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The UGLY Truth About Dropshipping That No Guru Will Tell You

Published on: December 9 2022 by MyWifeQuitHerJob Ecommerce Channel

The UGLY Truth About Dropshipping That No Guru Will Tell You

The UGLY Truth About Dropshipping That No Guru Will Tell You

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00:00:00 00:00:03 in this video i'm going to answer the
00:00:01 00:00:05 most commonly asked questions about drop
00:00:03 00:00:06 shipping including the questions that
00:00:05 00:00:09 most people won't give you a straight
00:00:06 00:00:12 answer on so here's the ugly truth about
00:00:09 00:00:12 drop shipping
00:00:16 00:00:20 now drop shipping has a reputation for
00:00:18 00:00:21 being a get rich quick scheme because it
00:00:20 00:00:23 sounds way too easy you don't need to
00:00:21 00:00:24 store inventory you don't need to ship
00:00:23 00:00:26 or fulfill orders you don't need much
00:00:24 00:00:28 money to get started and you can run a
00:00:26 00:00:30 dropship store from anywhere in the
00:00:28 00:00:32 world now while all these statements are
00:00:30 00:00:34 tiknically true a common misconception
00:00:32 00:00:36 is that running a successful dropship
00:00:34 00:00:38 store is easy but in reality success
00:00:36 00:00:40 with drop shipping has many pros and
00:00:38 00:00:42 cons and isn't as straightforward as you
00:00:40 00:00:44 are led to believe so in this video i
00:00:42 00:00:45 answer all the in-depth questions
00:00:44 00:00:47 related to drop shipping to provide you
00:00:45 00:00:50 with a complete view of what it takes to
00:00:47 00:00:51 run a profitable dropship store now what
00:00:50 00:00:53 is drop shipping drop shipping is an
00:00:51 00:00:55 ecommerce business model where an online
00:00:53 00:00:57 store does not carry inventory for the
00:00:55 00:00:59 products it sells when an order is made
00:00:57 00:01:01 the online store purchases the products
00:00:59 00:01:03 from a wholesale supplier who then ships
00:01:01 00:01:05 the order directly to the end customer
00:01:03 00:01:06 so as a result the online store owner
00:01:05 00:01:09 does not have to deal with physical
00:01:06 00:01:10 inventory or perform any shipping and
00:01:09 00:01:12 handling there are no upfront inventory
00:01:10 00:01:15 cost because all products are purchased
00:01:12 00:01:18 on demand now is drop shipping legal and
00:01:15 00:01:20 legit it is 100 legal as long as you use
00:01:18 00:01:22 legitimate dropship suppliers so for
00:01:20 00:01:24 example if you sell disney merchandise
00:01:22 00:01:26 on your online store and your supplier
00:01:24 00:01:28 dropship's fake disney merchandise on
00:01:26 00:01:30 your behalf you could be liable for
00:01:28 00:01:31 fraud as long as you're careful about
00:01:30 00:01:33 who you work with and only use
00:01:31 00:01:36 officially licensed distributors for the
00:01:33 00:01:37 brands you carry drop shipping is legit
00:01:36 00:01:38 and safe
00:01:37 00:01:41 now does it require a seller's permit
00:01:38 00:01:42 and a business license well in the us
00:01:41 00:01:45 you absolutely need a seller's permit in
00:01:42 00:01:46 order to legally sell online now most
00:01:45 00:01:48 states require you to charge sales tax
00:01:46 00:01:50 to customers where you have economic
00:01:48 00:01:52 nexus and drop shipping is no exception
00:01:50 00:01:54 if your locality requires a business
00:01:52 00:01:57 license then you must get a business
00:01:54 00:01:59 license as well remember drop shipping
00:01:57 00:02:00 is simply a method of order fulfillment
00:01:59 00:02:03 your drop shipping business is a real
00:02:00 00:02:06 business and must be registered as such
00:02:03 00:02:07 now how profitable is drop shipping well
00:02:06 00:02:09 because your supplier is doing most of
00:02:07 00:02:11 the heavy lifting when it comes to
00:02:09 00:02:13 fulfillment and inventory the margins
00:02:11 00:02:15 for drop shipping are much less than
00:02:13 00:02:16 other e-commerce business models so
00:02:15 00:02:19 typical margins for drop shipping are
00:02:16 00:02:21 between 10 and 30 percent compared to 50
00:02:19 00:02:23 to 66 percent for private label and
00:02:21 00:02:25 traditional wholesale which makes drop
00:02:23 00:02:27 shipping far less profitable now the
00:02:25 00:02:29 best products of drop ship are higher
00:02:27 00:02:31 tiket items that yield more revenue per
00:02:29 00:02:32 sale
00:02:31 00:02:34 now is drop shipping worth it well
00:02:32 00:02:36 despite the low margins drop shipping
00:02:34 00:02:38 can be a great way to get started
00:02:36 00:02:40 selling online for less than three bucks
00:02:38 00:02:41 you can start a fully featured ecommerce
00:02:40 00:02:44 business that carries hundreds of
00:02:41 00:02:46 products and drop shipping is worth it
00:02:44 00:02:48 for product research as well without any
00:02:46 00:02:51 upfront risk you can list many products
00:02:48 00:02:53 online just to see what sells and then
00:02:51 00:02:55 based on your own sales data you can
00:02:53 00:02:57 private label or carry inventory for
00:02:55 00:02:59 your best selling products and keep more
00:02:57 00:03:01 of the profit now the best part is that
00:02:59 00:03:03 drop shipping can be automated except
00:03:01 00:03:05 for the customer service now most
00:03:03 00:03:07 established drop shipping suppliers
00:03:05 00:03:10 support edi which stands for electronic
00:03:07 00:03:12 data interchange edi is an electronic
00:03:10 00:03:13 system that allows your website and your
00:03:12 00:03:15 suppliers website inventory to
00:03:13 00:03:17 automatikally stay in sync so for
00:03:15 00:03:19 example if your supplier runs out of
00:03:17 00:03:21 stok on a partikular product your
00:03:19 00:03:23 website's inventory will automatikally
00:03:21 00:03:25 be adjusted in addition all orders
00:03:23 00:03:26 placed on your website are automatikally
00:03:25 00:03:29 transmitted to your drop shipper for
00:03:26 00:03:31 fulfillment however even though order
00:03:29 00:03:32 fulfillment is automated you are still
00:03:31 00:03:35 responsible for answering questions and
00:03:32 00:03:36 performing customer service now here's
00:03:35 00:03:38 how drop shipping from your own website
00:03:36 00:03:40 works now if you use a well-supported
00:03:38 00:03:42 e-commerce platform like shopify
00:03:40 00:03:44 bigcommerce or woocommerce setting up
00:03:42 00:03:46 drive shipping is a straightforward
00:03:44 00:03:49 process here's exactly how you drop ship
00:03:46 00:03:50 from your own website and how it works a
00:03:49 00:03:52 customer places an order on your site
00:03:50 00:03:54 and you accept payment the customer's
00:03:52 00:03:56 order is electronically transmitted to
00:03:54 00:03:57 your drop chip supplier where you are
00:03:56 00:03:59 charged the agreed upon wholesale price
00:03:57 00:04:01 for your goods your drop ship supply
00:03:59 00:04:03 then ships the order to the end customer
00:04:01 00:04:05 and you pocket the difference in cost as
00:04:03 00:04:07 profit now you don't have to drop ship
00:04:05 00:04:09 on your website you can also drop ship
00:04:07 00:04:11 on amazon and here's how amazon drop
00:04:09 00:04:13 shipping works you list your products or
00:04:11 00:04:15 sell on amazon as a merchant fulfilled
00:04:13 00:04:17 seller and then when an order is placed
00:04:15 00:04:18 on amazon you electronically send the
00:04:17 00:04:20 order to your drop ship supplier who
00:04:18 00:04:22 then ships the products to the end
00:04:20 00:04:24 customer now overall amazon drop
00:04:22 00:04:26 shipping is a much riskier business
00:04:24 00:04:28 model than drop shipping from your own
00:04:26 00:04:30 site because you have to follow amazon's
00:04:28 00:04:32 terms of service to the letter first off
00:04:30 00:04:34 you must source your products from a
00:04:32 00:04:35 legit wholesaler you are not allowed to
00:04:34 00:04:37 drop ship your products from another
00:04:35 00:04:39 marketplace like aliexpress ebay or
00:04:37 00:04:41 walmart otherwise you're going to get
00:04:39 00:04:43 banned as a result aliexpress drop
00:04:41 00:04:46 shipping on amazon is expressly
00:04:43 00:04:47 prohibited amazon also imposes very
00:04:46 00:04:49 strict requirements for shipping and
00:04:47 00:04:51 fulfillment that must be met if you have
00:04:49 00:04:52 a series of late shipments or inventory
00:04:51 00:04:55 mishaps your account's going to get
00:04:52 00:04:57 banned but outside of following amazon's
00:04:55 00:04:59 terms of service drop shipping on amazon
00:04:57 00:05:01 works much the same as drop shipping on
00:04:59 00:05:03 your own website you can also drop ship
00:05:01 00:05:05 on ebay you simply list your products
00:05:03 00:05:06 for sale as an auction or store listing
00:05:05 00:05:08 and then when an order is placed you
00:05:06 00:05:10 electronically notify your supplier who
00:05:08 00:05:12 fills the order and similar to amazon
00:05:10 00:05:14 you must source your products from legit
00:05:12 00:05:16 dropship suppliers and not marketplaces
00:05:14 00:05:18 like amazon or walmart otherwise you're
00:05:16 00:05:20 going to get banned so as a result get
00:05:18 00:05:22 rich quick schemes like buying products
00:05:20 00:05:24 from amazon and drop shipping them on
00:05:22 00:05:26 ebay at higher prices is prohibited now
00:05:24 00:05:28 you're probably wondering how drop ship
00:05:26 00:05:30 payments work well when you sign up with
00:05:28 00:05:32 a drop shipping supplier you'll be asked
00:05:30 00:05:34 for a form of payment and typically you
00:05:32 00:05:35 can pay by credit card your supplier
00:05:34 00:05:36 keeps your credit card on file and
00:05:35 00:05:39 simply charges your card when an order
00:05:36 00:05:41 is placed you can also use ach or direct
00:05:39 00:05:42 transfer this is where your supplier
00:05:41 00:05:44 keeps your bank information and
00:05:42 00:05:46 automatikally places a transaction at
00:05:44 00:05:47 the end of the day week or month for all
00:05:46 00:05:49 products purchased
00:05:47 00:05:51 the best way to pay a drop ship supplier
00:05:49 00:05:53 is through payment terms some suppliers
00:05:51 00:05:54 will offer you payment terms which means
00:05:53 00:05:57 that you don't have to pay for your
00:05:54 00:05:58 products until 30 or 60 days later now
00:05:57 00:06:00 whenever an order is placed on your
00:05:58 00:06:02 website two payment transactions occur
00:06:00 00:06:04 in the background the first transaction
00:06:02 00:06:06 takes place when you accept payment from
00:06:04 00:06:08 your customer and deposit the money into
00:06:06 00:06:09 your own bank account the second
00:06:08 00:06:11 transaction takes place when you pay
00:06:09 00:06:13 your supplier for the raw cost of goods
00:06:11 00:06:15 and any related drop ship fees
00:06:13 00:06:17 now where do you find drop shipping
00:06:15 00:06:18 suppliers there are four main ways to
00:06:17 00:06:20 find suppliers depending on your budget
00:06:18 00:06:21 and the types of products that you want
00:06:20 00:06:22 to sell
00:06:21 00:06:24 and by paying a fee you can perform a
00:06:22 00:06:26 search and instantly have access to
00:06:24 00:06:29 hundreds of pre-vetted suppliers you can
00:06:26 00:06:31 also use a drop shipping company a drop
00:06:29 00:06:33 ship company acts as a middleman who
00:06:31 00:06:34 automatikally connects you to a dropship
00:06:33 00:06:36 supplier you simply list the products
00:06:34 00:06:38 that the dropship company offers and
00:06:36 00:06:40 they handle the entire fulfillment
00:06:38 00:06:43 process as a result you do not have to
00:06:40 00:06:44 find or interact with any suppliers you
00:06:43 00:06:46 can also go to a drop shipping trade
00:06:44 00:06:48 show by attending local wholesale and
00:06:46 00:06:50 drop shipping trade shows you can form
00:06:48 00:06:52 drop shipping arrangements face to face
00:06:50 00:06:54 you can also use a print-on-demand
00:06:52 00:06:55 company print-on-demand companies allow
00:06:54 00:06:57 you to print your own designs on select
00:06:55 00:06:59 merchandise to sell online without any
00:06:57 00:07:01 upfront cost
00:06:59 00:07:03 now how do you find wholesalers who
00:07:01 00:07:05 dropship well the easiest way to find
00:07:03 00:07:07 dropship wholesalers is by using google
00:07:05 00:07:09 a directory like worldwide brands or by
00:07:07 00:07:11 attending wholesale trade shows now many
00:07:09 00:07:13 wholesalers are reluctant to drop ship
00:07:11 00:07:14 for your store unless they know you can
00:07:13 00:07:17 move product so if there's a brand who
00:07:14 00:07:18 refuses a drop ship for you at first you
00:07:17 00:07:21 should purchase and sell their products
00:07:18 00:07:23 wholesale to start and then once you've
00:07:21 00:07:25 demonstrated a track record of sales you
00:07:23 00:07:26 can request a drop shipping arrangement
00:07:25 00:07:28 now where do you find products to sell
00:07:26 00:07:30 for drop shipping well more than half
00:07:28 00:07:32 the battle of starting a successful
00:07:30 00:07:34 online store involves finding the right
00:07:32 00:07:35 products to sell online and the best way
00:07:34 00:07:37 to find profitable products to sell
00:07:35 00:07:40 online is to leverage sales data from
00:07:37 00:07:42 amazon because amazon owns over 50 of
00:07:40 00:07:44 e-commerce you can get an accurate view
00:07:42 00:07:46 of the supply and demand for practikally
00:07:44 00:07:48 any product sold online to perform
00:07:46 00:07:50 product research on amazon i recommend a
00:07:48 00:07:52 tool called jungle scout jungle scout is
00:07:50 00:07:54 a software tool that tells you how much
00:07:52 00:07:57 revenue a product listing is generating
00:07:54 00:07:59 on amazon for the last 30 days all sales
00:07:57 00:08:01 information is collated for you in a
00:07:59 00:08:03 nice table for you review here's a video
00:08:01 00:08:04 i put together that gives you a quick
00:08:03 00:08:06 demo
00:08:04 00:08:07 now when should you use drop shipping
00:08:06 00:08:09 now because the margins for drop
00:08:07 00:08:11 shipping are low drop shipping is
00:08:09 00:08:13 generally not a good long-term business
00:08:11 00:08:15 model furthermore because you're selling
00:08:13 00:08:17 other people's brands you'll be directly
00:08:15 00:08:20 competing with other sellers offering
00:08:17 00:08:21 the exact same product as a result drop
00:08:20 00:08:23 shipping is best used to collect data
00:08:21 00:08:25 for potential products to private label
00:08:23 00:08:27 or to buy wholesale because drop
00:08:25 00:08:28 shipping allows you to instantly sell
00:08:27 00:08:30 hundreds of products online without any
00:08:28 00:08:32 upfront costs you can easily test a
00:08:30 00:08:34 bunch of products find out what sells
00:08:32 00:08:36 and then private label your winners in
00:08:34 00:08:38 other words you should use drop shipping
00:08:36 00:08:40 as a stepping stone to create your own
00:08:38 00:08:42 branded products for sale drop shipping
00:08:40 00:08:43 is also an excellent business model for
00:08:42 00:08:46 dipping your toes in the e-commerce
00:08:43 00:08:47 waters without a large budget
00:08:46 00:08:49 now what are the best drop shipping
00:08:47 00:08:51 companies most drop ship companies are
00:08:49 00:08:53 middlemen who help online store owners
00:08:51 00:08:55 quickly list products from e-commerce
00:08:53 00:08:58 marketplaces like aliexpress taobao and
00:08:55 00:09:00 1688. now the main advantage of using a
00:08:58 00:09:01 dropship company is that you instantly
00:09:00 00:09:03 have access to millions of products
00:09:01 00:09:06 without having to build relationships or
00:09:03 00:09:07 negotiate for pricing simply install a
00:09:06 00:09:09 plugin to inforce your store to your
00:09:07 00:09:11 favorite drop shipping company and you
00:09:09 00:09:13 can instantly sell hundreds of products
00:09:11 00:09:14 at the push of a button
00:09:13 00:09:16 here's a list of my favorite drop
00:09:14 00:09:18 shipping companies now a question i
00:09:16 00:09:20 commonly get asked is who pays for
00:09:18 00:09:21 shipping when drop shipping well every
00:09:20 00:09:23 drop ship supplier charges their own
00:09:21 00:09:26 shipping rates so for example printful
00:09:23 00:09:28 charges 3.99 for the first t-shirt and a
00:09:26 00:09:31 buck 25 for every additional t-shirt
00:09:28 00:09:32 shipped using usps first class delivery
00:09:31 00:09:34 now when a customer places an order on
00:09:32 00:09:36 your own website you can either eat the
00:09:34 00:09:38 shipping cost yourself or pass the
00:09:36 00:09:40 shipping costs along to your customer
00:09:38 00:09:42 now using the t-shirt example you can
00:09:40 00:09:44 either choose to charge a customer 3.99
00:09:42 00:09:47 for shipping or offer free shipping and
00:09:44 00:09:48 cover the cost yourself now for our
00:09:47 00:09:50 online store we charge a flat rate of
00:09:48 00:09:53 five bucks for all orders and offer free
00:09:50 00:09:54 shipping for anything over 75 bucks
00:09:53 00:09:56 now do drop shippers ship
00:09:54 00:09:58 internationally well some drop shipping
00:09:56 00:10:00 suppliers will ship packages
00:09:58 00:10:02 internationally at an additional cost
00:10:00 00:10:04 however international shipping is
00:10:02 00:10:06 extremely expensive and getting accurate
00:10:04 00:10:08 shipping quotes that account for customs
00:10:06 00:10:10 duty that and other fees is actually
00:10:08 00:10:13 quite complex so as a result it can take
00:10:10 00:10:14 longer for a drop shipper to process an
00:10:13 00:10:16 international order
00:10:14 00:10:18 now how do returns work with drop
00:10:16 00:10:19 shipping even though drop shippers take
00:10:18 00:10:21 care of product fulfillment you are
00:10:19 00:10:23 actually responsible for processing
00:10:21 00:10:25 returns and providing customer service
00:10:23 00:10:27 for defective merchandise here's how a
00:10:25 00:10:30 typical return is handled for dropship
00:10:27 00:10:32 merchandise the customer contacts you
00:10:30 00:10:34 for a refund you ask your supplier for a
00:10:32 00:10:36 return authorization number the customer
00:10:34 00:10:38 sends a product in its original
00:10:36 00:10:40 packaging back to your supplier with the
00:10:38 00:10:42 rma number clearly marked then your
00:10:40 00:10:44 supplier refunds the wholesale cost back
00:10:42 00:10:46 to your account once the package is
00:10:44 00:10:48 received and then finally you refund
00:10:46 00:10:49 your customer after you've been refunded
00:10:48 00:10:51 by your supplier
00:10:49 00:10:53 now some drop ship suppliers will charge
00:10:51 00:10:56 you a restoking fee which you must pay
00:10:53 00:10:57 or pass on to your customer
00:10:56 00:10:59 you're probably also wondering can you
00:10:57 00:11:01 use multiple dropship suppliers well you
00:10:59 00:11:02 can use as many drop ship suppliers as
00:11:01 00:11:04 you want as long as your orders are
00:11:02 00:11:06 routed correctly and as long as you set
00:11:04 00:11:08 the proper expectations with your
00:11:06 00:11:09 customers so for example let's say you
00:11:08 00:11:11 sell three different products that are
00:11:09 00:11:12 sourced from three different dropship
00:11:11 00:11:14 suppliers
00:11:12 00:11:16 now if a customer buys all three
00:11:14 00:11:18 products in a single order here's how
00:11:16 00:11:19 the order is fulfilled your shopping
00:11:18 00:11:22 cart will route product one to drop
00:11:19 00:11:24 shipper one product two to drop shipper
00:11:22 00:11:26 two and product three to drop shipper
00:11:24 00:11:27 three in other words your customer is
00:11:26 00:11:29 going to receive three separate packages
00:11:27 00:11:31 in the mail and because three packages
00:11:29 00:11:34 are shipped you must pay the cost of
00:11:31 00:11:35 shipping for three packages in the mail
00:11:34 00:11:37 in addition you should notify the
00:11:35 00:11:39 customer to expect three packages
00:11:37 00:11:40 instead of one
00:11:39 00:11:42 now most ecommerce platforms will handle
00:11:40 00:11:44 order routing among different drop
00:11:42 00:11:46 shippers automatikally
00:11:44 00:11:48 now why is drop shipping good well it's
00:11:46 00:11:50 a good business model because it's a
00:11:48 00:11:51 risk-free way to sell products online
00:11:50 00:11:53 you don't have to handle inventory
00:11:51 00:11:55 shipping or fulfillment as a result you
00:11:53 00:11:57 can run your business from anywhere in
00:11:55 00:11:59 the world there's little or no upfront
00:11:57 00:12:01 investment and you can literally start a
00:11:59 00:12:02 drop shipping store for free with shift
00:12:01 00:12:04 for shop
00:12:02 00:12:05 your store is also infinitely scalable
00:12:04 00:12:07 it's approximately the same amount of
00:12:05 00:12:09 work to make a hundred bucks a month as
00:12:07 00:12:11 it is to make a hundred thousand dollars
00:12:09 00:12:12 a month and most importantly drop
00:12:11 00:12:14 shipping can be used to research
00:12:12 00:12:17 products to sell that you can eventually
00:12:14 00:12:19 private label to maximize your profits
00:12:17 00:12:20 now here's why drop shipping is bad drop
00:12:19 00:12:23 shipping is a bad business model because
00:12:20 00:12:25 the margins are low at 10 to 30 percent
00:12:23 00:12:27 as a result you have to generate a large
00:12:25 00:12:29 amount of traffic and revenue to make a
00:12:27 00:12:31 significant profit furthermore customer
00:12:29 00:12:33 service product quality and delivery is
00:12:31 00:12:35 entirely at the mercy of your drop ship
00:12:33 00:12:37 supplier if your supplier is flaky or
00:12:35 00:12:40 ships orders out late it will reflect
00:12:37 00:12:42 poorly on your company if you drop ship
00:12:40 00:12:44 on amazon or ebay late shipments can
00:12:42 00:12:45 result in a suspension and most
00:12:44 00:12:48 importantly there's little or no brand
00:12:45 00:12:49 recognition with a dropship store
00:12:48 00:12:51 because you are selling other people's
00:12:49 00:12:53 products you will face pricing pressure
00:12:51 00:12:56 from other competing retailers offering
00:12:53 00:12:57 the exact same goods
00:12:56 00:13:00 now what big stores use drop shipping
00:12:57 00:13:01 well almost every large retailer
00:13:00 00:13:03 leverages drop shipping to a certain
00:13:01 00:13:05 extent so for example big box stores
00:13:03 00:13:07 like home depot often drop ship large
00:13:05 00:13:08 products from their catalog
00:13:07 00:13:10 wayfarer is a multi-million dollar
00:13:08 00:13:12 e-commerce company that is entirely
00:13:10 00:13:14 dropshipped so bottom line you can make
00:13:12 00:13:15 money with drop shipping when it's done
00:13:14 00:13:18 at scale
00:13:15 00:13:19 now is drop shipping profitable now with
00:13:18 00:13:22 warehouse space and inventory at a
00:13:19 00:13:24 premium drop shipping will still be a
00:13:22 00:13:26 profitable business model however it
00:13:24 00:13:29 will be much more difficult to make a
00:13:26 00:13:31 significant profit due to poor margins
00:13:29 00:13:33 ultimately the best ecommerce business
00:13:31 00:13:35 model is to start your own private label
00:13:33 00:13:37 brand by being control of the product
00:13:35 00:13:39 design and the entire supply chain you
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