When I had some dropshipping sales coming in each day I was wondering, how do I get more profit? What tactics can I follow to end up with more money in my pocket? Find out how to increase your dropshipping profits!
5 Reasons Why Your Dropshipping Profits Might Be so Low
Find out below what the reasons are why the margins of your dropshipping store might be so tight.
But that’s not all!
After that, I will show you ways to improve your profit margins so that you can increase dropshipping store profits!
Are you ready to learn something new?
Reason 1: Your supplier does it all
Unlike a regular wholesaler that would sell you their merchandise in bulk, a dropshipping supplier sells you a single unit every time you place an order.
Because they sell a single unit each time, they are responsible for storing the products, ensuring the products, and other associated costs like paying staff to retrieve, package and process single items.
Wholesalers already operate on very low-profit margins and rely heavily upon large volume purchases to make a decent profit, so when these additional costs are added, the wholesaler really has no option but to increase the price of individual items.
That means your profit margins will be lower because you pay more to your dropshipping supplier.
What can you do
What you need to do at the beginning is to accept that you might be paying more to the supplier, but you won’t have these extra costs like storing the products and shipping to all your customers.
Your supplier takes care of all these things for you. So it’s important for you to pick the right AliExpress suppliers at the beginning of your dropshipping journey.
But if you’re getting consistent sales from a product or more products then it might be wise to import them in bulk from, for example, Alibaba.
Just keep in mind that even though your cost per product is cheaper because you buy in bulk and the supplier doesn’t take care of sending it to your customer, you will still have extra costs to add later one.
Like shipping it to your customers, warehouse costs and if needed import costs.
You can learn more about the top fulfillment services and companies right here.
Important to know even though it is more work to import it in bulk and send it yourself to your customers(or you let a fulfillment service take care of that). It will definitely be worth it.
Just imagine how many extra efforts you can put into the whole package and delivery:
- You can make sure your delivery time is 1-3 business days instead of 1-3 weeks.
- You could add a business card of your company (your store) inside the package with a discount code for a second purchase!
- You can brand your packaging with for example Packhelp.
Reason 2: Shipping can be expensive
If you got multiple products from multiple suppliers on your store, then shipping expenses can quickly add up.
Here’s what I mean: Say you dropship clothing, and you use three different suppliers to stock your products.
If one customer orders t-shirts from all three of those suppliers, you’ll have to pay for each individual shipment instead of just grouping those items together.
This can lead to significantly higher shipping expenses, and it’s difficult to find a way to make up for those added costs.
It isn’t a good idea to pass along that expense to your customer, as such a high shipping cost will likely cause customers to abandon their carts.
However, neither is it a good idea to pay for separate shipping on three different items.
What can you do?
If you’re dropshipping with AliExpress, then make sure you mostly pick the same suppliers.
If that’s not possible, then add your shipping cost to the product cost like this:
Product cost: $5
Shipping cost: $2.95
Your product cost: $7.95
And then with that price, calculate your selling price.
If you want to know how to calculate the perfect selling price to get the best margins, then keep on reading. I will explain it below!
The second solution is to do the same as with the previous reason, import in bulk.
If you send it out your self, then you can easily add more products to the same package.
This will mean that won’t have to send multiple packages from different suppliers to your customer.
Reason 3: Competition
When you go to list your product, you will need to ensure that your pricing is competitive in comparison to other stores selling the same product.
This means that your dropshipping profits will take a dip.
Everyone could end up selling the same product. This means that the market will be really crowded with 100s of people all trying to get the customers attention with the same product.
Also, don’t forget that Amazon and Walmart are probably selling the same stuff(or similar stuff), too.
What can you do?
You need to be unique. You need to be different than any other
For example, everyone has a store selling fidget spinners.
But all the stores are not the same. One store might look so badly designed that you don’t even know it is a
One store might be a little better, but still has a lot of room for improvement.
Another store might not be focusing exclusively on the product you want to sell.
Yet another store might not have a blog.
Most of the store’s product descriptions are just some bullet points. No effort at all at trying to write a converting product description.
Can you fill up all the holes left by your competitors?
If you can put the effort in your store, then you will have a real chance to beat everyone else who is trying to sell the same product.
But what about the big giants, like Amazon?
This might make perfect sense to beat other dropshippers, but what about the big giants like Amazon? How could you beat them?
You need to brand your self as a specialist. You might be wondering, how do you compete with everything Amazon has to offer?
Customers coming to a highly focused niche store know that they can get specialized help for specific questions or problems.
By becoming a true niche expert and successfully applying that through your e-commerce store. You’ll be much better equipped to compete against Amazon without having to rely on razor-thin pricing.
You can, of course, do much more to compete with Amazon and other giants. Like creating your own products and selling products with a purpose (like Tom’s Shoes)
If you want to learn more about how your dropshipping store could beat Amazon, then I suggest reading this article here.
Reason 4: Platform costs
This is mostly a big cost when you’re just starting out and you don’t get that many sales yet.
It could get costly when you install some necessary apps and have to pay a Shopify subscription (This is what I use to build a dropshipping store).
For example, I was just starting in my second month and I already had to pay Shopify $72.33.
As you can see it was mostly because of apps, but also because I choose a more expensive Shopify plan.
I did this because I wanted to do free plus shipping, but I didn’t know back then how to set it up without any extra costs.
I suggest reading my article if you want to learn how to set up free plus shipping for free on Shopify.
This way you won’t have the same costs as me at the beginning!
What can you do?
Start with the $29 plan from Shopify. You won’t need the bigger and more expensive plan yet.
Regarding the apps, try to minimalize your spend on apps when you’re just starting out.
There are many free apps what you can use instead of paid ones.
What I like to do is to mainly use free apps until I get sales coming in, because that moment when you get your first sale might take a few months.
And even after that try to wait a bit, because as you can see on my screenshot above, I had a few sales that previous month, but still no consistent sales each day.
I suggest reading my article about the best Shopify apps for dropshipping beginners. It includes both free and paid options!
Reason 5: Refunds
If you picked your AliExpress dropshipping suppliers correctly, then you will have less chance on this, but it could still happen.
Because it takes time when you’re dropshipping from China. It might even take 2-3 weeks before the product(s) arrive at your customer’s destination.
That and the fact that you won’t have control over the product quality increases the chance of refunds.
What can you do?
A lot of people will be asking where their package is, but if you treat your store like a real business and be good with your customer service, then you will have fewer refund requests of people who are not willing to wait that long.
If you want to learn more about this, then I suggest reading my full guide about how to handle refunds and returns when dropshipping.
Also, this article might help you further with this. It includes 5 ways to deal with long shipping times when dropshipping with AliExpress.
More Ways to Increase Your Dropshipping Profits
You now know the 5 reasons why your dropshipping profits might be so low and what you can do about it.
It’s time now to learn even more ways to increase your dropshipping profits when you’re dropshipping with AliExpress!
This way you will keep more money in your pocket, which means that you can spend more money on advertisements and that means that you will hopefully get even more customers at the end of the day!
Solution 1: More volume
A way to deal with tight profit margins is to increase your volume.
If you have a margin of 15% on a $100 item, meaning you make $15 per sale, it may not be worth your while to operate an entire store and just get 30-40 orders a month.
However, if you can turn 30-40 orders a month into 300-400 orders, then you are talking business, and the low margins offset themselves with the higher volume.
Solution 2: Talk to your supplier
At a time I was ordering some of my orders to a different supplier because, if I remember correctly, he had ePacket available to Canada.
But what happened was he saw me ordering more and more and messaged me that he could offer me a discount of 5% if I keep ordering with him.
Now I had a 5% extra profit!
Of course, not all suppliers will contact you. So if you have a steady stream of orders coming each day don’t be shy to contact them yourself to try to negotiate a better deal.
Solution 3: Increase your selling price
The most obvious solution is to increase your dropshipping profits by increasing your prices!
If you made $20 per order on a product, which you felt was a little less, you can just increase your price by $10 and start making $27(after fees) per order.
Obviously, you don’t want to increase your prices too much, but a little bit here and there might actually increase the customer’s perceived value of the product.
Read below on how to price your
How to Price Your Dropshipping Products Correctly to Further Increase Your Profits
Your dropshipping profits depends on what kind of products you are selling.
It’s often a good idea to stick to lower-priced products with a high margin potential.
Such products usually cost within a $1-$20 price range and these products generally can be priced at $20-$50 or more.
The most successful
What I usually start with is to find the shipping cost for the product I want to sell.
To do that you need to look at what countries you want to ship to and then pick the most expensive one, for example:
You can see that shipping to the United States with the best shipping method is $1.92. You could also try AliExpress Standard Shipping with the example above.
And that shipping to the United Kingdom with the best shipping method is $3.40
So now you know the most expensive one, the United Kingdom with $3.40.
The formula I do then is (say for example that the product cost at AliExpress is $3.95):
Product cost ($3.95) + Shipping cost ($3.40) = Total cost ($7.35)
And then I simply add $10. So I will have enough margin to advertise with.
I usually make my selling price end at .95, because it has been suggested that pricing items just under a whole number, such as at $29.95 instead of $30.00, makes the price seem like a bargain.
Total cost ($7.35) + My margin ($10) = Total price ($7.35)
My selling price then will either be $16.95 or $17.95. It depends on how much you think the product will be worth. You will learn this over time.
If you’re not sure, then just round to the closest .95.
So, in this case, the Selling price will be $16.95.
Another pricing formula some dropshipping store owners use
Here is another way some dropshipping store owners price their products.
Your total cost: $0 – $2 = Your price: $7.95,
Your minimum profit: $5.95
Your total cost: $2 – $5 = Your price: $9.95,
Your minimum profit: $4.95
Your total cost: $5 – $30 = Your price: Supplier Price x2,
Your profit: 50%
Your total cost: $30 – $50 = Your price: Supplier Price x1.75,
Profit margin: $22.5 – $37.5
Your total cost: $50 – $100 = Your price: Supplier Price x1.5,
Profit margin: $25 – $50
Your total cost: >$100 = Your price: Supplier Price x 1.35,
Profit starts from $35
Dropshipping With AliExpress: Do You Want to Learn More?
If you’re interested in dropshipping with AliExpress (or maybe you’re already doing it), then I got some great articles for you so you can kickstart or grow your dropshipping store!
- Dropshipping With AliExpress: How to Find the Best Suppliers in 2019?
- Dropshipping With AliExpress: How to Deal With Long Shipping Times?
- Dropshipping With AliExpress: The AliExpress Dropshipping Center
And also, if you don’t have a Shopify store yet, then you can click here to get a free 14-day trial!
So, there you have it! Every reason why your dropshipping profits might be low.
Now you know the steps to take to increase your profit margins. I hope that you will successfully increase your dropshipping profit margins after reading all this!
If you have any other tip on how you increase your dropshipping profits, then let me know by commenting below or contacting me directly by pressing the “Contact Me” button at the top!
Good luck with your dropshipping journey and don’t forget that success doesn’t come overnight!