillment by Amazon. You'll need to purchase products from a supplier in bulk and send them to an Amazon Fulfillment Center. You can learn more about dropshipping on Amazon in this article!
Ecommerce platforms provide features that are essential for running an online store. But sometimes, they aren’t enough.
You need apps, also known as plugins, to add or extend the ecommerce functionality of your website.
For example, if you want to dropship printed or embroidered t-shirts, you can use the Printful app for your Shopify store.
Similarly, for sending personalized emails, SMS, and notifications to your customers, you can use a marketing app like Klaviyo.
Most apps have freemium plans where they offer basic features for free and charge a premium for advanced features. The pricing plans start around $20 per month on average and can go up to a few hundred dollars.
Since you need at least three to four apps for your dropshipping store, you can expect to spend $60 to $100 per month for additional features.
When you sell your products through an ecommerce platform, they usually take a cut out of every sale you make.
Commission fees can be a percentage of the total sale or a flat rate. For example, Facebook and Instagram charge a 5% commission fee on all sales made through their platform.
Some online marketplaces like Amazon have varied commission fees depending on the product category. For instance, the commission fee for the consumer electronics category is 8% and 15% for the beauty category.
Most fully managed ecommerce platforms don't charge a commission fee since they already charge other fees such as subscription, app, theme, and transaction fees.
Payment processing fees
When a customer pays for an order, the payment processor charges you an amount to process it.
Think of a payment processor as a bridge between your customer, you, and the bank. They help the cash flow securely from one end of the bridge to the other. And in return, you pay a toll for using the bridge.
Some of the best payment gateways are PayPal, Stripe, Google Pay, Amazon Pay, and Apple Pay.
Most of these payment processors charge 2.9% + $0.30 for every domestic transaction. You can expect a 1% to 2.5% increase in the payment processing fee for cross-border transactions.
Third-party transaction fees
We know that payment providers are needed to accept credit card payments made on your online store.
But the ecommerce platform you're using also needs to integrate its systems with these payment providers. The transaction fee helps cover the cost of this integration.
If you use a third-party payment provider like Google Pay or Adyen, most ecommerce platforms charge a transaction fee of 0.5% to 3% of your sales.
For instance, Wix charges 2.9% + $0.30 for Apple Pay payments.
But some ecommerce platforms like BigCommerce don't charge any transaction fees irrespective of your plan, order value, and payment gateway.
Shipping fees are a major factor in dropshipping costs, and they can vary widely depending on the product being shipped.
For example, a fragile item like a vase needs more protective packaging, which increases its weight and shipping costs.
In addition, 75% of customers like to see no shipping fees on their orders, as per a survey by National Retail Federation.
So you may need to include shipping costs in your product pricing strategy to minimize abandoned carts during checkout.
8 ways to save fees when dropshipping
Reducing dropshipping fees will help you increase profits without having to increase your product prices.
Here are some tips to keep your operating costs low and save fees when dropshipping:
1. Negotiate with your supplier
Put your negotiation skills to use and convince your supplier to reduce their product pricing.
A supplier is more likely to give you a discount if you pay on time and the average order value is high.
If you can accommodate your supplier in these areas, they'll be more likely to decrease their product prices.
But what if your average order value isn't high enough to ask for a discount? Then, you should focus on increasing the number of orders before approaching your supplier.
If increased discounts are off the table, you can work out a monthly payment schedule where you pay for all orders at once at the end of the month.
This will help you save on time and payment processing fees since the rate is usually lower for a single, large payment compared to multiple small payments.
And finally, you could also negotiate a freight-free deal with your supplier. Some suppliers will waive shipping fees for orders over a certain amount.
2. Use an in-house payment provider
Transaction fees take a good 1% to 4% out of each sale. And that’s just one type of fee you’d be paying on every order.
Most ecommerce platforms charge a hefty transaction fee if you use a third-party payment gateway. But if you use their in-house payment provider, the transaction fees are super low or none at all!
For example, Shopify has a built-in payment service called Shopify Payments which doesn’t charge a single cent to accept credit cards and other online payments.
3. Use a cashback payment gateway
Running a dropshipping store can be expensive. So you want to cut costs and save as much as possible.
One of the simplest ways to save more is by spending more! Confused? Let us explain!
Some payment gateways provide cashback on large transactions. Google Pay is a well-known brand that offers its users cashback, rewards, and much more.
Another brand that's not as popular as Google Pay is Juni (juni.co), a fintech solution catering to businesses in Europe, Norway, and the UK.
One of the most significant advantages of using Juni is that you get up to 1% cashback on all eligible card transactions. It may not seem much, but when you’re processing hundreds of orders a month, it adds up!
4. Negotiate credit card processing fees
If you can negotiate with suppliers, why not try your luck with credit card processors too?
While some payment networks like MasterCard and Visa won't entertain any negotiation, you can call your payment processors to see if they can reduce setup fees or annual account fees.
Like suppliers, payment processors are likely to provide discounts if you've been using them for a long time and have a history of large transactions.
Yes. We contact them every year and negotiate a rate. Sometimes we get a lower rate. Sometimes we don’t. We have a very high volume e-commerce site and all of our credit card transactions in our retail store go through PayPal.Source
5. Save on foreign transfer fees
Paying suppliers on time is essential for a long-lasting relationship as a business partner.
If your supplier is located in another country, you need to look for a payment provider that offers a cheap and quick way to transfer money abroad.
Wise (formerly known as Transferwise) and Payoneer are two of the most popular payment solutions that provide a convenient and cost-effective way to send money overseas.
Unlike PayPal, which charges a 5% transaction fee, Wise and Payoneer charge only 0% to 2% to send payments.
6. Use a local supplier
Since working with foreign suppliers increases shipping times and costs, it might be worth looking for a local supplier. This is especially true if you're selling time-sensitive or fragile items.
Local suppliers are also easy to reach since they'll work the same hours as you. And you can also visit your supplier personally to address concerns and ensure all items meet your standards.
Another benefit of using local suppliers is that you can establish a good relationship with your supplier, which can help you negotiate product pricing in the future.
7. Ask your supplier to use effective packaging
Packaging costs are often overlooked when running an ecommerce business. That’s because most new sellers realize that shipping costs are estimated based on the volumetric weight of a carton.
Volumetric weight is calculated by multiplying the carton's length, width, and height divided by a dimensional weight decided by the shipping carrier.
So if your supplier uses the same packaging for all products, you should discuss different packaging types based on the size of the order or type of product.
For example, non-fragile items like apparel and jewelry can be shipped in a padded envelope instead of a carton.
And you can also ask your supplier to use a single layer of bubble wrap instead of multiple layers to decrease the weight of the package.
That said, you should approach this topic cautiously since you don't want the supplier to feel like you're difficult to work with.
8. Reduce chargebacks
Chargebacks are every dropshippers’ nightmare, and for a good reason. Payment processors directly ban accounts if they see multiple chargebacks in a short period of time.
So how do you reduce chargebacks?
First, have a clear return and refund policy. Many customers file for a chargeback instead of returning a product they no longer want because of long and complicated return processes.
Next, keep your inventory updated. Customers can file chargebacks when they find out a product is out of stock after they have successfully placed an order on your store.
Last but not least, provide customers with clear shipping information and delivery estimates. Customers often initiate a chargeback when they receive no updates from the seller and think their order is lost in transit.
Tip: Interested in learning more about how to deal with refunds and returns when dropshipping? Check out our complete guide here!
As you work to reduce chargebacks, you may also want to improve the way you handle new chargebacks using a tool like Chargeflow:
It's an automated system that leverages artificial intelligence to manage and win chargeback disputes for you.
Plus, its centralized dashboard allows you to analyze chargeback data from multiple payment providers in one place. This can provide additional insights into trends and potential issues, helping you further reduce the incidence of chargebacks.
And the best part? You only pay Chargeflow when they successfully recover a chargeback for you!
Reading and absorbing information and knowledge is great (definitely if it’s free!), but do you know what’s even better?
So, to help you with taking action with what you have learned in this article, take a look at the bullet points:
- Negotiate with your supplier to try and lower product prices.
- Use built-in payment providers like Shopify Payments to save on transaction fees.
- Use a cashback payment gateway like Google Pay or Juni.
- Try negotiating the credit card processing or annual account fee if you have a large sales volume.
- Use Wise or Payoneer to save on cross-border transaction fees.
- Choose a local supplier to cut down shipping times.
- Ask your supplier to use smaller boxes to save on shipping fees.
- Reduce chargebacks by adding clear return and refund policies, keeping your inventory updated, and communicating with your customers regularly.
Dropshipping is a profitable business model, but you'll need to keep your expenses low to sustain long-term growth.
Make sure you follow the tips we’ve listed above to reduce dropshipping fees and increase your profit margin.
And if you’re looking for more ways to improve your profit margins, consider optimizing your marketing budget instead of decreasing your ad spending.
And if you have some feedback or questions, please let us know by commenting below. You can also contact us directly by clicking the “Contact Us” button at the top!
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