Dropshipping, like most business models, requires a monetary investment to start. Although unlike stock trading and Amazon FBA, the minimum capital required to start a dropshipping business is far lower, and the business model of dropshipping is also far less risky.
In comparison to Amazon FBA, for example, where the cost to launch a single product can be in the region of $3500-$5000, dropshippers can expect to spend around $500 - $1500 to get their first sale.
In this article, we will break down the costs of the dropshipping business model into distinct categories and present the minimum amount required to get started in 2020, as well as also providing a detailed account of how entrepreneurs can use their time to spend less money on dropshipping.
The Minimum Amount Required To Start Dropshipping
We calculated this figure by determining only the necessary compononents required to start a dropshipping business. These costs are either unavoidable or so overwhelmingly necessary that the majority of dropshippers will have to spend money on them. A sum of $464 spent over the first 45 days is approximately the bare minimum. However, you'll need to know - How To Drive Traffic To Your Shopify Store.
Some of these costs may vary depending on the circumstances, we make the assumption that you can use a free logo creator to make your store logo and Canva to make other assorted marketing materials instead of paying a professional to create these for you. Another assumption is that you will create your own product videos and spend your marketing budget only on ad costs / influencer shoutouts.
Below we will break down each cost and explain the reasoning behind including it on the list:
We consider purchasing a domain name to be a requirement, as it is very unlikely your store will make a sale using the default Shopify website name configuration, which looks like: storename.myshopify.com .
To boost professionalism, customer trust and take the first step towards branding your store properly, we recommend purchasing a domain within Shopify through their official service, which will allow you to quickly get your site up and running under your chosen domain name.
The cost of buying a domain can vary from $10 to thousands of dollars but as a beginner, we encourage you to be flexible and spend no more than $20 on your chosen domain name. Domain cost are recurring, but the standard $14 fee will allow you to keep your domain for one year, which is plenty of time to build your dropshipping business empire.
We consider a SaleSource plan a requirement for dropshippers, at an affordable price of $49 per month, SaleSource provides an enormous range of benefits to entrepreneurs in the dropship business model.
- Vetted supplier comparison & best price check
- Automation of AliExpress product research with sales graphs & price history
- Automation of marketing asset acquisition such as product videos, photos and reviews
- View best sellers & recently uploaded products of any store
- View apps and accurate revenue estimates of any store
- Analyze any product, find best suppliers and all competitors selling the product
- Winning products in over 2056 specific niches with product videos and USA shipping
SaleSource has a 7 day free trial available which allows you to see the above benefits for yourself.
Shopify + Vital Apps
While the base Shopify Plan is $29 per month, vital apps such as Klaviyo, Tracktor, BEST Currency Converter, Loox Product Reviews, Lucky Orange, Frequently Bought Together and Discounted Upsells bring the total monthly cost to around $80 per month.
Much like the 14 day free trial available with Shopify, most of the above apps have a free trial period, allowing you to test them out before commiting to the monthly fee.
Although not a necessity for all dropshippers, we wanted to provide a realistic budget to spend on courses and training. If you are happy with free content such as the Facebook Blueprint, Shopify Academy and assorted YouTube videos, spend your education budget on marketing.
If you are looking for good paid content, the Offical Oberlo Course is available for around $49 and comprehensive Udemy dropshipping courses can be bought for around $30.
Marketing costs are by far some of the biggest and most variable costs when it comes to dropshipping. Facebook Ads, Google Ads, Influencer Marketing can all cost varying amounts of money, but the consensus is that they are not cheap.
Testing one product on Facebook can easily cost $150+, a shoutout from a reputable influencer with a lot of followers can be $100+. As a dropshipper, you may get your first sale for free or spend $1500 on paid ads in order to get it.
The best method minimise the amount of money spent on marketing is simple - spend more time developing your store before launching. A store with a well researched product selection , engaging product videos and great branding will get the first sale much sooner than a rushed store.
Extra Costs To Be Aware Of
Payment Processor Fees (PayPal, Stripe, Shopify Payments)
Every payment processor will charge some kind of fee for their services, luckily these fees are only charged on money that you've made, for example, if you sell a product for $100, the fees are automatically deducted from your revenue before being sent to you.
Payment processor fees vary depending on which country your business is located in, here are some of the standard USA fees for common payment processors:
- Stripe: 2.9% + 30 cents per successful charge
- PayPal: 2.9% + $0.30 per transaction in the US and 4.4% per transaction for Internation sales
Refunds & Returns
Almost all dropshippers will have to deal with issuing a refund or accepting a customer return at some time. In the case of a refund, it is important to have good customer communication, so that you can return the item to the AliExpress supplier and recoup some of your costs.
In the case of returns, you should offer to send the customer another product, as receiving a return can take a long period of time, especially in the case of international customers.
With good customer service, refunds and returns can be mitigated, but will typically cost around 1-3% of your total revenue.
AliExpress Product Expenses & Shipping Costs
AliExpress product costs will make up a large percentage of your total expenses when dropshipping, second only to marketing. To buy the products from AliExpress and ship them to your customers in a timely manner is key to the dropshipping business model, however you must also make sure that you're getting the best (cheapest) price from your supplier.
Using the SaleSource Chrome Extension you can view the price history of any product on AliExpress and therefore decide when a good time to buy the product is. If a product has been cheaper in the past , there are likely to be other suppliers still selling it for less.
In terms of shipping costs, most suppliers should provide free or cheap ePacket shipping to the USA and worldwide. It is possible to use SaleSource's Product analyzer to find suppliers that will offer better shipping deals & prices by comparing all the suppliers on AliExpress.
Dropshipping may be a low cost and low risk business model, but it still requires investment like any other venture. By educating themselves and taking the time to do things the correct way, entrepeneurs exponentially increase their chance of succeeding in dropshipping as well as end up spending less money on marketing overall to get their first sale.
If the tips in this article have helped you, we encourage you to share this article to help others on their dropshipping journey.