You want the kind of money and independence that a job can't give you. I can relate. You've also thought about starting your own business or, at the very least, a side hustle to get ahead.
At some point, you stumbled upon dropshipping with Shopify. It may have been a search you did online or a course someone was promoting, and you'd like to know if it's a good idea. If it's something you should do.
Most importantly, you want to know how much money you can make dropshipping on Shopify to decide if it's worth it.
In this article, I will explain what dropshipping is, the benefits and drawbacks, and go through some simple calculations to get an idea of how much money you can make.
What Is Dropshipping?
Dropshipping is a fulfillment method that allows entrepreneurs to run an online store without purchasing inventory upfront. This is a significant advantage for anyone just starting out.
A dropshipping business uses this fulfillment method exclusively rather than buying and stocking products in its warehouse or storefront.
What is Shopify?
Shopify, launched in 2004, is an online platform that hosts digital eCommerce stores. It helps merchants (including dropshippers) create custom stores with themes and interfaces that appeal to customers.
It also allows you to upload product images and descriptions, keep track of inventory, and automate the process with plugins like Oberlo.
You also don't have to facilitate payments with Shopify because they have a payment processing system (including point-of-sale), inventory management, online ordering, and fulfillment features.
What is Dropshipping On Shopify?
Shopify makes dropshipping much easier by providing a point-and-click solution to the eCommerce functions your online business requires.
Without Shopify, you would have to build your own website and piece together different solutions for things like payment processing using plugins that meet your needs. Shopify simplifies the process and makes dropshipping more accessible.
You'll have to follow the rules and guidelines set by Shopify, though, which is not a problem if your products are legal and you're not doing anything shady.
How Much Money Can You Make Dropshipping On Shopify?
There are a lot of variables and expenses. I'll discuss those further below. But for some ballpark numbers and an understanding of what a Shopify dropshipping store can potentially earn, let's do some simple calculations…
If you're selling a $100 product and earning a $20 profit (after all expenses), you must sell 50,000 units to make $1 million.
So, if your goal is to be a millionaire 12 months from now, you would have to sell 137 units per day (starting today).
These are just hypothetical numbers, but you can play around with them. And don't forget your advertising costs. According to WordStream, the average Cost Per Click, if you're advertising with Google Ads is $1 – $2, which is consistent with my experience.
So, if each unit sold represents a click, and your cost per click to advertise is $1 (just as an example), that's $137 per day that you're spending just on converting ads.
But what about all of the ads people click on that don't convert?
Another study, this time by Smart Insights, claims average conversion rates range from 0.72 – 3.48 percent.
In other words, the average campaign generates 1 – 3 sales for every 100 clicks.
At a buck or two per click, that adds up to a lot of money.
Let's be optimistic and ignore those numbers. Let's say you can do much better and get one sale for every 10 clicks.
At $1 per click, your advertising cost would be $10 per sale.
Now, if you were aiming for 137 sales per day, multiplied by $10 (per sale), your advertising costs per day would be $1,370…
… or roughly $41,000 per month.
I don't know about you, but for me, $41K per month is a lot of money.
And the more units per day you sell, the more labor (or outsourcing) and stress you're dealing with. You may have defective products returned, buyer remorse, and late and lost shipments are pretty much guaranteed.
So, the bigger you scale, the more challenges you'll encounter and the more stress you'll have.
A bigger team will help, but that gets increasingly difficult to manage and more expensive. Your profit margins shrink as your expenses go up. Before you become a millionaire, your hair turns grey (if it's not grey already).
That's probably not what you've been told about dropshipping 😀
Despite its challenges, there is a ton of potential dropshipping with Shopify. So you shouldn't be discouraged.
Here's an example below of someone claiming to make $5K per day…
Of course, there is now way to verify the above claim. And, the person doesn't specify whether $5K per day is in sales or profit, or how big their team is.
In truth, you can make $5K per day in revenue but profit just a few hundred bucks or less.
Whether you're making hundreds or thousands every day, week, month, etc., there are some fundamental realities to overcome, as with any business. You're dealing with physical products (that cost money to manufacture), shipping, advertising, and customer service costs.
Those things require real work and real people.
Many gurus selling courses make it sound like dropshipping is a cakewalk. Some go so far as to say it's just a few minutes of work each day while sitting on the beach, watching money pour into your bank account. But, unfortunately, that's not realistic.
If it were, they wouldn't be selling courses.
A one-person business can get to $5,000 per month or more with consistent effort and time learning marketing and advertising. But dropshipping businesses that make $100,000 per month are far and few between.
How Much Do Shopify Dropshipping Stores Make?
Shopify dropshipping stores can make anywhere from $100 a month to $100,000 or more, but a realistic number is $1000 – $2000.
You probably want to know if you can make $10,000, $50,000, or more every month, and I get it. It's an easier decision to start (or buy a course) if you can. That kind of money is possible, but NOT before you make $1000 – $2000 per month.
Remember that Shopify is scalable. You can earn more money over time by scaling one store or adding more stores (in new niches) once you have experience. But there's no getting around it. It takes patience and determination to be a successful Shopify seller.
How Long Does It Take to Make Money?
Many factors influence the amount of time it takes to start earning money. They include:
- Your budget
- Niche and product choices
- How much spare time you have to build your store
- What you do with your time while building your store (not all activities are productive)
- Learning resources (are you taking a reputable course or figuring it out for yourself?)
- Experience in various areas (computers, marketing, logistics and distribution, customer service, business, etc.)
- And I hate to say it, but luck plays a role too.
The most important thing is to not give up. Realistically, it will take a few months. That doesn't mean you can't make money quickly, even within a few days in the example below…
Examples like these though are outliers. You'll also notice in the paragraph above that even though this person made their first sale in four days, they are still only breaking even with their store.
If you're taking a dropshipping course and working a full-time job, it might take a few weeks just to get through that (and actually absorb it).
It also takes time to figure out your marketing strategy and build a successful ad campaign.
Think of it this way…
Shopify employs roughly 7000 people. If building a six-figure Shopify store were that easy (and fast), Shopify would be losing employees daily.
Consider your product suppliers. Why would they sell products to Shopify store owners? If it were easy, they could build their own store and double their profit margins?
That doesn't mean it's not a good business model or that you can't do it. It just means that it's like anything else you do, whether you're going to school to become something or working out in the gym to get in shape. All of these things take time, effort, patience, and persistence.
A few key areas that will help you speed up the process are learning about SEO (search engine optimization), creating compelling product descriptions, participating in online forums, and building relationships with influencers within your niche. Personal development and time management will also play a significant role in your success.
Different Types of Dropshipping
There are different types of dropshipping: low-ticket and high-ticket.
Low-ticket items are usually less than a few hundred dollars, while high-ticket items can be a few hundred to a few thousand dollars or more. Each has its benefits and drawbacks, but your highest earning potential is with high-ticket dropshipping.
Low Ticket Dropshipping
Low-ticket dropshipping is the most common type of dropshipping. It refers to getting low-cost products from suppliers, often on AliExpress.
This is the type of dropshipping most people are introduced to, and it's the easiest to get started. This is why it's more competitive than high-ticket dropshipping.
One of the benefits of low ticket items is that they allow you to test the waters and see if dropshipping is for you.
Some things to keep in mind when selling low-ticket items vs. high ticket items.
- Bigger market and more buyers
- Easier to sell
- Less revenue per sale
- need a bigger team to manage more sales
- Lower risk and easier to get started
Also, compared to high-ticket dropshipping, more of your time is spent on logistics and supply chain management than on marketing and advertising.
High Ticket Dropshipping
High-ticket dropshippers need fewer buyers because the average ticket price is higher. Therefore, you don't need as many sales to reach your revenue goals.
You also don't need as many repeat buyers because you earn a significant profit from each order. High-ticket is better for entrepreneurs who want more freedom and flexibility because it's less labor-intensive.
Some things to keep in mind when selling high-ticket items vs. low ticket items.
- Smaller market and fewer buyers.
- Harder to sell.
- More revenue per sale.
- Need a smaller team to manage fewer sales.
- Higher risk and harder to get started.
Also, compared to low-ticket dropshipping, more of your time is spent on marketing and advertising than logistics and supply chain management.
Basic Steps to Starting a Shopify Dropshipping Business
There's obviously a lot that goes into a Shopify dropshipping business. As you probably know, entire courses have been created to show you how. Here are the basics, though…
Choose Your Niche
The first step of starting a Shopify dropshipping business is choosing a niche. A niche is simply a targeted group of customers you want to sell to. It can be helpful to think about what interests you or what you're good at because it's easier to sell something you know and understand.
Narrowing down your niche will make it easier to break through the online noise and compete.
You can use tools like Google Keyword Planner, Google Trends, and Facebook Audience Insights to help you find a profitable niche.
Set Up Your Shopify Store
To start a Shopify dropshipping business, you'll need to create an account on Shopify. Shopify currently offers a 14-day free trial, and it's $29 per month after that.
Once you have created your account, you can begin setting up your store.
Your next step is to choose a store name and add your logo (which you've likely given some thought to when choosing your niche).
Your store name will be your default URL (e.g., awesomestore.myshopify.com), so choosing something that represents your business well is essential. This can't be changed, but you can purchase a custom domain later.
Partner With a Supplier
For low-ticket dropshipping, you can partner with a private label supplier or a wholesaler like Aliexpress.
For high-ticket dropshipping, you will likely partner with an established brand or distributor already selling expensive and/or bulky items. These types of products are easier to dropship than they are to keep in stock.
Once you have your product and product images, add them to your store.
Unless you already have a large following online with social media, YouTube, or a niche website that generates search traffic, you'll have to advertise. You can do this on Google, Bing, YouTube, or any social media platform.
First, you need to identify the keywords and phrases most likely to convert eyeballs into buyers. Then, once you've identified them (through research and testing), you can focus your advertising on those specific terms (and reduce your overall advertising costs through more testing).
When you've found a profitable campaign, let your ads run consistently and increase your budget gradually to scale and make more sales.
Take Customer Orders and Buy Products
Unlike most eCommerce businesses where you buy products first and take customer orders later, dropshipping works in reverse. This is why it's appealing to new entrepreneurs because you get paid before you buy.
Your financial commitment is relatively small with dropshipping (not entirely small because there are expenses, but “relatively” small).
It works like this…
- Someone responds to one of your ads and makes a purchase.
- You get notified of the purchase and receive your customer's payment.
- Next, you purchase the product at a discount from a wholesaler or dealer with that payment.
- The wholesaler or dealer ships the product to your customer.
Rather than using your own money to purchase products upfront, as you would with Amazon FBA, for example, you use the payment you just received to place the order with your supplier. In other words, you take customer orders BEFORE you buy products.
Once you have a popular product and successful ad campaign, you can buy products ahead of time in bulk with less risk. But dropshipping allows you to minimize your risk while building that successful campaign.
It sounds simple enough, right? But keep in mind that a lot of work has gone into your business to get to this point. You've also spent a lot of money on advertising. So as exciting as your first sale is, and it really is… it's important to keep things in perspective.
Reaching this stage could take a few months, and scaling it until your profits exceed your expenses could take a few more months.
Set Realistic Expectations
Dropshipping can be a great way to make money, but it's important to set your expectations for how much money you can make dropshipping with Shopify. Many people are under the illusion they'll quit their job within months and make their fortune from dropshipping.
Unfortunately, that probably won't happen.
It's not that there's anything wrong with dropshipping or that you can't do it. You can. It just takes a lot of hard work and persistence to succeed.
You'll also go through periods of doubt and frustration. If you're married, you might have some uncomfortable conversations with your spouse. And don't get me started on what your friends and family will think (even though it doesn't matter what they think).
Dropshipping with (or without) Shopify comes with many unavoidable expenses. Your most significant will likely be advertising, but let's do a quick overview of your other expenses…
I broke down the numbers earlier, but again, if you plan on $1 – $2 per click (depending on your niche and product), and it takes 10 clicks for every sale…
… you're paying $10 per unit sold.
The challenge is that it doesn't start out that way. Your first campaign might take 1000 clicks to get one sale. And you may be targeting competitive keywords that cost more per click. For example, if you were paying $2 per click and it took 1000 clicks for one sale, you're paying $2000 per sale.
That's obviously not going to work, so you'll have to keep testing new campaigns to reduce your ad/sale cost.
You can come up with your own logo using a free tool like Canva or hire someone on a freelance platform like Fiverr or Upwork to do it for you.
Maintaining Your Store
Shopify prices start at $29/month and go up to $299/month as your business grows.
Payment Processing Fees
Credit and debit fees range from 0.5% to 2.9% plus $0.30 depending on your Shopify plan and payment method. Shopify also offers Point of Sale (POS) payment processing, ranging from free (for POS lite) to $89 per month.
Most suppliers charge a dropshipping fee. This fee covers the cost of invoicing, picking, packing, and shipping orders. Therefore, it's important to choose suppliers who offer a fair price (and one that sells a high-quality product).
Marketing costs can range from a dedicated social media manager to social media marketing tools, SEO courses, email marketing courses, email autoresponder, etc. Many of these are hidden costs you don't consider or count as a “per unit” cost, but they add up.
You'll need a Tax ID number, business license, and small business insurance is also recommended. There are always scenarios that could cause you a headache if you don't have insurance.
Someone may get injured by a product you're selling, for example. Or, maybe your customer ordered something critical for an event, and it didn't arrive on time.
These are rare situations, and the likelihood of getting involved in a legal dispute is small, but it's possible. Especially if you're selling a significant number of products.
Product Sample, Branding, Images, and Descriptions
These are optional, but it's difficult to compete with other online sellers if you're using stock images and generic descriptions. You can either order a sample of your product(s) and take pictures yourself or hire someone to do it. Likewise, you can write your own product descriptions or hire a copywriter.
You can charge your customers extra for shipping or work it into the price. Today's challenge is that big online retailers like Amazon offer free shipping, and people have become accustomed to it. That makes it harder to sell if you're charging additional fees on top of the price. In addition, it could cut your conversion rates down significantly.
Either way, the shipping company must get paid.
Defects and Lost Shipments
There would be no product failures, customer returns or lost shipments in a perfect world. Unfortunately, it's not a perfect world, and you should budget for these mishaps.
Dropshipping is a good side hustle to start and grow into a full-time business, but it's easier discussed than done. You must be prepared before starting. With that, let's talk about some drawbacks.
Everyone wants more money and more independence. That makes just about anything you do online for money competitive. And because you're competing with other suppliers for the same products, you must find unique and compelling products or services to stand out.
You must also discover creative ways to market your store, build an audience, and attract customers.
Low Profit Margins
If competition for buyers isn't bad enough, another unfortunate side effect of a crowded market is that prices get driven down, and profit margins get squeezed. As a result, you need to operate very lean to keep your prices competitive.
The one big benefit of dropshipping is that you don't need to hold inventory, so you're not risking your money on hundreds of units and paying for storage costs. However, this also means you're not making as much profit on each item.
High-profit-margin items are critical to make up for smaller profits if you can find them.
Supply Chain is Out of Your Control
Having no control of the supply chain is a challenge with any store, whether offline or online. It's especially challenging when ordering one-offs because you don't have extra stock to cushion the blow if your supplier runs out of stock.
Remember, you may have spent thousands of dollars testing ad campaigns and marketing funnels for a particular product. If your supplier doesn't have that product, it all goes to waste. Or at least, it gets shelved until your supplier has it in stock again.
You can sell a different product, but that requires a new ad campaign.
Also, you're relying on your supplier to ship products directly to your customers, and you have no control over their shipping times and methods. When shipping issues arise, your customers will complain to you. Then you'll have to complain to the supplier. And as a former operations manager for several distribution centers across Canada, I can tell you that the warehouse staff shipping your product won't care in most cases.
You're selling physical products, and if a customer is injured by one of your products, you can be held liable. With dropshipping, you're not only responsible for the product but also for the shipping process and customer service. This increases your chances of being sued if an accident or an injury occurs.
Do your research before starting any dropshipping business and consider small business insurance.
One of the biggest challenges faced by dropshippers is that big retailers have reset people's expectations.
At one time, waiting a week or two for an online (or catalog) order and paying shipping costs was normal. But not anymore.
Amazon can ship just about anything to your door within a day, and they can do it with free shipping. There is no way for you or me to compete with that as independent dropshippers.
Most people trust Amazon, and they already have an account with their credit card on file. So they can buy with a single click, and they don't need to get up and find their wallet.
They're also not worried about Amazon disappearing tomorrow and failing to honor warranties, money-back guarantees, etc.
In fact, the biggest retailers on the planet, like Walmart, can't even compete with Amazon. They've set the bar so high that it makes it hard for dropshippers to meet and compete against those high expectations.
Is Dropshipping Worth It?
Because of competitors like Amazon and the fact that you're selling physical products, I'm not a big fan of dropshipping. That doesn't mean it's not right for you. It might be…
As an eCommerce business, dropshipping is more accessible than most if you're starting from scratch. It's not as capital-intensive as Amazon FBA, and you don't need your own product or service to sell.
If you're on the fence about it or working with a tight budget, an easier way to get started and one that's more practical for many people is buying and selling online. You can also start out buying and selling locally before doing it online.
And then, if eCommerce is the path you want to follow, you can start with dropshipping and use it to test products and campaigns (without investing in inventory).
Once you have a successful combination (product, ad, funnel, etc.) and you're ready to scale up, then move your business to Amazon FBA. You'll benefit from Amazon's systems and consumer trust and the improved profit margins from buying in bulk.
Do You Need a Business License for Dropshipping?
You need a business license to start dropshipping because here's the thing…
Dropshipping is not a business you can succeed at if you're not serious. It requires a lot of work and commitment. You're accountable to your customers, and you're accountable to your budget.
Also, advertising is costly and NOT something to mess with unless you're willing to learn everything you need to know about it.
Therefore… if you're not serious enough to run your dropshipping business like an actual business (and register it as an business), there's a good chance you will fail. I don't say that to discourage you, I only say it because it's not the type of business to simply “try out” and expect to succeed.
There are surely some lucky success stories but they are rare.
There will be significant challenges and setbacks that will stop most “tire kickers” in their tracks because they're unwilling to see it through.
Also, from a practical perspective, many suppliers will expect your business to be registered legally before working with you. As a seller, you represent their product and their company.
You'll also have taxes to deal with and liability insurance. And there are things like a Paypal business account that don't necessarily require a business license but help you keep your personal life and business life separate.
At the end of the day, if dropshipping is worth doing, it's worth doing right. Just a thought 😉
Is Dropshipping Legal?
Yes, dropshipping is legal. It's only a fulfillment method, and nothing is illegal about it.
However, the reason dropshipping's legality gets questioned is due to shady sales practices, some often promoted by industry gurus. As a result, dropshipping can be (and is) used unethically.
For example, some dropshippers make fake claims about their products, particularly health supplements. In addition, they may exaggerate the features of a product and even sell counterfeits.
Focus on building positive relationships with legitimate suppliers and brands. Be honest with your customers and honor your policies. Then, you won't have anything to worry about.