If you have been on YouTube in the last two years, you’ve probably seen the videos “Make thousands per day within 30 days with drop shipping!” or “Start a business with $100 and make millions in drop shipping!” And if you have been on Flippa anytime recently, maybe you’ve run your own search for a drop shipping company just to see what might be available.
There are hundreds of “gurus” on YouTube who are walking viewers through their ability to run Facebook ads towards drop shipping stores on Shopify to make profit. Some of these trendy product focused stores will generate between 10% to 20% profit margins and the majority of gurus are selling their online course about setting up a drop shipping business during the video.
Their business model is simple. Show their dashboards that are making millions in sales from drop shipping and sell a digital course to viewers on YouTube which has drastically higher profit margins than their actual eCommerce sites.
That is one side of drop shipping and is heavily focused on trends rather than planning for the long-term. However, there are actually multiple ways to increase drop shipping profit margins, build a legitimate brand, and turn it into a long-term, sustainable business.
Drop Shipping For Long Term Success
There are thousands of businesses that use drop shipping for their fulfillment at scale that many people don’t realize. The term has become more popular on social media given “outsourcing fulfillment” doesn’t catch peoples attention as well as “drop shipping.”
The majority of companies who’ve found long term success and outsource their product fulfillment will also build and nurture a strong brand and have high quality control on their product. Adding these important aspects will give their customers a great experience, bringing them back for more and helping spread good will. This is the fundamental difference between long-term versus short-term approaches in most businesses. Making sure your customers are happy and giving them the best possible product across all industries will give you an amazing result as an operator. On the inverse, using out-of-the-box products from Alibaba, overcharging customers, having 25 to 30-day e-pack shipping, not replying to customer complaints, and not monitoring product quality will sink a business as fast as it started.
With that said, these are some of the best examples of well branded niche businesses that have implemented dropshipping as a fulfillment strategy:
Dude Gadgets https://dudegadgets.com/
Mooshe Socks https://www.mooshesocks.com/
What you will notice from these three dropshipping stores is that they are niche brands with strong followings and clever approaches to social media marketing.
For as long as online business has existed, people have been outsourcing their manufacturing and labor. In fact, this exists in the world of brick and mortar as well. Do you really think that the craftsman and owner of the business is helping you out at the register of your local clothing store? The biggest difference right now is that the barrier to entry is incredibly low with tools like Shopify, making it easy for nearly any entrepreneur to get started.
In my experience, I’ve found the best entrepreneurs and business operators tend to test different business models to find what works best for them. With low barriers to entry, this is possible. If you are interested in learning out more about running an eCommerce businesses, I recommend at least testing out a drop shipping business that is well branded and marketed through influencers on Instagram.
Once you’re able to generate some traction through $50 – $100 shoutouts on Instagram from influencers for your business you can start migrating to paid ads. The crux of this business is running paid advertising and keeping a tight margin. If you can manage to maintain a low cost of acquisition through Facebook and Google ads, the sky is the limit.
Often what happens is that entrepreneurs first buying or building a drop shipping site will go after large influencers on social media to test their product but 99% of the time, the smaller the better. When approaching micro-influencers on Instagram and YouTube your goal needs to be engagement. Doing things like giveaways and meme contests are a fantastic way to trigger more engagement sending customers to your brand new drop shipping store. With already built sites from Flippa you’re able to implement your Facebook pixel and jump right into driving targeted traffic.
Now that we’ve covered some basics on drop shipping businesses, the YouTube gurus have begun shifting some efforts towards a different model in 2019 and 2020 – Drop Servicing.
Drop servicing is effectively just outsourcing a service and your job as the operator is to drive traffic and close sales for this service. Your profit comes from the difference between the low-cost service fees, ad spend, and what you charge your customers. The most popular fulfillment platforms right now for drop servicing are Upwork and Fiverr where business owners can get extremely inexpensive services on-demand. After going through and experimenting with this business model on my own for a few months I learned a few aspects that are very different from drop shipping products. The biggest difference was that when paying for ads with drop shipping, the most effective platform is Facebook, however the most effective ads for drop servicing were Google ads. This is primarily because when people are looking for services, they are searching on Google and not on social media. When you use Google ads you can jump to the top of the search results depending on your ad bids.
The Problems with a Drop Service Business Model
In terms of operations, drop servicing is dramatically more intense than drop shipping. For example, let’s say you have created a logo design drop service business using Fiverr as your fulfillment.
You pay $10 in Google ads to bring a $50 logo design customer to your new store. You fulfill that order using Fiverr for $10. All in, you have paid $20 to bring in $50 worth of business on this example.
Now, as you’re acting as the middleman, you will need to get the design specifications from your customer, laying out what they want from the service and you’ll also need to provide revisions until they are satisfied with the results. The amount of time you will spend going back and forth for revisions on Fiverr and with your customer will more often than not, far outweigh the $30 profit. This is when, unfortunately, the initial cost increase has to happen in drop servicing to make it worth your time and this presents an issue for the entire process.
If you need to double the cost of your logo design drop servicing business to $100 while capping the amount of revisions, its important to take a step back and realize you’re charging $100 for a $5 to $10 service. In many of these scenarios, when I talk to drop shipping entrepreneurs I just recommend they do paid affiliate marketing for their fulfillment partners and remove the headache entirely of back and forth. Doing a simple affiliate partnership with Fiverr is easy and you make solid commission without dealing with post conversion revisions. Once converted on Fiverr the relationship is started between the buyer and seller.
Overall both of these businesses can be done successfully with a strong brand, quality product, and amazing customer experience.