Many have heard or considered jumping onto the dropshipping bandwagon. With all of the new entrants into this market, many are asking the question: “is dropshipping still profitable in 2024?”
In short, our answer is yes, it is still profitable, but we have a few words of caution. In this article, we're going to cover what dropshipping is, what some of the key costs are for dropshipping, why a lot of dropshippers fail, and of course, answer the ultimate question: “is dropshipping still profitable in 2024?”
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What is Dropshipping?
Before we get into “is dropshipping profitable in 2024,” let’s talk a little bit about what dropshipping is and why it's appealing to so many people in 2024.
Dropshipping is essentially just a business model. Having a dropshipping business means that when a customer logs on to your website and places an order, you then place an order with your supplier to ship the product directly to the customer.
As a business owner, this means that you never have to hold inventory. This makes dropshipping a much easier business model to get started with because of the low capital required to start up. This makes it a very appealing business model for those just starting out.
Once you have your idea, you can quickly set up your business and have a product ready to order in just a few days.
This is also a little intimidating for some because the competition within dropshipping is so high. Whenever you have a large number of new entrants into a market, it will make it tougher to be successful. The rest of this article is going to cover exactly what costs you need to pay close attention to and some of the pitfalls of new dropshippers.
Managing the Costs of a Dropshipping Store
When building a profitable business, you'll want to consider all the costs associated with operating. With dropshipping, the costs will be a little different than a traditional model.
As we briefly mentioned earlier, many of the costs you incur with a traditional business, such as holding inventory, are avoided with dropshipping. However, you do still have some costs to manage in a dropshipping business. Managing your expenses and keeping them low will be the key to making sure that your dropshipping store is profitable.
Some of the largest costs in a dropshipping business will be the cost of the product, advertising costs, and shipping costs.
Let’s look at each one of these in a little more detail:
The first cost is likely the most obvious. The cost of the product will be one of the main cost drivers in your dropshipping business and one of the most important decisions when forming a business plan.
You'll need to balance your product cost with whatever a reasonable price to sell your product is. A basic rule is to be able to sell your product for at least twice what you're purchasing it for to allow room for your other expenses like advertising.
For example, let’s say you're selling a blender on a kitchen supply website. If you can source your product for around $30, you'll want to plan to sell it for roughly $60. This rule is flexible, though, so just because your product doesn't exactly align here does not necessarily mean that it’s not possible to be profitable.
To be more comfortable with your marketing costs, try to sell at a price of 3X your product cost, shipping included. Pricing depends on the product and the customer's perceived value, so if you can increase that perceived value in the eyes of the customer while remaining competitive, you will be able to increase your prices.
Law of Supply and Demand
The law of supply and demand comes into play. The more you increase your price, the less demand you will have. Low prices attract more customers, but neither should you aim too low as you risk devaluing your product in the eyes of customers and no longer being profitable. Your best bet is to test multiple prices and see how your sales fluctuate.
It can be tempting to source from the supplier with the lowest product cost. While that is an option, it’s not always the best one. You'll want to ensure that you're balancing product quality with a low cost. In the end, it's not the best strategy to have a low-cost product if the quality is poor or in case of long shipping times.
With dropshipping, you'll often hear of businesses sourcing products from Asia on websites like AliExpress. This is where you'll find the lowest-priced products. However, this is often where you'll find a poorly made product too.
Another option is to source from countries like the United States or Canada. While this won't be the lowest cost option, you usually get a higher quality product and better shipping time that your customer will be satisfied with.
Regardless of where you source the product from, be sure to do your research before choosing your supplier.
Cost of Advertising – Is Dropshipping Still Profitable in 2024?
Another major cost associated with dropshipping is the cost of advertising.
Dropshipping business owners often promote their products through paid ads on websites, search engines, or mobile apps like Facebook, Google, Pinterest, and Instagram.
While paid advertisements are potentially a good way to drive traffic to your website, they can often be the reason that dropshipping stores are not profitable.
Many people getting into dropshipping begin launching their ads without fully understanding how to be profitable with ads. This can lead to the business owner spending a lot of money with very little return on investment.
One way to reduce ad spending is to develop a marketing plan that involves driving traffic to your website through other free methods. This could include developing organic content on social media or using SEO techniques to boost traffic through Google or other search engines.
Using other methods besides paid ads will help reduce your overall marketing spending. However, if you do choose to use paid ads to drive traffic, be sure to do your research and learn how to make high-quality ad copy that will reach your desired audience. YouTube has lots of free videos with information on creating paid ads for your business.
Shipping is another cost to consider when creating a plan for your dropshipping business. While this cost is not as large as the first two, it is still one that you want to consider.
When sourcing your product, it can be tempting to go for the longest and cheapest shipping time available. For dropshipping businesses, you're often placing orders with suppliers from overseas. This can mean long shipping times of 2 weeks or sometimes even longer. While short-term this might save you some money, long term it can potentially mean a negative experience for your customer.
Indeed, a long shipping time prevents you from having repeat purchases, and it forces you to always find new customers, which increases your customer acquisition costs with the risk of being at a loss.
On the contrary, by improving delivery times, your customers will come back, and you will increase the customer lifetime value or LTV, increasing your profitability.
Dropshipping Success: Why do some Stores Fail?
We'll talk about some of the top reasons dropshippers fail and how you can avoid it.
It’s not a Get Rich Quick Scheme
People tend to view dropshipping as a get-rich-quick scheme. Many dropshipping “gurus” appeal to people by framing dropshipping as something that you can set up quickly, throw a few ads up on Facebook, and it’s immediately easy passive income.
The truth is it’s much more difficult than that to build a profitable dropshipping business. Aside from picking the right product and finding the right niche, there's a fair amount of work to be done to create a long-term business with a strong brand. Dropshipping can become more passive in the long run through automated apps such as Oberlo.
At first, though, it won't feel easy or passive while you're testing the product and figuring out what ads work for your business.
Advertising is Expensive – Is Dropshipping Still Profitable in 2024?
One of the most common reasons that new dropshippers fail is that they don't invest enough time in understanding how to navigate paid ads and how to develop high-quality ad copy.
Before you dive into the world of paid advertising, be sure to invest some time in understanding how Facebook ads work and the other alternatives available.
YouTube offers a wealth of free videos on dropshipping. However, beware of all of the dropshipping “gurus” and their masterclass on dropshipping that usually comes at a steep price. Plenty of information is available for free on the internet, and if you're just starting out, it’s likely not worth spending $1000+ on a dropshipping course.
Not Differentiating Your Brand
When creating your business plan, think about how you will set yourself apart from your competition. This could be through low prices, quick shipping times (a difficult one for dropshipping), customer experience, or something similar.
Setting yourself apart from the competition is what is going to ultimately convince your customer to purchase from you.
The most tempting method for many is to price your product below the competition. This strategy, while it can be effective, can also lead to you eroding your profit margin and not making much money even if you're consistently getting sales.
Is Dropshipping Still Profitable in 2024?
The short answer is yes. Dropshipping is still profitable in 2024.
Managing your costs closely and focusing on key areas like differentiating yourself and being smart and strategic with ad spend can help ensure your dropshipping business is successful.