For more than a decade, the hustle-hungry world of online business has held up drop shipping as a classic way to earn a living with nothing but your wits and an internet connection. But the internet is also packed with false promises and broken dreams.
To produce this guide, we spoke to over 40 current and former drop shippers to get the answer to the question of whether drop shipping is really worth your time.
To produce this guide, we spoke to over 40 current and former drop shippers to get the answer to the question of whether drop shipping is really worth your time.
Drop shipping refers to an online business model in which an entrepreneur finds a product, marks it up, advertises it and sells it without ever handling inventory themselves. The product is shipped straight from a separate supplier warehouse to the customer, without the drop shipper needing to see the goods. Furthermore – and this is key — the drop shipper buys products from the supplier at a lower cost only once their customer has already paid for it at a higher cost.
It all sounds like a win for the drop shipper. So, does the concept have legs?
The short answer: sort of. But, mostly as a crash course in business acumen, rather than a path to long-term financial stability. For the long answer, keep reading.
In the typical retail process, a product goes from a supplier's warehouse to a retail storefront or an ecommerce retailer's own warehouse. Drop shipping, however, lets a retailer present a storefront, but without having to keep a warehouse full of inventory themselves – instead, the retailer arranges to ship sold products directly from a separate supplier warehouse.
It's a popular business model for ecommerce, as a website or Ebay listing can be used to sell the product while it's still sitting in someone else's warehouse that you don't have to stock or maintain.
Drop shipping is an umbrella term that can refer to two slightly different approaches to running an online business. A drop shipper can create the product themselves, but many drop shippers do not own or create the product. It's much more common for them to partner with a third-party vendor.
In this latter case, the drop shipper is listing a marked-up version of someone else's product online, and only once they have a sale do they buy and ship that product directly to the customer.
How does drop shipping work?
Let's break this process down into the core steps for the would-be drop shipper.
- Pick a product niche — Granted, you could just pick random products, but you'll see more long-term success if you can find a niche of products. This could be anything from bicycle gear to kitchen supplies.
- Find trustworthy suppliers — You'll need a vendor that reliably delivers high-quality, inexpensive products, because your customers will blame you for any flaws or slow delivery times.
- Get an online storefront — A few of the biggest website builders for ecommerce are Wix, Shopify, and Square Online, although there are plenty of others as well. Some drop shippers prefer stick to Ebay listings.
- Reach an audience — Marketing and advertising are your best bet for reeling in customers, unless you have a huge social media following already.
- Perfect your customer service — You'll need to refund disgruntled customers and get back to them with the right message to assure them that you're on top of things should they have an issue with a sale.
Those five steps sum up the essentials of getting your drop shipping operation off the ground. But there's one last “meta” step: you'll need to re-think everything, all the time. Tactics that work today may not work tomorrow, and products that sell well today might be yesterday's news as well.
There's one last “meta” step: you'll need to re-think everything, all the time
Drop shipping has evolved over the years. In 2010, Chinese tech company Alibaba released AliExpress, an ecommerce site that connected US customers with Chinese suppliers, streamlining the “find suppliers” step for drop shippers. In 2015, the Shopify app Oberlo launched, letting Shopify website owners essentially automate the process of placing an order with an AliExpress supplier to match each customer's order on their site.
Since the drop shipping boom of the late 2010s, competition has become tougher, and new entrants to the business should expect some stumbles while trying to find the right niche and audience. Here's how Aaron Agius, Managing Director & Co-Founder of Louder Online, puts it:
“Drop shipping is a unique approach to e-commerce that can certainly very profitable with the right approach. The golden age of drop shipping was between 5-10 years ago, but you can still make a profit if you find the right market fit. Two things are crucial to drop shipping success: market research and well-optimized shipping systems. You can't succeed in drop shipping without those.”
In other words, you'll have to stay on your toes at all times to keep earning a living month after month.
Drop shipping website Surf Gear Lab offers products within a surfing niche.
How do returns work with drop shipping?
The retail industry's average return rates can be anywhere from 18% to 23%. For a drop shipper, that's a huge chunk of potential earnings that could vanish with every refund.
But the actual logistics behind product returns are another piece of the puzzle. Drop shippers will need to check suppliers' return policies in order to know their options.
Beth Noll, owner of Gift Observer, got into drop shipping after Amazon dramatically reduced their affiliate commissions back in 2020, dropping commissions to an average of 3%, compared to the potential 40% to 80% profit margins of drop shipping. She added a store to her website with AliExpress products, but as she tells me, “things started to go wrong quick.”
Noll's problems were all down to the unwieldy returns process:
“Many customers would place their orders and then get annoyed and fed up after a week of waiting. This lead to lots of canceled orders, but since I was sending the products from China, they had already been shipped. As a website owner, I had no return address for customers to send their items back, and the cost to return the item to China was around five times the price of the product.”
Within the first month, Noll faces hundreds of complaints, cancellations, and unhappy customers. She ended the experiment with a small loss. She says using local suppliers might have worked better, but they're hard to find and more costly.
What are the disadvantages of drop shipping?
By this point, drop shipping is probably already sounding less like easy money. Here are some of the key drop shipping disadvantages to factor in:
Slow shipping times
Noll's experience highlights a big drop shipping speedbump that's related to product returns: shipping times.
Since drop shippers typically place their orders through international suppliers, shipping times may be weeks – they could even be a month, or more. And in a world where Amazon has set a mere two days as the baseline shipping time, that's a big problem.
To some of the experts I spoke to for this article, slow shipping times were such a downside that they make drop shipping entirely unacceptable. Here's Austin Fain, CEO at Perfect Steel Solutions:
“The business model of dropshipping is flawed because the average shipping time (to the U.S) is between 20-30 days and you're basically asking customers to pay 20%-30% more than what they would have to pay for if they simply searched the product on Amazon. It simply doesn't make sense why an informed consumer would want to pay extra and wait that long for a product when Amazon can deliver the same product to you within 2-5 days at a lower cost.”
High advertising costs
Fain, a former drop shipper himself, also called out the centrality of marketing to the drop shipping business. Costly ads are so expensive that they run the risk of erasing your margins, he says.
“Facebook and Instagram advertising doesn't come cheap and if you want your ads to reach a wider market you have to have either extensive knowledge of advertisement or spend as much as you can to cast a wider net. After 3 months of advertising with only 3-5 orders, I gave up. I couldn't incur any more costs because it just didn't seem to work for me so I backed out.”
Outsourcing your stock to third-party sellers might save you money, time and resources, but it also takes the availability of the stock out of the drop shipper's hands.
Legal and intellectual property rights concerns
Andrew Fox, founder and CEO at Aim Workout, points out another potential pitfall to relying on suppliers: legal concerns. If third-party sellers step on the intellectual property rights of other companies or use an illegal trademark logo, the drop shipper could be responsible.
Low profit margins
Finally, many drop shippers face low profit margins. Amazon entrepreneur Jonny Golding lays it out:
“Traditional drop shipping on marketplaces like Amazon and eBay is a race to the bottom, where whoever can’t calculate their profit margins correctly just ruins it for everyone! Bold statement – but, it's a reality.”
Drop shippers aren't providing a unique product, so their control is limited to the price point that they can sell it at — and it's tough to beat Amazon's prices.
Granted, there's a solution: drop shippers can build up brand awareness over time, as long as they offer great products (that are in stock), speedy delivery times and satisfactory customer service. This can allow them to justify their prices, but they're all tough fronts to compete on.
When you look at the spiel put forward by ecommerce brands such as Amazon, Ebay, Wix or Shopify, then drop shipping may sound like the smartest business model ever (as a case in point, see the Shopify video, below). But, for drop shippers, the sober reality can be far removed, and it can be a brutally tough business model to see long term profits.
The answer here: it all depends. On the surface, everything sounds like it's perfectly designed for profit. Drop shippers won't have to stock products, so no storage cost is involved and you don't need to buy in stock ahead of selling it. You'll need some capital upfront, but not much – $1,000 is a decent benchmark amount for setting up a site.
Plus, the operation can potentially scale up quickly, allowing drop shippers to cut costs even more by buying in bulk and getting wholesale prices. But competition is increasing: the compound annual growth rate of drop shipping is estimated to rise 28.8% from 2019 to 2025.
How much do drop shippers make?
How large can you expect your margins to be? On average, not very much. Harriet Chan, cofounder of CocoFinder, estimates the low end profits at just a few hundred dollars, which will likely come out to well under minimum wage for the hours you'll put in setting up a drop shipping store:
“Initially, you can make profits from $200 to $3,000 on a small scale. Become an Amazon, Shopify or eBay drop shipping store to expand your business to the next level.”
The money earned can be difficult to track, as it varies hugely from month to month. Tanay Sankhe, web developer and founder of smartgadgetpick.com explains:
“One of my friends from Newark, US, made $24,990 in September 2020. This is the same guy who went into a $2,000 loss in April 2020.”
While drop shippers have reported boosting their monthly earnings into the millions, no one who I spoke to reported similar numbers except for one entrepreneur who was also selling a service for drop shippers. If drop shippers are multi-millionares, most of them are too busy to talk about it.
Can you lose money with drop shipping?
In a word, definitely. The numbers lost by former drop shippers who eventually decided to get out of the business looked similar to the numbers earned by those who stayed in the business, and in some cases were higher.
Austin Fain, CEO, Perfect Steel Solutions, sank a total of $3,500 into drop shipping across three months:
“Lost $2,000 initial capital and an additional $1,500 incurred on advertising along with three months' worth of my time.”
Natalia Lucci, Marketing Manager at WheelieGreat, has no plans to stop drop shipping, but has yet to break even after half a year and three online stores:
“I started drop shipping about 6 months ago, $1,000+ loss so far — that’s after subtracting some of the money I made back from sales. I ran two stores that failed and I’m running my third one currently.”
Lucci notes that the learning curve is extensive, from driving traffic to your site and figuring out how to optimize for conversion to all the “the nitty gritty taxes, currency exchange, chargebacks, processing fees issues that eat up your profit.”
WheelieGreat, the site where Natalia Lucci serves as a Marketing Manager
The fact that the world of drop shipping doesn't take much starting capital can be a double-edged sword, Lucci points out. If you don't have much money to spare, you won't have the confidence it takes to make the right decisions instead of the safe ones.
“If you’re trying to make it with a couple of hundred dollars, you will never make decisions that are good because you’re just too scared to lose it all. Even then, sometimes, you have to make bad decisions to learn. Read more, learn more and most importantly, do more.”
The core fact to know is that drop shipping is not at all a get-rich-quick scheme, and won't become magical passive income after a few hours of setup time. Customizing ads, finding sellable products, maintaining the website, contacting suppliers, handling customer complaints – you'll need to be working all day to see any profits.
The business model is popular because it doesn't require much money to get started. But, it does take time, resources, and energy.
“Drop shipping initially requires full-time attention, but many new drop shippers think they can do it part-time,” says Stephen Light, CMO and co-owner of Nolah Mattress. “I had a similar misconception, so I had to juggle my responsibilities in running my business while doing drop shipping. The stress I accumulated from performing both obligations affected my productivity, which was counterproductive for my mental health, business, and drop shipping venture.”
Plenty of other drop shippers had a story similar to Light's. But, there are successes as well.
Drop Shipping Success Stories
A drop shipping store can earn you a profit as long as you have a product that's inexpensive to ship, is high in demand, and has a decent profit margin. But, there are a lot of potential problems that can crop up, and taking a look at a few case studies is the best way to know what to look out for. Here are a few successes to glean information from.
The homepage for the drop shipping website Surf Gear Lab
Surf Gear Lab
Entrepreneur Marc Bromhall currently operates Surf Gear Lab as a drop shipping operation. He uses the classic approach: a Shopify store with suppliers from AliExpress.
“The beauty of drop shipping is that it's the most passive form of commerce. The downside is that you don't control the complete customer experience. When things go wrong, such as an item getting sent to the wrong address, I end up taking the hit for it (financially).”
Bromhall cites three core areas to excel at in order to succeed as a drop shipper:
- Source your products only from sellers with stellar reviews
- Factor in that there will be financial losses due to logistical errors that you cannot control — work this into your margin.
- Have a clear process on how to manage customer expectations. Drop shipping tends to have delivery times way longer than Amazon, and so letting your customers know this upfront is very important.
Phone cases on Etsy
Today, Alice Anderson is the founder of the Mommy To Mom blog. Before she started that site, she ran an Etsy shop selling print-on-demand phone cases.
These cases cost $3.25 to ship. Anderson paid around $11 for each case, and was able to charge $24.95 (with free shipping) for each case — making a gross margin of around $10.70 per sale.
“My thought process was that people shopping for phone cases just spent hundreds of dollars on their phones, so $25 probably isn't that much to them. I was happy with the profit I made selling them since I earned enough money to go on a few vacations and start my own website!”
Kitchen Appliances on Shopify
Tanay Sankhe's case study dates from February 2018, when the entrepreneur created a drop shipping store for home and kitchen appliances, using the Shopify platform. The total process took an investment of $950.
“It took me four hours to build the store. Later, I started the marketing campaigns for that store on Facebook ads and also promoted the store on forums. The first four days went as expected, with no traffic hits. I woke up and checked the stats on the fifth day, and boom, someone purchased two robotic vacuum cleaners worth $350 and $399 respectively, and dining set worth $99.”
The store continued turning a profit for three months, before Sankhe choose to take the store down, saying “the payment method I used gave me a hard time getting the money I earned directly to my bank account.” The total amount earned from that drop shipping store was $4,500.
Sankhe's experience offers two great takeaways. First, selling more expensive items will offer larger profit margins (although this also boosts the risk of money lost on returns and refunds). Second, even an unqualified success doesn't mean your days of hustling are over.
Drop Shipping Failure Stories
What about the failures? Many drop shippers lose a few thousand dollars, even if they gain experience in the process.
Plenty of part-time drop shippers have moved on to better things, like Dejon Brooks, whose store took off while he was still in high school — only for disgruntled customers to demand refunds when about 60% of sold items broke during shipping. The business wasn't his passion, so he now runs his own software startup instead. You might succeed, but as these case studies reveal, you just might not.
One example from Katherine Brown, Founder & Marketing Director at Spyic, indicates that drop shipping can be profitable, with a proper marketing strategy in place. “I failed to register much success in that venture,” Brown explains, “because I had a limited marketing budget of just 5% of my initial capital.”
“I focused too much on logistics, not realizing that marketplaces like Amazon can help with that and even perform it more efficiently than I ever could. Reflecting on that experience, drop shipping is profitable with a marketing budget of at least 30% of your working capital.”
Brown also recommends investing time in sourcing the best suppliers. You'll want suppliers who can help you get high-quality products but at a low enough price to boost your profit margins. After all, you don't want a poor product — all that marketing would go to waste.
“I have been a full-time seller on eBay for the past 5 years and have tried to make drop shipping work twice. Both times were a failure,” says Seth Bywater, cofounder and editor of ResellingRevealed.
The business model? Using paid software, Bywater would import listings in bulk from Amazon, Home Depot, and Walmart. Then, he would tweak the listings and post them to eBay. Once one sold, he'd manually visit the origin site, buy the item, and ship it straight to the customer's address.
But the downsides piled up fast. Here's the full list, in Bywater's words (the bold type emphasis is our own):
- Profit margins were razor-thin. Less than 5% on many sales after we paid fees.
- Because of the low barrier of entry, the market is saturated.
- Many influencers claim to make millions of dollars drop shipping, which brings in thousands of new sellers. The course seller just pads their pockets with course sales.
- We were responsible for customer service.
- A single return can wipe out a week's worth of profits. We had a foosball table that we drop shipped from Walmart returned to us. We ate the cost because trying to return it was a fiasco.
- To be competitive drop shipping on eBay you have to have tens or hundreds of thousands of listings
eBay new managed payments systems has pushed most casual drop shippers out. Because you don't get paid instantly, you have to pay for the drop-shipped item out of pocket.
Despite all this, Bywater doesn't feel that drop shipping isn't worth doing at all. But, he argues for starting a “real” drop shipping business — the type I've outlined in this article, in which you'll need to seek out and contract with a wholesale supplier and then create a sales channel.
Simply flipping items from retail locations to other retail locations won't pan out. And even then, you'll face an uphill battle, as someone is always willing to undercut your prices. The lower the barrier of entry, the lower the potential profit, Bywater says.
The need for organic traffic
Maximilian zur Muehlen, Product Development at Custom Plastics, had operated an Amazon store for two years before getting into drop shipping. His takeaway after getting back out of the business? You can't rely on ads to replace the value of an online presence with its own audience and thriving engagement.
“Without having a strong website/traffic/social media account that generates loads of traffic, you are left with ads. Even though we had our own product, own manufacturing and labelling, it became a numbers game that we eventually did not like to continue. The profit margins were just not as attractive as they could be and the dependency on Facebook/Instagram ads feels even worse than Amazon.”
To be truly successful and make it a sustainable business, he says, you must be sure to build up your brand in order to get either organic traffic or a consistent referral traffic. It's a story similar to Katherine Brown's case study, in which she found the cost of marketing to be too high, and evidence that the need for audience engagement is a tough speedbump that drop shippers tend to run up against.
Bogdan Krstic, owner at RepairSprout, sums up drop shipping as a viable model that will always remain one… even if he's not in the business any more.
“People should know that drop shipping should only serve as a transition from zero to a legit ecomm business with its own branding and products, not ones from AliExpress. While the market is indeed saturated, most of the competitors one will face throughout their journey will not be there in a few months because all of them have entered the market to ‘get rich quick.'”
While Krstic didn't personally find success, he says he gained “a ton of valuable experience with Google Ads,” and he was able to build off of that knowledge to further develop his entrepreneurial skills.
This is a common theme from respondents: While their drop shipping experiments didn't pan out as they had hoped, they were able to gain valuable experience in real-time problem solving.
Drop shipping can be a great sandbox for figuring out the basics of business, marketing, and ecommerce, all on an initial investment of just $1,000 or less. This alone can make it an attractive option for anyone hungry to grow their entrepreneurial skills.
Which is good, because there's not much else to recommend it.
Drop shipping takes a lot of work, particularly when it comes to dealing with suppliers and buying ads, and the actual profits vary too much to make it a smart choice for your main revenue stream.
If it's your passion, go for it. Experiment with it. Learn from it. Just don't expect success to come easily and above all, don't count on profiting from it.
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