No, really: how much money do you really need to start dropshipping? This blog post dissects all the costs (and hidden ones) needed to build a profitable store.
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Starting a business is great — till you realise you’ve run out budget.
That’s the second biggest reason why most start-ups fail.
And it makes sense: you need money to make money, and if you don’t have the right amount of money, well — you’re screwed.
Luckily, here at Wholesale Ted we’ve taken the guesswork out of expense budgeting for building a dropshipping store.
In this blog post, we’ll dissect all expenses needed when building your store, looking at three major areas in particular.
Let’s dive in!
3 major expenses to budget for
When building a dropshipping store, there’s three major areas you’ll need to budget for.
- Building your store
- Marketing your products and
- Money to purchase items
Let’s put a magnifying glass on each area to see all the costs involved.
Building your store
This is probably the most important expense.
Without a store, you can’t run ads on Facebook or purchase items from suppliers. (Hell, you can’t even SELL!)
But unlike traditional physical stores that cost thousands of dollar per month to maintain with heating, lighting, gas and staff — you only need a fraction of that cost.
In fact, with just $29, you can create a beautiful, professional, clean-looking store with Shopify.
The perks of using Shopify are second to none. They’re the BEST website builder for beginners (and even experts) because of just how easy and streamlined it is to use.
We’ve even created a whole in-depth, step-by-step tutorial on how to use Shopify — in under 40 minutes. This is not usual with other web builders, like WooCommerce, which we’ve also reviewed, though is not as adapted as Shopify.
To add to this, you’ll also need a domain which you can easily buy from Shopify for $14.
Shopify costs you $29/month and offer a 14-day free trial when you sign up. And almost everything you need — a theme, payment processor, and 100+ apps — can be easily provided for when you sign up with Shopify.
…apart from one thing, which leads me onto the next expense.
A logo from Fiverr
You’ll need a logo for your stores brand and also to add to your website page. Of course, you could take it into your own hands and create one from scratch.
But, perhaps like me, you weren’t blessed with qualities to create amazing designs — and that’s okay! That are what sites like Fivver is here for.
For as little as $5, you can hire a freelance designer on Fiverr to create a logo for you. This saves you from trying to “wing” something you’re not good at and frees up your time so you can work on what really matters, like marketing and selling your product.
Our third expense, the SMAR7 Bundle Upsell, does exactly this. It’s a Shopify app that lets you create upsells in your store to maximise your revenue per sale. In case you don’t know, an “upsell” is a product you sell directly after your initial product.
McDonald’s is a classic example of what an upsell looks like. You order a big mac, then what do they ask next – “Do you want a drink with that?” What they’re doing is upselling you — they know most likely that if you’re eating a burger, you’ll want a drink after. So they take advantage of this to bump up the order value of the customer.
We use the same method in dropshipping, and it works exactly the same.
For example, let’s say a customer comes to our store and adds this cute, cat coffee mug to their cart…
When they arrive at checkout, they’re shown a “limited” offer on your complimentary cat coffee spoons — the upsell.
Obviously, if a customer’s interested in buying a cat mug, they’ll be more likely to buy some cat spoons that go with it. So, what happens then is they go ahead and buy these spoons too.
Just this one upsell, though, has now taken a customer’s order from $9.95 to $20-25 — that’s DOUBLE your making in sales per customers, and remember you aren’t spending money to advertise these upsells.
This is why upsells are so powerful: it can LITERALLY double your profits overnight.
However, the Smar7 Bundle Upsell app will cost you $47/month — which, understandably can be pricey when you’re starting out and not even making sales yet.
If so, here’s my recommendation: only pay for it once you start making sales.
By sales, I mean once you’ve found a “winner.” This is a product you’ve tested with Facebook ads that brings you home a nice profit after spending money on ads (more on this down the page).
The money you receive from your sales would cover the cost of SMAR7 (and increase them, a nice win-win!), making it more than affordable to use.
Overall this means your costs for building your store amount to $43 (or $95.50 if your purchase SMAR7). Not bad, though there’s a much bigger expense you’ll need to account for when starting up.
Marketing your store and testing products
80% of your budget will be spent towards marketing your product.
“Why so much?”, you might ask. To understand why, we need to learn how marketing your product works.
To send traffic to your store, you have two options: free or paid traffic. Free traffic refers to strategies like creating an Instagram page or optimizing your site for the Google algorithm.
Though there is a catch: free traffic is slow. It takes a whole lot longer to organically send traffic to your — especially as a beginner. Plus, there’s also a learning curve involved, like learning SEO (Search Engine Optimization) and social media marketing. (Bear in mind, on top that, you’re still learning how build a store!)
That’s why paid ads are much more effective. This is when you pay money to attract customers on sites like Facebook, Instagram and YouTube.
See those YouTube ads? All of them are paying YouTube to show their ad at the start of your video.
In dropshipping (and our premium course), we recommend running ads on Facebook to different product in your store. Facebook is a gold mine for eCommerce stores, and probably the easiest way to advertise for beginners.
Of course you’re going to have pay money — but how much? This depends on how many products you’ll have to test.
By “test”, I simply mean finding whether or not one of the products in your store makes you a profit after 4 days. Each day you’ll spend $5 running ads to different products in your store. After those 4 days, if you made a loss, you kill the ad — then run ads to another product in your store for 4 days.
On average, it takes around 20 products to test till you’ve found a winner. So, if you do the math, each product “test” will cost $20 each — and $20 multiplied by 20 products equals $400.
This is how much you’ll be spending on marketing. Along the way, you will make a few sales here and there even though they turn out to be” losers.” But once you’ve made a PROFIT (making more than you spend) and pinpointed your “winner,” scaling up is the easy part. Plus, you’ll make the money you spent back (and faster) as opposed to free traffic.
For some, getting a hold of $400 is quite a challenge. If this is quite a lot of money (we understand!), here’s some tips to raise some extra cash.
- Split up your budget over 2-3 months. You don’t have to spend your budget over a month — you can gradually go at your own pace. This will give you more time to raise money.
- Get a side hustle. It will definitely be work – but it is well worth it. There are ways to pick up jobs from home and to save up this money to reinvest into a business. (if you’re interested, here’s 8 jobs you can start today)
And if earning money is an option that’s currently out of bounds, here is a step-by-step tutorial showing you how to build a store using free traffic methods:
So far, your dropshipping start-up should look like this:
Creating your store: $43 – $95
Budget for ads: $400
Total: $443 – $495
Now all that’s left to look are the costs to purchase the item — which, funnily enough, NOBODY really factors in.
How much does it cost to buy a customer’s purchase?
People usually assume the money you receive from a purchase lands in your bank account instantly.
Sadly, this doesn’t happen. If you own a dropshipping store, you know your money actually arrives much later.
For example, Shopify use two payment processors: Stripe and PayPal. When customers pay through Stripe, you don’t receive that money until 7 days later. PayPal takes even longer — they are likely to hold your money for 3 weeks (potentially more) until they trust you.
From a customer’s perspective, we both know 7 days is super long for a store to DISPATCH our item, let alone have it delivered (2-4 weeks).
The problem is that, if you spend all of your start-up money on marketing & setup costs, then you’ll have nothing left to purchase the products customers buy. And if this happens – your business is sunk!
The workaround solution? Have money prepared in the meantime to pay for items until the money the customers paid you has cleared.
One of the most common reasons new businesses fail is due to cash-flow issues. If you don’t want to be part of that statistic, then make sure you prepare in-advance by doing one of the following:
1) Have a credit card. You will get the money the customers paid you well in-advance of when your payment will be due on it. Plus you’ll get bonuses too (such as free air miles and cash back rewards to offset fees).
2) Have a debit card with $200-300 on it prepared in-advance to purchase the items from Aliexpress.
Both methods work equally well and put you in a “safe haven” while your money arrives. Also, keep in mind that this money isn’t technically an “expense” — it is just cash in reserve to use while you wait for PayPal or Stripe to release your money.
Overall, this means our start-up costs to start a dropshipping store amounts to roughly $500 — with $200-300 in reserve cash.
Do you think that’s a lot? Well before I finish this blog, here is some food for thought…
$800 may be a lot for some, and for others the opposite, but one thing stands true regardless of how you see it: We are super, super lucky.
As mentioned earlier, 20-25 years ago, people didn’t have the luxury of building an “online store” — they had to go around looking to buy or rent a physical store and end up paying tens of thousands of dollars every month trying to maintain it.
Besides money, that would’ve cost them a HUGE time sink getting people to manage the store.
- To clean the store…
- To close and open the store…
- To get more people to assist in managing the store (which, indirectly would cost them more money) …
And if their business didn’t work, or fell flat, you couldn’t just stop or cancel your Shopify subscriptions. You had inventory and were probably tied to contracts that wouldn’t allow you to just pack up and leave the store.
BUT, today — starting a business is cheaper than ever before. Before, you couldn’t easily build a store for less than $1,000 and make millions back.
That’s how lucky we are. Thanks to the internet, we don’t have to go through the painful ride of building a physical store like people did the in the past.
Appreciating and leveraging the resources you have now to build your store is something to consider, as it’s never been so easy to do so until now.
Want to learn the blueprint wildly successful dropship stores follow to make six-figures?
Six Steps to Building a Six-figure Dropshipping Store
In it, I’ve included:
- How just one “winning item” can earn $10k/month. Yep. A lot of people don’t realize this… but most stores make the majority of their money from just a handful of items!
- The right way to choose AliExpress suppliers. Picking the right AliExpress dropshipper is crucial to drastically reduce things like refunds. Learn how to pick the right suppliers.
- Why long shipping times DON’T matter. A lot of people are scared to start Dropshipping because of “long” shipping times. You’ll learn why this doesn’t matter inside.
- Why six-figure stores take ONLY 2 hours a day to manage. You’ll learn how they utilize apps like Oberlo to make their stores semi-automated… making managing orders super simple!