Like with most businesses, profit margins vary when it comes to drop shipping. It will depend on the company, their fees, and the products, and can range from 5% with electronics to 100 percent when it comes to accessories. When it comes to drop shipping versus doing it yourself, you may find that you save a lot of money drop shipping when you factor time into the equation.
First, let’s go over the type of fees that a drop shipper often charges:
Monthly Memberships - Many drop shippers charge a membership fee to allow you access to the products. However, while some legitimate companies have a fee, there are those without the fee too. Let the monthly fee be a potential warning of a possible scam wholesaler before joining - but not the only warning.
Per Order Costs - Most drop shippers charge a fee each time they ship out an order to you, to help them cover the cost of shipping and packaging. This is usually a low fee of fewer than 5 dollars per item.
Monthly Minimum Fee - You may also face a charge if you don’t sell a certain dollar amount of items each month. This is where the monthly fee may come into effect before you’re up and running, but then once you are making regular sales the fee is waived if you’re selling a certain amount.
Restock Fee - Some drop shippers charge you a restocking fee if your customer returns an item. Sometimes they charge this to your customer and sometimes they charge you both a small fee for restocking.
Now, let’s look at the type of expenses and time commitment you may face if you do it yourself:
Storage Fees - You will need a place to house any items that you will sell to your customers. Depending on the size and storage requirements, this can get expensive.
Purchasing Costs - You will have to buy the merchandise first, which can be pricey to stock enough products. Then you might overbuy and have to sell at cost - or worse, be left with inventory that you can’t sell.
Packing Costs - These costs can be expensive and will go up as your business starts selling more. Tape, packaging materials and more will cost you more money than it costs through a drop shipping company due to the volume pricing they get on these supplies. Plus, you’ll need to hire help or do it yourself, which can be very expensive.
Shipping Costs - While you will pass on some of those costs to your customer, you’ll pay more for shipping from the wholesaler to you, and then from you to your customer, which can cut into your profits.
When you add in the cost of your time to do all of these things, you can clearly see that starting a drop shipping business is normally going to be less expensive and suck up less of your time than doing it yourself. Why would you bother doing it yourself when you have so many options?
Rich Thurman’s passion is helping small businesses realize their full potential. With twenty years of real world experience in both small and large business, Rich has worked for and with both global industry leaders and small-town family-run storefronts.
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