Do you make this mistake in dropshipping?

Dropshipping is a time-efficient way to sell goods on your eCommerce website. It can have some very low cost and low risk, but it might also be more profitable than you expect. It’s important to know how dropshipping works and how much sourcing different products costs so you don’t make this one common mistake that small businesses often make.

Dropshipping works by allowing your company to get orders from large retailers such as Amazon or others without purchasing those items yourself. When an order comes in, you send the client the product they ordered and they send you the money minus their initial shipping cost. You can find suppliers online at places like Alibaba or Aribaba.com, and then set up the ordering process to happen automatically through a module on your website.

It’s easy to think that since a single order might only cost you $2, that if you make ten sales every day, you’ll be making hundreds of dollars every day. Unfortunately, that’s not the case. The $2 is what you pay to purchase the item from the supplier. This is called the wholesale cost. The remaining $1 might be the cost to ship the product (which is usually very small in comparison), or it might be your profit margin.

As you start adding more of these products to your website, it’s important to know just how many sourcing each product manually can cost you. Most dropshippers only source a few products on their sites and list them for $2 per unit – meaning that if an item has a wholesale cost of $4, shipping costs would only total about 50 cents out of that total cost.

It’s important to also know what percentage of each product (by unit) you are capable of selling yourself when compared with other suppliers. If you can sell more than 90% of the products you order from a supplier but less than 20% from another, that means it makes more sense to buy that product from the one who can only sell you 20% and just not sell those products at all.

This is much easier for wholesalers to do because they usually have a lower cost to purchase items. As a small business, however, this can be difficult if you aren’t selling thousands of dollars worth of each product, because your profit margins will be so low on each sale.

When it comes to consumer goods, there’s no price that you should consider a “break even” price. That means that if you just pay your suppliers the minimum the government requires to manufacture and ship an item, then they will only make money on the sale to you. This is known as oversupply and shouldn’t be done by any company with a decent business model. It can actually be disastrous for your business in the long run.

You should also consider whether or not you truly need every product available on your site that is sourced from another supplier when you take this approach. If you can only sell 20% of products from an individual supplier, then perhaps it is best that you not even list those products on your site. Consider whether or not you will ever be able to sell them and weigh that against the cost to purchase and ship them.

Before getting into dropshipping, it’s important to make sure you understand how to manage your wholesale costs, so that you don’t waste money on goods that aren’t profitable for your business in the long run.

To learn more about drop shipping and other business topics, check out http://www.businessexplorer. com for more articles and tips for starting a business.

Article source: http://www.businessinsider.com/dropshipping-mistake-small-businesses-2014-5?r=US&IR=T&IR=T

< Part 2 of this post >

Part 1: High Risk, High Reward #1 - The reason why you are limited in what you can sell online is that your web hosting company will not allow you to sell most items online, which means you can only on sell items that are NOVELTY, or toys and clothing. With so much competition in the market,...

Part 2: High Risk, High Reward #2 - Most web hosting companies will not allow you to sell any kind of herbal products online because they do not want any kind of legal trouble with the FDA or the DEA. Therefore, people who are interested in selling herbal products online need to...

Part 3: High Risk, High Reward #3 - The reason why you cannot sell baby products is that most of them have been recalled for some reason or another. Therefore, if you type in baby shower on your favorite search engine and then look at all of the ads that are listed on the first page...

With regard to affiliate marketing & dropshipping, this is what I did for my summer job. Before I tell you the actual story, let me give you the real scoop on dropshipping and affiliate marketing. Dropshipping is different from getting into a niche with a product that is New and Now and Making it Big...

Dropshipping is different than affiliate marketing. When you are dropshipping, you will also be a merchant. But dropshippers do not focus on attracting traffic through PPC ads or promoting their products through social media channels such as Facebook, Twitter etc., they will just order via their customers who are already loyal to them...

Dropshipper will send their products directly to the customer who has already bought it from one of their competitors.

Conclusion:

In this article I hope to have made it clear to you how profitable dropshipping is, and how it is different from affiliate marketing. If you are dropshipping or thinking of starting a dropshipping business, here are some helpful tips you should know: * Use free web hosting services - obviously cheaper than buying a domain and paying monthly charges. Free web hosting services...

* Start selling your own products from amazon so you can learn true ecommerce in the process. Do not try to sell someone else's products for now until you have learned all about setting up an e-store, SEO, PPC ads etc..