It seems like everyone and their brother wants to sell on Amazon these days and one of the most common questions we are asked is about Amazon dropshipping, so today I want to point out a few super important things you need to consider before you go down this road. Let’s get started:
Dropshipping is NOT “quick and easy”. Yes, I know that you’ve seen ads on YouTube or other sites that insist this is the route to overnight riches. I hate to rain on your parade, but it’s not. I am going to point out a handful of things that I hope make you really think through building a business around dropshipped merchandise.
Dropshipping is VERY LOW PROFIT. Let me repeat, VERY. LOW. PROFIT. If you want to make any money you will need to sell the heck out of dropshipped items, especially if you are on Amazon because Amazon will take their cut (let’s say 15% average), then the dropshipper will take their cut (lets say 15%) plus you still have the cost of the inventory. Some dropshippers also charge a flat per-item fee. So let’s say the item sold for $10. After Amazon and the dropshipper take 30%+ of the sale you are left with $8. Out of that $8 you pay the dropshipper $2 fee. You now have $6. Then you still have to cover the $4 cost of the item, which leaves you with $2.
You may be thinking “Hey! It’s still $2 and I didn’t have to carry any inventory!” - this is true however if one hiccup occurs anywhere in the transaction line you will take a literal loss on this item. The $2 profit you made can quickly turn into a $6 loss.
CUT THROAT COMPETITION: When items are offered by dropshippers you are going to have a lot of competition for the exact same items. In order to win the famous “Amazon Buy Box” you will have to lower the price. Since you don’t own the inventory you can’t control the cost of the merchandise and you can’t control the 15%+ that you are paying out to the dropshipper or the flat-rate dropshipper fee or Amazons fees, so the only money you have to work with is your profit.
With this in mind there is absolutely no way you can compete price-wise with someone who manufacturers or owns the merchandise because this person will not be paying 15% for dropshipping or the dropshipped item fee. Right out the gate they can mark their item down $3.50 more than you because you can’t go any lower than the $2 profit you make without selling at a loss. And, without the Buy Box it is exceptionally difficult to sell the identical item at $3.50 more than the seller with the Buy Box.
CUT THROAT COMPETITION PART 2: You will quickly discover that most dropshippers don’t want you to sell their items on Amazon because THEY sell their items on Amazon and they don’t want you stealing their Buy Box. This pushes you further into being forced to list the exact same database ten thousands other people already have uploaded.
Drophippping is NOT “plug and play”. For some reason people think if they are able to access a magical “UPC database” all they will have to do is upload it then sit back and wait for sales. This couldn’t be any further from the truth. You will need to be constantly monitoring the listings and changing prices. If you aren’t watching your listings like a hawk and cross-referencing the dropshippers current stock levels and current prices you are going to end up with massive loss. This is because the item that cost you $4 when you uploaded the UPC database on March 1st has increased in price to $6 on July 3rd. It is not the dropshippers job to contact every person who chooses to upload their databases to inform them of price changes, because prices change non stop. So if you are not actively watching the $6 item can sell for $10 and after all of the fees you have made $0 (or even lost). Additionally items sell out and if you are unaware of the sellout you will continue to have the item listed and you will end up having to refund buyers (who become very upset).
This “FREE Business” is not “Free” - There is a solution to the price-change issue, which is to PAY FOR automated Amazon pricing tools unless you use Amazons built-in repricing tool, which has a lot of downsides… because it’s free. If you truly want to dropship and you want to make sure automatic pricing WORKS CORRECTLY you will want to pay for a quality program, like BQool. BQool pricing is based on the number of items in your feed. If you have up to 1,000 items you’re going to pay $25 a month however if you want to truly make money with dropshipping the key is to have the most amount of items possible and more items = more cost for repricing. 15,000 items is $300 a month. There’s other BQ plans in between. So as you can see, the idea of dropshipping being “cost free” is not correct.
Free Business Not Free Part 2: The one and only way to make money through dropshipping is to sell an absolute TON of stuff. In order to do this without complete chaos, bad reviews and a banned Amazon account is to fully automate everything in addition to the Repricing Tool. This includes:
Purchase Order Creation – When an order comes in, you have to automatically send it to your supplier for fulfillment
Inventory Listing Management – When you go out of stock, you have to make sure to deactivate your listing to prevent unfulfillable sales.
Product Data Syncing – The products being shipped by your supplier must EXACTLY match your Amazon product listing. Any change in packaging or product version needs to be accounted for
Order Tracking – Your supplier must electronically provide shipping and tracking information which you must send to Amazon right away. This process must be completely automated to handle the volume of orders you will receive.
And none of this is great AND free. If you want great you’re going to have to pay for it. If you want free you’re going to be highly unsuccessful and, as mentioned, run a very high risk of losing your ability to sell on Amazon forever.
In Closing, If you still feel like this is a great business for you, be sure to spend time RESEARCHING the dropship company BEFORE you upload their database. Since you want to sell on Amazon you will have to insure that they ship pronto and have fast customer service to help you when you have an issue. Also be sure to read our blog post The 5 WORST Items to Dropship