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The true cost of dropshipping – what nobody tells you

The true cost of dropshipping- what they don't tell you -  

There are many “experts” out there that will say you can start a dropshipping business for less than $100 or even for free. And ok,  let’s say it’s possible, but what they don’t tell you is what that would actually bring you. Would you be able to have a fully functional online store? And would this budget bring you any orders and actual sales?

Well, the honest answer is no, you won’t be able to have either a competitive store or to get too many sales. If you actually want to stand a chance in this highly competitive ecommerce world, then you need to be ready to invest more than that. 

Of course, the investment part comes on top of a lot of hard work, patience and finding new ways to reach your audience. 

So, below we will break down what are some of the costs you absolutely need to have when starting a dropshipping business. If you want to get to the total, then scroll to the end of this article for the full list. 

What are the most important costs you need to think about when starting a dropshipping business?

Even if you won’t need to pay upfront for any products you push on your store, which is actually one of the best things about dropshipping, you still need to invest some money to start your online business, such as creating your online store, finding suppliers and marketing your products. 

Here are where most of your startup money will go when starting a dropshipping business:

  1. Building up an online store
  2. Supplier fees
  3. Return costs
  4. Marketing costs
  5. Other business expenses, such as obtaining a tax ID or local business licenses

 

Let’s take each of these and see how much dropshipping can cost you. 

How much it will cost to set up your online store?

Your online store needs to be user-friendly and provide a secure customer experience. That means you will need to choose an ecommerce platform that can provide all these essential features. We recommend using Shopify or WooCommerce, as both these platforms provide all the necessary tools for an awesome ecommerce store, such as great themes, customizable design, managing inventory, taking and shipping orders or receiving payment, among others.

Now, let’s have a look at what it would cost you to setup a Shopify store. A basic plan for a Shopify ecommerce store is $29 per month and can get up to $299 per month. Keep in mind that on top of that, you need to also purchase a domain for your site, if you don’t have one already, and can do that within Shopify at a starting cost of $14 per year.

You would also need to pay transaction fees when you choose Shopify. If you go for the basic plan, there is an additional 2% transaction fee, so, for example, if you sell $1000 a month for your first year, that’s $12,000 annually and the transaction fee would be $240 per year. On top of this, if you don’t want to use Shopify payments or want to add a different payment processor, such as Stripe or Paypal, you need to pay additional transaction fees.

So, to sum up, the initial cost to set up a basic Shopify ecommerce store can get to $43 one time. After this, you would need to pay $29 per month (plus the 2% transaction fee) and this amount will go up if and when you decide to install any new app or paid theme. 

For example, if you ever want a premium template for your Shopify store, you will need to pay between $100 and $500. of course, this is only an optional cost as there are plenty of free templates available on Shopify.

How much is the right dropshipping platform or suppliers?

The second most important platform you would need after setting up a Shopify online store is a sourcing or a dropshipping app that can give you access to products you can then import and sell on your store. 

Most dropshipping suppliers and platforms charge a transaction fee and a subscription fee for services and products, and that’s only normal. The prices for the most basic dropshipping apps start around $20-30 per month. But the price can go up to $80-100 per month depending on your volume of orders and the number of imported products. And the transaction fee can go up to 5-10% per month. 

Let’s take AppScenic, our advanced dropshipping platform. If you want to sign in for an account with us and check our catalogue with over 500,000 products, you can start with our Standard Plan at $37 per month

You will also need to make sure that the products you sell in your store have the highest quality and are delivered fast. This means that you will need to order some samples and check how the whole process goes. We recommend only testing one product per supplier and seeing which one performs the best. 

Now, it’s very difficult to say how much it can cost you to do these tests since it depends on the niche. But, as long as you don’t dropship high-ticket products, like expensive furniture or gadgets, these test orders can cost you around $200.

What are these return costs?

In dropshipping or any ecommerce store, you need to be ready for customers returning products, losing packages, chargebacks and so on. All these come with a cost that it’s impossible to know but we want you to be aware of it.

Also, in case you ever want to use suppliers from China, this cost can be much higher, as there are many suppliers that don’t accept returns or customers that don’t want to return products to China, as this is quite difficult to do. So, you will need to find a better solution and most of the time, that solution will actually mean more money.

Why? Well, when your customers won’t want to send the products back to China, you either let them keep the product (and you lose money on the transaction, as you will need to refund them anyway) or you find a storage solution, usually a 3rd party storage/warehouse, where they can send the products (for which you will need to pay too).

How much do you need for marketing?

This is one tough question, as it’s very difficult to know for sure how much marketing and advertising can cost. What we know for sure is that you do need to invest a portion of your budget in advertising as this is how you will get your products in front of the right people. 

Before starting to advertise your products, you will need to optimize your online store for Google and maybe even start a blog, if you have the resources and time to write articles.

After you’ve done your SEO and written a few articles, you need to pick a few social media channels and open business accounts there. Facebook, Instagram and YouTube have the most users worldwide, but you need to decide which social media channels to go for depending on your region and niche. 

We do recommend starting 1 or 2 social media pages in the beginning and building your audience by boosting your posts and setting up Facebook Ads. If you have some budget left, start a Google Shopping Ads campaign too. 

In the end, as we said, it really depends on the niche and type of product you sell. What you should know is that Facebook is known to work best for products in the $10-100 range and Google Ads works best for medium to high-priced items above $100.

So, what’s the total cost for advertising? Let’s say $500-$1,000 can be enough to set up some Facebook and Google Ads. 

Other costs when starting a dropshipping business?

One other important aspect you need to think about has to do with the legal aspects of starting a dropshipping business. Of course, the legal requirements depend on your region, so be sure to check what the law says in your case. 

Most of the time dropshippers choose a sole proprietorship (also known as a sole trader in the UK) or LLC ( known as LTD in the UK). 

Check this article on how can you setup a dropshipping business in the USA and if you’re in the UK, here’s a guide on how to start a dropshipping business there.

Now, let’s say you’re in the USA and decide to open a company there. The total cost to incorporate an LLC company can be around $600-700.

You will also need to add some extra apps to your Shopify store, let’s say one to help you with SEO and one conversion optimization tool. For SEO you can find a free tool, like Plug in SEO, but you would need to choose a paid plan for an optimization tool, like Personizely, which can be $29 per month.

Here are some of the best Shopify apps for a dropshipping store

So, what’s the total?

Here’s a breakdown of how much it can cost you to start a dropshipping business in the USA:

  • Domain: $14 per year
  • Ecommerce platform (such as Shopify): $29 per month (plus the 2% transaction fee)
  • Dropshipping platform (such as AppScenic): $37 per month
  • Sampling products: $200
  • Marketing (such as advertising on Google and Facebook): $1,000 per month
  • LLC company to incorporate: $600 one-time fee
  • Other apps: $29 per month

 

If we add all this up, the total cost you need to pay one time is approx. $1800. The cost per month will be a bit lower, around $1000 if you keep the same budget for advertising.

This total can be lower or higher, depending on many factors, like your niche, how many products you want to test and get sampling for, the LLC company you choose or the dropshipping platform you want to go with. So, there’s no way to know exactly what it will cost you in the end, but what we can tell you is that even if you start with minimal costs, a dropshipping business will cost you more than $100. 

That being said, dropshipping is not as easy or as cheap to start as most people think. You need to invest some money to have success and be able to grow your store, just like with any other type of business. If you want to stand a chance, you will have to keep on investing money and time. 

So, take your time, be patient, believe in yourself and your business, and the first orders will come. 

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