How do dropshippers make money?

By   |   Verified by Andrew Boyd   |   Published 2nd May 2022

How Dropshippers Make Money
  • Dropshipping is a way of selling products online through marketplaces or independent websites.
  • Dropshippers don’t keep any inventory on hand, shipping the products to customers through distribution centers or directly from the supplier.
  • Annual dropshipping revenues are more than $196-billion.

Dropshipping is the evolution of “mail-order companies” founded in the 1950s. It’s a direct-to-consumer (D2C) model where the dropshipper doesn’t keep any inventory. The dropshipper places their stock with a distribution center or ships it to the consumer directly from the supplier.

Dropshipping is available for all consumer goods, from tech to food. It’s a $200 billion industry, and dropshippers will specialize in a specific niche, marketing their listings online using digital strategies like social media marketing campaigns.

What do Dropshippers do?

A dropshipper can build an independent website to sell their products, or they’ll use an existing marketplace, like Amazon, for selling their products.

They don’t do any manufacturing or logistics. Typically, dropshippers sell products they source from suppliers, earning money through the margins they make between buying and selling.

So, dropshippers can sell products into any market from any location in the world. All they need is an internet connection and a laptop to start.

How does Dropshipping work?

If you want to start dropshipping, you need to understand digital marketing, or you’ll have to hire a digital marketing firm to execute your strategy, eating into your margins. Marketing is the make-it-or-break-it activity for dropshippers. Most fail because they don’t have a strong marketing plan.

To set up a dropshipping business, you’ll need to design a website or use a platform like Shopify or Amazon to host your ecommerce store or product listings. You’ll also need a strong background in digital marketing and SEO to experience success with your business.

How Dropshippers make money

Dropshippers make money by selling goods online. They source products from cheap suppliers in markets like China and sell them into developed markets in the US, UK, and EU. It’s a challenging business, and each passing year sees the competition increase.

Therefore, dropshippers need to hone their product sourcing and marketing techniques to remain competitive in the market. Let’s unpack how dropshippers make money with their business model.

Selling Products

Dropshippers sell products online using an independent website or a company like eBay or Amazon to provide the infrastructure they need.

They find interesting, useful products in emerging markets and sell them in developed markets for profit. Dropshippers rely on their margins to remain profitable. So, their business model depends on finding cheap products they can sell at a premium.

Sourcing Cheap Suppliers

Dropshippers rely on affordable sourcing strategies for their products. The better the chance of the dropshipper selling it for a profit in other markets. Typically, dropshippers will source products from China or other Asian suppliers. Developing supplier relationships is a vital part of the business.

Dropshippers need to pay close attention to their margins to remain profitable. Product research and supplier sourcing are a large part of the business model and a critical piece of the dropshipping puzzle.

Streamlining Logistics

Dropshippers don’t carry any inventory. That means that they can work from any location around the world and sell into any market they like. However, they have to ship the products from a distribution center or directly from the supplier.

Distribution centers charge fees for processing transactions and shipping goods to the consumer. These costs eat into margins, and dropshippers need to control these margins to remain profitable.

Future growth engine

The future of dropshipping is changing. More companies, such as Amazon, are introducing programs like FBA (Fulfillment by Amazon), lowering the barriers to entry into the market.

As a result, dropshipping comes down to a game of margins. Dropshippers need to focus on providing affordable offerings to their market if they want to serve.

To succeed in dropshipping, entrepreneurs must specialize in a specific market niche where they can dominate.

They also need a strong digital marketing background for promoting their products and fluency with marketing on social media.

Competitors

Dropshippers have to compete with other dropshippers, eCommerce stores which stock their own goods, brands who perhaps own the whole value chain, affiliate marketers who don’t worry about any of the fulfillment issues and consumers who sell second hand goods on ebay or Facebook Marketplace.