If you go to YouTube and search for “drop-shipping”, you will see how wild this space is currently.

Videos advertising “make $50k in 30 days!” as headlines have sent thousands of entrepreneurs into this space to try to build an outsourced manufacturing and fulfillment business.

The fascinating part of this new wave in drop-shipping entrepreneurs is that it is not a new concept.

Outsourcing how you manufacture and fulfill customer purchases has been around for decades in business, but Shopify has now made it easier than ever to integrate into an online platform.

Shopify has lowered the barrier to entry for entrepreneurs, starting with just $0 on the free trial version to $299 for the pro version. I’ve been fortunate to have met multiple 7 figure drop-shipping entrepreneurs in person and we discussed “how the sausage is made.”

Here is a bit of what I discovered.

drop shipping product value

A Product’s High Perceived Value

The most important ingredient to a successful drop-shipping business is a high perceived product offering. The perceived value comes from the size of the problem the product is solving for the customer. Finding the right product is often the hardest part of starting, so in my experience and what I’ve learned from entrepreneurs in drop-shipping is that it’s best to start with the problem itself and then search for products that address that problem. 

The perceived value of the product that you're offering is relative to the size of the problem that it is solving for your intended consumer. Click To Tweet

An example of a problem would be people dropping their cell phones and cracking their screens. This product would be a durable phone case that could be purchased for under $10 and sold for $30 – $40. Many people can see themselves paying over $40 for a high-quality phone case that prevents their $1,000 iPhone from braking when dropped.

In addition to solving a specific problem that gives a product high perceived value, there are a few industries that have it baked in. For example, the vast majority of cosmetics, lotions, makeup, and perfumes have a very high perceived value to customers. They address a clear problem for customers and depending on the brand and price point you can often win their business. That leads into brand.

Creating a Brand

When the trend of starting a free trial Shopify store and running Facebook ads to sell products directly from China to customers hit social media influencers, the market flooded with low quality products.

For about a year, products shipped directly from manufacturers in China to customers that had amazing ads on Facebook, worked. This got saturated quickly when people began to have bad customer service experiences and slow shipping times.

Luckily, entrepreneurs in the space began to white label and create brands out of products to differentiate from the “general store” full of gadgets being shipped directly from China based manufacturers on Alibaba.

In 2020, it is now harder than ever to launch one of these non-branded stores and sell products through cold leads from paid ads. Now it’s a fundamental component to success to have a brand associated with your product. 

Many teams have created $100 million brands on Shopify using drop-shipping because they’ve spent the time to give customers a great experience and they learned from the previous issues. If you Google “drop-shipping nightmare” you will see the hundreds of articles from both businesses and customers about the bottlenecks.

Audience First Approach

There has been a new approach to dropshipping businesses that I’ve become more and more interested in which stems from products launched by social media influencers.

The first time I heard the “audience first” approach was from the well-known YouTuber, Casey Neistat. He said building a community on social media and selling a product or service is the future of how to build a business. This is something that works especially well with branded drop-shipping and Shopify stores.

Building a community on social media and selling a product or service to that community is the future of how to build a business. [email protected] Click To Tweet

When you look at large social media personalities like Logan Paul’s fashion company, Maverick, you can see how hard he’s pushed his brand to his millions of fans over the last few years.

Maverick is easily a high 7 figure eCommerce brand that was born out of Logan Paul’s fame on YouTube. Similarly, take a look at large content creators in the beauty space like Jeffery Star and Kylie Kardashian that launched makeup lines that sold out in minutes, with no cost of marketing.

Of course, the time investment to build an audience of millions takes years and it is an extreme amount of work. However, to be able to sell millions of dollars of any product to an audience in minutes is well worth the time it takes to build your community.  The list goes on and on with successful entrepreneurs that have built large social followings and successfully launched brands and that is a strong indicator for what’s coming for future generations of business owners.

Traffic and Paid Ads

Once again, if you search YouTube for drop-shipping tips, it will show you dozens of videos selling courses to learn how to optimize Facebook ads.

There is a lot going on behind the scenes with Facebook ads and I encourage everyone to either learn them yourself or hire someone to manage them for your eCommerce businesses. If you can manage to “crack the code” on Facebook’s return on ad spend (ROAS) for an eCommerce store, you’re going to do extremely well. However, very few understand how hard it is to turn a profit when you’re paying for traffic through ads. 

I’ve met with entrepreneurs that made over $1,000,000 in gross revenue but turns out their margin is only 10% due to paid ads. This is definitely a good business for one person to run given $100,000 is double the average salary in the US, but scaling with a 10% margin requires some operational skills.

On the inverse, I’ve met other entrepreneurs that have made over $1,000,000 in gross revenue and generated roughly a 50% profit margin due to amazing performance on their Facebook or Google ads. 

Influencers > Paid Ads

The trick that I will share about eCommerce traffic is to leverage theme pages or individual micro influencers on Instagram to promote your eCommerce brand.

If you can find someone with 100,000 followers to post your video ad with the link in their bio for $100 to $200, I’d suggest that when starting out from scratch. The issue with Facebook and Google ads when starting from scratch is you don’t have customer data to provide Facebook or Google with to optimize who sees the ads which in turn makes attention more expensive.

Many spend six figures on ad spend to generate that customer data before the ads become effective. This period of optimizing ads is also referred to as the “learning” period on Google and Facebook ads. The shortcut is having influencers on Instagram or YouTube share your eCommerce store and use that customer data later to run your paid ads.

Steve McGarry

Steve McGarry

Steve McGarry is an entrepreneur, content creator, and investor based in sunny Tampa, Florida. In 2015, while living in San Francisco, Steve sold his first fintech startup LendLayer to Max Levchin’s (founder of PayPal) consumer finance company Affirm. In the last 5 years, Steve has both built an online community that reaches 1.4 million people every month on social media and a portfolio of over a dozen web properties. Currently, he’s the co-founder of a next-generation fintech startup called GrowYourBase while managing his portfolio of online businesses.