When I had some dropshipping sales coming in each day, I was wondering, how do I get more profit?
What tactics can I follow to end up with more money in my pocket? Find out how to increase your dropshipping profits!
5 reasons why your dropshipping profits might be so low
Find out below what the reasons as to why the margins of your dropshipping store might be so tight.
But that's not all!
After that, I will show you ways to improve your profit margins so that you can increase dropshipping store profits!
Are you ready to learn something new?
Let's go!
Reason 1: Your supplier does it all
Unlike a regular wholesaler that would sell you their merchandise in bulk, a dropshipping supplier sells you a single unit every time you place an order.
Because they sell a single unit each time, they are responsible for storing the products, insuring the products, and other associated costs like paying staff to retrieve, package and process single items.
Wholesalers already operate on very low-profit margins and rely heavily upon large volume purchases to make a decent profit, so when these additional costs are added up, the wholesaler really has no option but to increase the price of individual items.
That means your profit margins will be lower because you pay more to your dropshipping supplier.
What can you do?
What you need to do at the beginning is to accept that you might be paying more to the supplier, but you won't have these extra costs like storing the products and shipping to all your customers.
Your supplier takes care of all these things for you. So it's important for you to pick the right AliExpress suppliers at the beginning of your dropshipping journey.
But if you're getting consistent sales from a product(s), it might be wise to import them in bulk from, for example, Alibaba.
Just keep in mind that even though your cost per product is cheaper because you buy in bulk, and the supplier doesn't take care of sending it to your customer, you will still have extra costs to add later on.
Such as shipping it to your customers, warehouse costs, and if needed, import costs.
You can learn more about the top fulfillment services and companies here.
It is important to know that even though it is more work to import it in bulk and send it yourself to your customers (or you let a fulfilment service take care of that), it will definitely be worth it.
Just imagine how much extra effort you can put into the whole package and delivery:
- You can make sure your delivery time is 1-3 business days instead of 1-3 weeks.
- You could add a business card for your company (your store) inside the package with a discount code for a second purchase!
- You can brand your packaging with, for example, Packhelp.
Reason 2: Shipping can be expensive
If you've got multiple products from multiple suppliers on your store then shipping expenses can quickly add up.
Here’s what I mean: say you dropship clothing and you use three different suppliers to stock your products.
If one customer orders t-shirts from all three of those suppliers, you’ll have to pay for each individual shipment instead of just grouping those items together.
This can lead to significantly higher shipping expenses, and it’s difficult to find a way to make up for those added costs.
It isn’t a good idea to pass along that expense to your customer as such a high shipping cost will likely cause customers to abandon their carts.
However, neither is it a good idea to pay for separate shipping on three different items.
What can you do?
If you're dropshipping with AliExpress, make sure you mostly pick the same suppliers.
If that's not possible, add your shipping cost to the product cost like this:
Product cost: $5
Shipping cost: $2.95
Your product cost: $7.95
And then with that price, calculate your selling price.
If you want to know how to calculate the perfect selling price to get the best margins, keep on reading. I will explain it below!
The second solution is to do the same as with the previous reason: import in bulk.
If you send it out yourself then you can easily add more products to the same package.
This will mean that won't have to send multiple packages from different suppliers to your customer.
Reason 3: Competition
When you go to list your product, you will need to ensure that your pricing is competitive in comparison to other stores selling the same product.
This means that your dropshipping profits will take a dip.
Everyone could end up selling the same product. This means that the market will be really crowded with 100's of people all trying to get the customers attention with the same product.
Also, don't forget that Amazon and Walmart are probably selling the same stuff (or similar stuff), too.
What can you do?
You need to be unique. You need to be different than any other
For example, everyone has a store selling fidget spinners.
But all the stores are not the same. One store might look so badly designed that you don't even know it is a
One store might be a little better, but still has a lot of room for improvement.
Another store might not be focusing exclusively on the product you want to sell.
Another store might not have a blog.
Most of the store's product descriptions are just some bullet points. No effort at all at trying to write a converting product description.
Can you fill up all the holes left by your competitors?
If you can put the effort into your store, you will have a real chance to beat everyone else who is trying to sell the same product.
Awesome, right?
If you're interested in learning more ways to beat your dropshipping competition then I suggest reading 7 Tips to Beat the Competition of Your Dropshipping Store in 2024!
But what about the big giants, like Amazon?
This might make perfect sense to beat other dropshippers, but what about the big giants like Amazon? How could you beat them?
You need to brand yourself as a specialist. You might be wondering, how do you compete with everything Amazon has to offer?
Customers coming to a highly focused niche store know that they can get specialized help for specific questions or problems.
By becoming a true niche expert and successfully applying that through your ecommerce store, you'll be much better equipped to compete against Amazon without having to rely on razor-thin pricing.
You can, of course, do much more to compete with Amazon and other giants. Like creating your own products and selling products with a purpose (like Tom's Shoes).
If you want to learn more about how your dropshipping store could beat Amazon, I suggest reading this article here.
Reason 4: Platform costs
This is mostly a big cost when you're just starting out and you don't get that many sales, yet.
It could get costly when you install some necessary apps and have to pay a Shopify subscription (this is what I use to build a dropshipping store).
For example, I was just starting out in my second month and I already had to pay Shopify $72.33.
As you can see it was mostly because of apps, but also because I chose a more expensive Shopify plan.
I did this because I wanted to do free plus shipping, but I didn't know back then how to set it up without any extra costs.
I suggest reading my article if you want to learn how to set up free plus shipping for free on Shopify.
This way you won't have the same costs as me at the beginning!
What can you do?
Start with the $39 plan from Shopify. You won't need the bigger and more expensive plan yet.
Regarding the apps, try to minimalize your spending on apps when you're just starting out.
There are many free apps that you can use instead of paid ones.
What I like to do is to mainly use free apps until I get sales coming in because that moment when you get your first sale might take a few months.
And even after that, try to wait a bit because, as you can see on my screenshot above, I had a few sales that previous month, but still no consistent sales each day.
I suggest reading my article about the best Shopify apps for dropshipping beginners. It includes both free and paid options!
If you're interested in using Shopify for your dropshipping store then I suggest clicking here to get a free 3-day trial + pay $1/month for the first 3 months!
Or if you think that's too much money for you right now, I suggest reading "Can you start dropshipping without money?".
Reason 5: Refunds
If you picked your AliExpress dropshipping suppliers correctly then you will have less chance of this, but it could still happen.
It takes time when you're dropshipping from China. It might even take 2-3 weeks before the product(s) arrive at your customer's destination.
That and the fact that you won't have control over the product quality increases the chance of refunds.
What can you do?
A lot of people will be asking where their package is, but if you treat your store like a real business and be good with your customer service, you will have fewer refund requests from people who are not willing to wait that long.
If you want to learn more about this, I suggest reading my full guide about how to handle refunds and returns when dropshipping.
Also, this article might help you further with this. It includes five ways to deal with long shipping times when dropshipping with AliExpress.
More ways to increase your dropshipping profits
You now know the five reasons why your dropshipping profits might be so low and what you can do about it.
It's time now to learn even more ways to increase your dropshipping profits when you're dropshipping with AliExpress!
This way you will keep more money in your pocket which means that you can spend more money on advertisements, and that means that you will hopefully get even more customers at the end of the day!
Solution 1: More volume
A way to deal with tight profit margins is to increase your volume.
If you have a margin of 15% on a $100 item, meaning you make $15 per sale, it may not be worth your while to operate an entire store and just get 30-40 orders a month.
However, if you can turn 30-40 orders a month into 300-400 orders then you are talking business, and the low margins offset themselves with the higher volume.
Solution 2: Talk to your supplier
At one time I was ordering some of my orders from a different supplier because, if I remember correctly, he had ePacket available in Canada.
But what happened was he saw me ordering more and more and messaged me saying that he could offer me a discount of 5% if I keep ordering with him.
Now I had a 5% extra profit!
Of course, not all suppliers will contact you. So, if you have a steady stream of orders coming each day, don't be shy to contact them yourself to try to negotiate a better deal.
Solution 3: Increase your selling price
The most obvious solution is to increase your dropshipping profits by increasing your prices!
If you made $20 per order on a product, which you felt was a little low, you can just increase your price by $10 and start making $27 (after fees) per order.
Obviously, you don’t want to increase your prices too much, but a little bit here and there might actually increase the customer’s perceived value of the product.
I will cover below how to price your
This way you don't have to be scared that you price your products too high or too low.
Solution 4: Get AliExpress cashback
Another big one to increase your AliExpress dropshipping profits is to get cashback on every order you place.
This could lead to you getting around 5% of your AliExpress order costs back!
Awesome, right?
Click here if you want to learn more about AliExpress cashback and how to get it!
How do you price your dropshipping products correctly?
If you're interested in learning how to price your products correctly so there is enough room for profit, we have a great article for you!
This article is an in-depth article about everything you need to know to price your products correctly:
Dropshipping Pricing Strategy: The Definitive Guide (2024)
Dropshipping with AliExpress: do you want to learn more?
If you’re interested in dropshipping with AliExpress (or maybe you’re already doing it), then I've got some great articles for you so you can kickstart or grow your dropshipping store!
I've also got a huge article for you that will help you create your own Shopify dropshipping store in 2024!
Reading this article will surely help you to get started and stay motivated while beginning and continuing your dropshipping journey!
Shopify Dropshipping: A 20-Step Guide to Starting Your Store
But that's not all!
If you're interested in learning more about AliExpress dropshipping, like what it is and how to be profitable, then you're in luck!
I've got a complete AliExpress dropshipping guide.
AliExpress Dropshipping: A 20-Step Getting Started Guide (2024)
Also, if you don't have a Shopify store yet, you can click here to get a free 3-day trial + pay $1/month for the first 3 months!
Conclusion
So, there you have it! Every reason why your dropshipping profits might be low.
Now you know the steps to take to increase your profit margins. I hope that you will successfully increase your dropshipping profit margins after reading all this!
If you have any other tips on how you increased your dropshipping profits, let me know by commenting below or contacting me directly by pressing the "Contact Us" button at the top!
Good luck with your dropshipping journey, and don't forget that success doesn't come overnight!
4 Comments
Hi,
Regarding importing products in bulk as they scale on sales, it’s not dropshipping anymore but building a real E-commerce business with inventory, shipping, handling etc.
Have you ever done that ?
Thanks !
Hi! Personally I don’t have any experience with importing products in bulk, but I know it’s a great step to take when your dropshipping store is ready for it (getting enough sales over a duration of time for certain products – so you know these products are selling well, and will hopefully sell well in the upcoming weeks or months).
And, as I said in the article, you can do a lot of extra things when you’re shipping the items yourself (or with a fulfillment service). Like branding your package or adding a personal card from your store.
Hi,
First of all, thanks for all your content 😉
Your product price methods are interesting. But I’m afraid they don’t leave enough room for marketing budget.
For example in the first example you take (Cost of goods + shipping) and you add 10$. Which means that with 10$ you have to pay advertising + fixed costs + taxes in your country + possibly your team + yourself. It doesn’t leave a lot of room for your Cost Per Purchase.
In the second example, the numbers are approximately the same.
I’ve heard another technique wich is to take (Cost of goods + shipping) and multiply by 3. But it could lead to high prices. I used this technique back in early 2018 for my first store (which I closed because I was employed at that time ans hadn’t enough time).
But today I’m getting back into dropshipping as a self-employed and I’m not sure which pricing strategy to use.
What do you think about that ?
Thanks 😉
Thibault
Hi!
Awesome that you liked my article!
Thank you for your comment. Your other technique definitely sounds good, but as you said, the prices could get high quickly. For example, if you have a product of $10 + $3 for shipping, then the product would be $39 ($13 *3). Which is a nice price, but it all depends on the perceived value of your product. (read here more about what perceived value is)
For example, would you rather buy a $39 watch or a $39 towel?
Or what do you think looks more expensive? The $19.95 cat toy or the $19.95 painting? Of course, you could market the cat toy in such a way that its perceived value is much higher (like: “Get this limited edition cat toy now. It’s signed by the president himself!”)
For marketing costs, I suggest reading this from Oberlo they explain their how much money you will need for marketing by using Click Through Rate (CTR) and Conversion Rate.
And for the costs of your team and yourself; the costs of your team will come when your store has gotten a lot of traffic and sales (that moment that you can’t handle it any more your self and you’re making more and more profits). And the best way to pay your self is to say that you will get the profits after your store is doing good. I suggest putting all your profits back into your dropshipping store at the beginning. This way you can grow and you don’t have to worry about paying yourself, but if you really want to pay your self, then you need to see how much profit you have left each money and then just calculate how much you want to put back into your dropshipping store and how much you keep for yourself. Not sure if that was clear, let know!
And for taxes, yes that’s a big one as well. You should sit down with a bookkeeper or tax adviser to see how much taxes will eat from your profits. This way you know how much you need to add to your price.
I know this was a long comment. So I hope everything is clear to you! Let me know if you got any more questions or if it wasn’t clear. I’ll be happy to help you!
Good luck!