Hundreds of people are talking about how they “make six-figure passive income dropshipping products online.” Some are selling a few high-ticket items every month, others are selling hundreds of low-ticket items. However, how much you actually make depends on profit margins and expenses, which are often overlooked.
Can you make passive income dropshipping? You can make passive income by dropshipping by selecting target market and niche you are interested in, carrying out adapted product selection and market research, finding a supplier and building an online store, building a value based niche site and marketing strategy to generate targeted traffic.
Here is what we will cover in this ultimate dropshipping for passive income guide:
- Understanding the Basics of eCommerce
- Niche Selection / Target Market
- Product Selection & Market Research
- Building an Online Store
- Finding a Supplier
- Building Value-Based Niche Site Content
- Setting up Sales Automations
- Driving Targeted Traffic
- Calculating Profit Margins
- Boosting Sales
- Lowering Your Costs & Your Marketing Budget
- Summary of Solutions
Listen to This Article
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The SoundCloud (audio) version of this article is available above, and below you can find the YouTube version of this video. If you would rather listen to this article then feel free to click on either version.
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Everybody is talking about making passive income by dropshipping products online. I have been in e-commerce for over 10 years now, and although I make passive income with eCommerce, I have never used a dropshipping service to do so. I have tested Printful’s print-on-demand services and love it, but I never sold dropshipped products using warehouse services based in China the way the “drop shipping gurus” are promoting them.
In this article, I would like to explore the advantages, limitations, and solutions to dropshipping products successfully. I am a very experienced eCommerce merchant, and a complete beginner to this business model which provides a new perspective on the topic. I will give you my personal review of dropshipping, analyse expenses in depth, provide true advantages, limitations and solutions.
What Are Your Intentions for Dropshipping?
But, before we dive in, I just want to talk about your intentions for wanting to dropship online with some basics of eCommerce. Because if you think dropshipping is a way to get rich quick, this may not be for you.
There are many reasons why people (mostly complete beginners to the eCommerce world) want to get started dropshipping. But one of the main reasons is because they heard of this incredible opportunity to make passive income on YouTube.
Just while watching some YouTube videos about dropshipping complete the research put into this article, I was constantly bombarded with drop shipping ads that stated the following:
- You can start “Making a lot of money without working a lot”
- “Here are my shortcuts to get drop shipping data”
- “I have people who spy on Facebook ads to get secret data”
- Go from “$0 To $,1500 Passively In 3 Days”
- “If you are a poor little bi*tch and you want to make $1,000 today, you need to listen to this”
- “Sell Millions of Dollars of Products” – No risk.
All I have heard in these (sometimes aggressive) ads are people talking about “shortcuts”, and making “lots of money without working” with “no risk.” Some are literally spewing profanity at the listener desperately attempting to get their attention. It’s almost insulting. Actually, it is. But if these ads are still running, it probably means they are working.
If you are a bit disheartened by the “get rich quick” messages in these YouTube videos, but see the value in dropshipping, you may be in the right place. I will not be painting a picture that is prettier than what it should be. This article consists of a real review that shows you the cost of drop-shipping, and solutions to being a more authentic drop shipper.
1. Understanding the Basics of eCommerce
Before even diving into dropshipping you should know as much as possible about the opportunities eCommerce has to offer as a whole. Dropshipping is just one aspect of eCommerce.
What is eCommerce?
I receive so many questions on my main YouTube channel Daniella.io (that channel is specialized in e-commerce), about very basic eCommerce definitions. There seems to be a lot of confusion around the need to sell on your own site, on Amazon or eBay, and the difference with flipping items online, print-on-demand, selling on social media and more.
What is eCommerce? eCommerce is an umbrella term for commerce that takes place via the internet. The term eCommerce regroups a variety of ways to sell online including on established marketplace (like Amazon or eBay), on your own website, on social media (ig. Facebook Store or Instagram Shopping), dropshipping or print-on-demand. eCommerce can consist in selling physical products that require shipping and handling, or digital products that can be delivered via email.
One of the biggest problems is that beginners sell on all these platforms separately, and do not realise they can centralize their eCommerce operations and manage everything from one account. This section will cover what eCommerce is and how to optimize your workflow.
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Watch the video above for a quick summary of the following section.
1. Selling Things You Own
It’s important to know that you can sell things that you own physically, or that you do not own physically. You have these two options, and within those two options, you can sell physical products, or digital products. So let’s dive right in.
Selling Physical Goods
So let’s say you have physical products that you’d like to sell online. Physical products can consist in any of the following (and more):
- Things you created (art, jewelry etc.)
- Things you sell in your brick & mortar store
- Things you purchased at garage sales to flip online
- Things you have around your house that you want to flip
Selling Digital Goods
You could also own digital products. Anything that you can download off of your computer and that you created yourself is a digital product that you could potentially sell (of course, it should not violate anyone’s privacy or copyrights). So let’s say you would like to sell:
- An eBook
- A game
- Stock photos
- Stock videos
- A Course
- Anything that is downloadable
Digital products are an incredible opportunity to make passive income online because you don’t actually have to ship them. Selling digital products that I created myself is my absolute favorite way to make passive income online because there is no shipping involved and you can make money at any time of day from this venture. If someone makes a purchase in my online store, the digital product gets sent to the buyer automatically.
Selling Things You Do Not Own
Not having to ship items eliminates a lot of the heavy lifting that is involved when you sell your own physical products, so that’s something to keep in mind when you get started selling online. Let’s move on to things that you do not own. You can sell things that you do not own, that are physical or digital.
Selling Physical Goods
Just as we saw before with things that you own physically so physical things that you can sell online and you do not own include drop-shipped, or print-on-demand products.
Another option that you could have a look at is affiliate marketing, so promoting products that you like, and that offer affiliate programs. There are many different ways that you can track your revenue from affiliate marketing, usually via a unique link or via coupon codes. You promote a product and if it sells you will receive a commission on that sale. It is very passive and an excellent way to sell products you do not own to make money online.
Print-on-Demand (POD) is similar to dropshipping in a sense that you connect your online store to a drop-shipping service, that will fulfill orders, and ship products for you. The difference with print-on-demand is that you get to upload your own designs to existing products. So instead of having to buy those products physically and then print on the shirts yourself, the POD service takes care of it for you. And that is absolutely mind-boggling, such an incredible opportunity. With print-on-demand you can sell a variety of products including hats, t-shirts, hoodies, sweaters, mugs, bags, phone cases and more. We have a full guide on print-on-demand on our website.
This entire article is about dropshipping so we won’t go into too much detail here, but this is evidently one way to sell products online without managing any physical inventory. By connecting your online store to a supplier’s warehouse, they can fulfill your orders and ship them out to customers directly. Your goal is to generate sales, and they will package and ship the products for you.
And so, this article will focus on dropshipping. After having read what is above and now having a better understanding of what eCommerce is, let’s dive further into what dropshipping entails. First, let’s have a look at some of the negatives of drop shipping, because I have noticed that too few people are addressing these issues.
Why I Have Never Dropshipped Before
I have been in e-commerce for over 10 years, but I have never actually drop-shipped products with Chinese suppliers the way this passive income method is promoted in YouTube videos. However, I understand why dropshipping extremely interesting: no inventory, no need to physically ship products and cool eCommerce automations that take away some of the more tedious work related to selling online.
I flipped items on eBay for many years as a teen, almost trading my time for money until I started selling products more passively (picking them up in stores, and shipping them myself only when they sold). At that point I was somewhat dropshipping my own products, going to get them in store when they sold and shipping them to clients.
Shipping the product myself allowed me to always have control over the quality of the products, the quality of my packaging, shipping costs and delivery times. But I could have automated this process further by connecting to a warehouse. I made the choice not to. Here are some reasons why I never got into dropshipping products from a warehouse.
- Quality: You do not have control over the quality of products. Most dropshippers do not actually purchase the products, test them for themselves and ensure the quality remains consistent over time.
- Margins: Since there are many middlemen, your profit margins are thin.
- Expenses: Although there are tons of YouTubers talking about how they make six-figure incomes from dropshipping, very few of them were talking about their expenses, which can actually be very high between platform fees, hosting fees, payment gateway fees, marketing expenses, integration fees, currency conversion rates, and more.
- Competition: There is competition in any business, but there is a lot of competition in dropshipping with regards to products and pricing, and you need to carry out extensive market research before choosing which products you’re going to sell.
- Traffic: You will also need to pay for traffic if you would like to get “quick sales.” Otherwise, you need to build a niche site blog that actually provides people value and focuses on customer experience to generate organic traffic to your site.
- Repeat Customers: Speaking of value and customer experience, in most cases, drop shippers are not very concerned by product quality or building a community. Therefore, the number of repeat customers remains low.
- Support: Customer support exists in dropshipping just as much as it does for any eCommerce shop, and this is often an aspect that is overlooked when people promote dropshipping as a passive income stream. However, the difference with selling your own products with dropshipping them yourself is that you do not have control over the entire sales process. So if a customer asks you a question and you do not have a tracking system in place with your supplier, you will have to communicate with them to get answers which requires more back-and-forth, longer wait times for customers and therefore lower quality customer experience. This can also lead to negative reviews.
The following table is a summary of some of the pros and cons of drop shipping the way most YouTubers and “Gurus” promote this passive income method online. This does not pertain to those building brands like Startup Vitamins (that also created the spinoff Printful which we use and love). That is building a real brand and business.Take note that we will cover each of these negatives of what is generally spoken of in most “get rich quick” YouTube videos. This article’s goal is to provide solutions to the more negative aspects that are less discussed. This table is available at the end of the article with a summary of solutions.
The table below is available at the end of the article with Negatives vs Solutions. So read on to learn how to overcome some of these limitations.
|No inventory||Thin profit margins|
|Lack of control over the quality of products||Number of fees involved in multichannel sales|
|No need to source products||Competition vs product research|
|Fairly easy to setup||Need For Paid Traffic to “get sales quicker”|
|Connect to Amazon & eBay to expand audience||Low Return Customers|
|Lack of control over shipping times|
|Lack of control over stock being available|
|Negative customer reviews (long shipping times, product quality…)|
|Recommending products you don’t care for|
|Lack of added value|
|Lack of brand awareness|
|Number of fees involved in multichannel sales|
Building websites and eCommerce stores are not a “build it and they will come” models. You have to promote your website and your online store via organic or paid marketing. Let’s have a look at how drop shipping is promoted online, versus how you can do this as a professional eCommerce merchant would. We will also dive deep into expenses so you can better understand how to calculate your profit margins.
The Hard Truth About Dropshipping [Warning]
In order to make passive income from drop shipping, you will actually need to put in hours and hours of work. Building a profitable passive income stream always takes time, effort, dedication and skill, no matter what. If you are looking for a get rich quick scheme, this article is not for you. Please feel free to open YouTube and type in “Make millions dropshipping” and watch those videos.
For those of you who are more serious, let’s have a look at how you can go about building a successful passive drop-shipping business. We are going to consider dropshipping as an actual business endeavor, not a “get rich quick” side hustle. Because nobody is actually talking about return on investment, or showing you how much their dropshipping business actually costs, or their profit margins, or customer acquisition costs. We cover all of these in this article so you don’t wind up making $10,000, after having spent $9,999.
2. Niche Selection [Target Market]
Before building a dropshipping site, you should choose a topic that appeals to a specific audience, including yourself. Sure, you can sell things you are not interested in, while providing little value to your audience for a “quick buck” – but your profit margins will remain low (we elaborate on this further below). If you are not interested in what you are selling, you will not be building a brand or providing any actual value to your audience. Therefore, take the necessary time to analyse and choose the right niche for
Choosing The Right Niche For You
Choosing the right niche (also known as audience, or target market) is key. When you narrow down to a specific niche, you put focus on a smaller, more valuable audience which is part of the formula for a successful drop shipping store. Most drop shippers do not actually know much about their target audience or build a brand for them, and therefore get few repeat sales from the same people.
Choose something you are passionate about, or at least very interested in. If you choose a niche that does not interest you, you will get bored or not provide people any added value. You may also have a hard time knowing what they need or why. And basing your success on pricing is a losing game. Why would they purchase from your online store or listing, when they can get the same product much cheaper on another website? Just check out the section below on calculating profit margins to better understand why.
Your niche needs to be made up of enough people for you to market to. If you are targeting people who are into miniature dollhouse furniture made of oak wood in Alaska, you may not have a very large target market… You should choose a ‘niche within a niche’ – for example, why not target people who are into miniature dollhouse furniture, specifically wooden items?
But your reasons to limit yourself geographically or based on gender should have a clear foundation. For example white water rafting is the same for men and women, but fitness does have some differences and some niches are more geared towards men or women. However, you should avoid niches that are overly saturated. The health and fitness niche is hard to get into unless you find a targeted segment that has an audience that is underserved.
Make sure that you were targeting a market segment that is actually monetizable. If you cannot sell anything to the audience you are targeting, it may not be the right niche. Search for products and topics around your niche in Google Trends before getting started to get some market validation. Also check and see if there are any publications, magazines, stores, and other websites that target the same niches. Some competition is good, you will just need to be able to do better.
Also pay attention to how competitive your niche is. If you are planning on writing about things like fitness, recipes, medical topics or personal finance, you may have a much harder time rakinging your content due to competition or EAT (Expertise, Authoritativeness, Trustworthiness) and YMYL (Your Money or Your Life). A lot of online marketers talk about using a variety of SEO (Search Engine Optimization) tactics with some that are more sketchy than others. We will talk about how you can approach this further on in this article. If you want to learn more about niche selection, what EAT, YMYL and SEO are, definitely check out Project 24. We talk more about how this is relevant to dropshipping below.
3. Product Selection & Market Research
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Most drop shippers do not actually know much about the products they are selling, or care to even ever see them. If it’s to make a quick buck, this article may not be for you. But if your goal is more sustainable passive income, keep reading.
How to Choose Products to Sell
Choosing products to sell online may seem like a taks based on pricing. Some dropshippers promote selling ‘impulse buy’ products, whereas others tell their listeners to just sell a couple high ticket items. We believe that there is much more involved in the process of choosing the products you would like to promote than just basing your decision on price. First we will talk about your interests, then customer intent, pricing, and finally, how you can
Now that you’ve chosen your target market keep that in mind when making the choice of what you would like to sell to this audience. They should be the first thing you should consider before anything else (like pricing).
- What is it that they like?
- What is it that they need?
- What is it that they hate?
- What is it that they have a problem with?
- How could a product fix that problem?
Here are some more things to consider before choosing a product to dropship that audience.
You should at least know a minimum about the product you are drop shipping, what it looks like, how it works, it’s advantages, and especially, the problem it solves for people. If you choose a product you aren’t passionate about, you will get bored or not provide people any added value. Why would anyone purchase from your online store or listing, when they can get the same product much cheaper on another website?
Evergreen products are things that will still be purchased in a couple years from now. So you can imagine that the latest tablet or cell phone will be completely obsolete in only two or three years from now. Be aware of the tech niche. If you are selling things that will no longer be relevant in a couple years from now, you will constantly need to update your content and sales offering, making your income source much less passive. However if you are writing about things like gardening for example, techniques risk not changing very much in the future. In which case your offerings will be much more passive.
Popular / Trending
You may also want to sell things that are popular or trending. One way to know this is to head over to Google Trends and the search for the product in question. If a product has an upward trend over time, then it is probably popular. Definitely compare that product to other products within the same search to see how they compare against each other.
Being Attentive to Seasonality
Whine carrying out your Google Trends search, if you see a lot of dips and valleys, then you need to take note that your product is seasonal. That means that you probably will have less sales at some times of the year, and experience more sales at others. This is not a good or a bad thing, but it’s definitely something to keep in mind if you were looking to build a sustainable passive income source.
Pricing Models & Customer Intent
Sure, many YouTube videos tell you to sell “impulse purchase” products, or “high-ticket items.” But the big thing that is left out in their process of making money online, is actually considering the intent of the person who is going to give you that money. You actually need to consider the customer journey and their reasons to look at your listings. Are they currently just browsing the internet, carrying out research about products? Or do they have the intention to make a purchase now?
Impulse purchases consist mainly in products that are low-priced. These are the types of products that many dropshippers like to focus on because it they are “no-brainer” sales. One of the most famous “impulse buy” products that has been used to illusIllustrate this in YouTube videos is the “Wolf Mug”. A low cost product that people purchased because they thought it was cool.
Usually what happens is that someone sees an ad on Facebook for a low-ticket “impulse purchase” product, and then makes the purchase impulsively. They usually cost anywhere from $5 to $25 and so most people do not think twice about buying them. You can make hundreds of easy sales this way, and this is one of the most popular methods that is promoted by dropshippers on YouTube. Impulse-type products are usually sold using Facebook ads because people do not actually have the intent to buy. They didn’t go to Facebook to buy a Wolf Mug, in most cases their intent was to see what their friends are up to.
However what dropshippers do not talk about are the expenses associated with selling products in this way. Customer acquisition costs on Facebook ads average $18 (source). So unless you are a skilled Facebook marketer, or take the time to become one and reduce your customer acquisition cost, you will be making very little money on your sales unless you calculate your margins and expenses in advance. If you are selling products under the threshold of $18, you will be making little to no profit. Sure, you could sell an impulse product for $25 or more, but you also have to consider your ongoing costs.
We cover a variety of costs below including monthly platform fees, ongoing flat fees, flat recurring fees, facebook ad fees, payment processing fees, integration fees and so on and so forth. So, consider your return on investment before jumping into selling ‘impulse products.’ We will go into more detail on this further on in this article.
High Ticket Purchases
High ticket purchases are very attractive to dropship, because, of course, you make more money! Why would you want to sell 200 Wolf Mugs at $20 each, when you could just sell one kayak for $4,000 and be done with it?
However what people do not consider at the stage is buyer intent. Some YouTube videos talk about the downsides of selling high-ticket products because they’re harder to sell, require more customer support, the need to build trust around your website to make a sale. Since this isn’t something that someone would purchase impulsively, they’re probably more in the mindset of researching. The examples provided in these videos are huge objects. People are talking about selling couches, kayaks and furniture. But it doesn’t have to be a huge product to have a high ticket price. And, there will probably be customer support issues even if they’re for small, inexpensive or “impulse purchase” products.
However, a good thing about how high ticket products is that if your ad spend remains around $18 to acquire a customer via Facebook ads, then you can make much more return on investment. But your ad spend will probably be much higher than that, because it is not an impulse-purchase type product. People are not in the mindset to buy things when they’re just browsing on Facebook. And you probably will not sell as many of a high ticket item since the price point will cut out people looking for a cheap alternative.
So how can you make a choice as to what you should sell online? Don’t focus on the price! Focus more so on providing people value and building a brand. When you have customer intent at the back of your mind, instead of how much product you have to push to make $10,000 per month, then you will have your focus on things that actually matter. Let’s have a look at how you can compete with the competition while considering your customers first.
Competing With The Competition on Pricing
Entering a bidding war is not the way to go in dropshipping. If your main strategy is having the lowest price, you will probably lose. Entering a price war is probably the worst thing that you could do when dropshipping. There will always be someone willing to lower their margins to make a profit. If it’s not another drop shipper, it may be the wholesaler themselves.
One of my favourite articles from Ecwid’s blog goes into detail about how you can avoid a price war with a competitor. I actually liked the article so much that I created an audio version of the article for the team at Ecwid. You can read the article here, or listen to the audio version below.
Too quickly summarize the article, you need to know your customers, focus on key benefits and features of your product, find out the best product positioning for your target market, improve your customer experience and streamline your operations to better serve your clients.
In short, actually build a brand to be able to compete with your competitors.
Of course this runs wildly contrary to what is vastly stated in most YouTube videos about drop shipping. Most people are telling you that you can make a quick buck. Sure that’s one way to do it, but you will most likely come across the problem of competitive pricing. Then what? Well, you may have noticed the number of times I have talked about “customers” and “providing value” in this article so far. That’s because before making any money, you need to actually serve someone something of value.
Customer first, period.
In the next section of this article we are going to dive into building your eCommerce store. Now another thing that is wildly contrary to what most drop shippers are doing that I am going to debunk is using Shopify. We will not be using Shopify to dropship online. there are a lot of reasons why I do not recommend Shopify, and we will cover them in the next section.
4. Building a Store Using Ecwid [NOT Shopify]
I do not use Shopify to sell online. In my honest opinion, Ecwid is much more beginner friendly, and much cheaper in the long run. And this is also true for dropshippers. We created a comparison table below that shows the different pricing models that are applied to Shopify dropshippers vs. Ecwid eCommerce stores.
And I “practice what I preach” – the store on my site is an Ecwid eCommerce store, and the store used by team Beginners Passive Income is also an Ecwid store. My website, Daniella.io is entirely based on Ecwid eCommerce tips, tricks and tutorials. I truly am passionate about this product and surprised that it’s not as mainstream as Shopify. We made a conscious decision to use Ecwid to sell online for very specific reasons. In the video below I go into detail as to why I use Ecwid eCommerce instead of Shopify.
https://youtu.be/JJrcus7gjnQAfter many years of experience selling online, I have found that when you are comparing Ecwid vs Shopify, Ecwid is a better choice for beginners and those who do not want to count on an agency or developer to maintain their site. Ecwid is also a better choice over Shopify if you are looking for easy omichannel eCommerce solution to sell in multiple places online (like Amazon and eBay). We will also cover that below. As for features, Ecwid offers a lot more features natively compared to Shopify which requires extra paid plugins and themes.
Watch the video above to learn exactly how to create an Ecwid Commerce store. Feel free to follow along with the instructions and build your Ecwid store. This will be the base of your selling online. Further on this article we will talk about how you can sell in multiple places with Ecwid Commerce, Including selling on Amazon, eBay, in a Facebook business page, and with Instagram shopping. You’ll be able to manage all of your sales in one place. And if you’re interested in trying print-on-demand while you’re at it, you will be able to at no extra cost.
Open Your Ecwid eCommerce Store Today
If you have questions about pricing or profit margins, head below in this article to read more about this topic. Now that you have created your online store, it’s time to find a supplier to connect it to. We are going to have a look at the suppliers Ecwid integrates with by default.
5. Finding a Supplier
If the supplier is not listed below and you want to work with them, you may require custom development in order to connect to their warehouse. This is sometimes possible (not always), however it will incur development fees.
- Doba Dropshipping
- Inventory Source
You can choose from one of the suppliers above that have easy-install apps in Ecwid. Just go to your Ecwid control panel and click on Apps. Then search for the dropshipper you would like to try. Opinions in the table above are my own and should not limit you to choosing a specific dropshipper over another. Carry out your own due diligence when choosing who to work with a dropshipper and make sure to agree with their terms and conditions.
Quick Common Ecwid FAQ’s
Can you use Ecwid with Alibaba? Ecwid currently does not offer an integration with Alibaba to dropship their products online.
Can you use Ecwid with Oberlo? Ecwid does not offer an integration with Oberlo to dropship their products online, and most likely never will. Oberlo is specifically for Shopify users to dropship using the Shopify platform. However, Ecwid offers a variety of alternatives and can cost less in the long run.
6. Building a Value-Based Niche Site
You now have a fully functional dropshipping store. It’s an awesome start. However the website that is provided by default buy Ecwid will probably not be enough to promote your business to the extent that you would like. In which case you may want to integrate your Ecwid store to a website builder to create more content around it. But the main reason that you should embed your Ecwid store in a website builder, is to provide people with more value.
If you are here to make a quick buck, feel free to head over to YouTube and click on the first drop shipping ad you see. That is not the method we will be following here. If you would like to create sustainable passive income, creating a brand is the way to go. Follow the instructions in this article to learn how to create a successful niche site.
The article above is going to show you exactly how to create a website where you can build valuable content for people. The goal isn’t to promote your products. The goal is actually to provide people with information on things they actually search for in Google (or other search engines) related to your niche and your product. The goal is to build a brand, to build rapport with your audience. It is to show that you are a pillar in your industry. And eventually provide them with your service offering to help them in one way or another.
Another goal of creating a niche website to complement your service offering is to provide yourself a constant flow of traffic. Just like we spoke about at the beginning of this article, the second you stop putting money into Facebook Ads, the second you turn off the flow of traffic to your products. And no traffic means no sales.
When you read the article above you will realize that we do not recommend using a keyword research tools or SEO optimization techniques to be able to attract traffic to your website. We actually follow a course called Project 24, that was created by Income School. Rick and Jim teach exactly how to create a profitable Niche site and 24 months. You read that right, 24 months. This is not an overnight thing. If that is what you are looking for, by all means use Facebook ads to attract your traffic, but make sure you are actually making money from it and know that once you stop paying you will cut off that income.
Another awesome thing about having a website like this is that you can create multiple streams of revenue while working on your drop-shipping site. A niche site can be monetizing a variety of ways including affiliate marketing, ad placement, info products and more. In Project 24, Rick and Jim provide an easy and repeatable methodology to build your niche site and get it ranking quickly. We highly recommend their course. Although it is not specifically about dropshipping, their method provides the perfect way to transform this business model into a sustainable passive income stream.
Learn More About Project 24
Now let’s have a look at automating your dropshipping business for passive income.
7. Setting Up Sales Automations
Automations are a huge part of any passive business. We have a full article about ways that you can make your business or passive, and automating plays a key role in this. One of the reasons why we love using Ecwid Commerce is because it includes very powerful cross-selling features. You can learn more about how to setup cross-sells, up-sells and down-sells in Ecwid eCommerce in this free eBook, It is an easy and automated way to promote products in your online store.
Another powerful feature that’s available in Ecwid eCommerce is the automatic cart recovery feature. This feature allows you to automatically send an email to the customers that have been in their cart two hours after they left the checkout process. This is a great way to bring them back to the store to complete their order.
Ecwid eCommerce also integrates with Tidio chatbots which allow you to interact with your traffic without actually having to be on a chat with them. This is another extremely powerful passive income opportunity. We have a full guide on our site about how to use chatbots to boost your income. In eCommerce you can use them to answer common questions, sell specific products, up sell, down-sell, or provide discount codes and coupons. Learn more about chatbots here or by watching the video below.
Try Tidio For Free
Now that you have a website that has excellent content, that is connected to your eCommerce solution and wholesale dropshipper, it’s time to drive targeted traffic to your website.
8. Driving Targeted Traffic to Your New Store
I cover how to drive targeted traffic to your new online store in detail in my Ecwid eCommerce Power Course, but some things you can do to drive traffic to your online store include the following organic or paid methods.
Getting Organic Traffic
As we already covered above in this article, we highly recommend following the Project 24 method to drive organic traffic to your website. Having organic traffic is extremely important if you would like to create a sustainable passive income source. Relying on paid traffic can be dangerous if you do not obtain any return on investment, if you lack the funds, or if there are detrimental changes in the marketing platforms you’re relying on.
Another way you can get organic traffic to your website is by embedding your Ecwid store into your Facebook business page, and using Ecwid’s Instagram Shopping features. If your website content pertains to Instagram or Pinterest, it may be worth trying to promote your content on those platforms. Remember always provide people value first. You can learn how to successfully promote your content and products on Pinterest in Project 24.
Getting Paid Traffic
There are a variety of ways you can get paid traffic to your website. These include using Facebook ads, Instagram ads, Google shopping ads, Google text ads. Keep customer intet in mind when choosing where to sell your products. Are they looking to buy, or interact with their friends? Also make sure that your products comply with their policies before getting started. If you have any questions about this definitely consult your qualified legal adviser.
One way to leverage the power of these platforms quickly and easily if by using the apps that are available in Ecwid. Head over to the Ecwid marketplace and search for Facebook ads for Google shopping. You will see that there are apps that allow you to quickly and easily set up Facebook or Google shopping ads right within the platform. These are huge time savers for anyone who does not have any online marketing experience. It’s a great way to test your products and your target market.
Paid advertising can be a great way to validate your market / product fit. However, it can be very tempting to spend a lot of money for very little return. That’s where keeping a very close eye on your profit margins and customer acquisition cost is extremely important. People can boast that they’re making $10,000 a month, but if they’re spending $9,999, then they’re not making much return on investment. Let’s talk about calculating your profit margins.
9. Calculating Profit Margins
If you don’t calculate your profit margins or pay attention to the expenses that are associated with dropshipping online, you may risk spending more money than you make. I know this happened to me when we tested out print-on-demand for the first time. We were so excited to get started selling on eBay that we uploaded over 300 products. What we didn’t realize was that there would be insertion fees for anything we added over 50 products.
We definitely lost out on our first sale. That’s one of the reasons why we created a Print-on-Demand course. In that course we provide a Spreadsheet that helps anyone who purchased the course make sure that they’re not losing out on their sales. I’m going to do the same thing here. Let’s have a look at the start-up and ongoing costs that are associated with dropshipping.
|Shopify Startup Costs||Low Ticket / Small Store||High Ticket / Large Store||Ecwid eCommerce Store|
|Shopify Platform||$29/Month Minimum||$79/Month Minimum||$15 to $35/ Month|
|Shopify Theme||$160||$180||Not Necessary|
|Domain Name||$14/Year with Shopify||$14/Year with Shopify||$10/Year with NameCheap|
|Shopify Up Sell Plugin||$47/Month||$47/Month||Included|
|eBay Seller Fees||Free <50 products,|
|Free <50 products,|
|Free <50 products,|
|eBay Fees||8.75%||8.75% to $50|
Then 4% on The Rest
|Same as to the left depending on volume|
|Amazon Seller Fees||$39.99/Month||$39.99/Month||Same as to the left|
|Amazon Sales Fees||6% – 20%||6% – 20%||Same as to the left|
|eBay/Amazon Integration Fees||$29/Month||$59/Month Minimum||Same as to the left|
|eBay/Amazon Integration Fee on Sales||1.9% On Sales||0%||Same as to the left|
|Drop-Shipper Fees (Oberlo)||Free to $29.90/Month||Free to $29.90/Month||Depends on Dropshipping service|
|Payment Processing Fees||2.9% + 30¢||2.6% + 30¢||Same as to the left|
|Shopify Payment Fee||2%||1%||$0 – Ecwid does not charge on your sales|
|Facebook Ads Expenses||$400-$500 Minimum*||$500-$100 Minimum*||Same as to the left|
|Discounts||5% +||5% +||Same as to the left|
|Income Taxes (Sole Proprietor, LLC…)||Depends**||Depends**||Depends**|
|Business Set up Fees (LLC…)||Depends**||Depends**||Depends**|
These are approximations and actual prices may vary over time and will depend on your business choices. Prices are subject to vary depending on the day this article is consulted. Information was pooled from Shopify’s website and YouTube video on the topic such as this one. * To test 20 products at $5/day for 4 days on Facebook and Instagram. More detail on marketing fees below. **Consult your local, certified accountant or legal advisor for more information.
Planning for Dropshipping Expenses
Dropshipping actually costs a lot of money. Sure you can make excellent sales numbers, but not considering your expenses can have you making five figure sales and six figure expenses if you are not careful. Let’s take the following example selling a specific product for $150 a piece with a profit margin of 30%. You would be making $45 per sale in that case, awesome right? With 200 sales, you could make a total “profit” of $9,000.
Now let’s have a look at some of the expenses we covered in the table in the section on startup and recurring costs. Of course, you have to pay your supplier for the inventory they will be sending out. Then you have your startup fees, your monthly and yearly recurring fees (see the table in the section above but this includes your online store, connection to your supplier and marketplaces).
On top of that, most middle men will take a percentage of your sales, from marketplaces, to payment processors to the integration you are using to connect to the marketplaces. Of course, there are your marketing expenses which we will explain in another paragraph below. Other fees can be incurred which we did not consider here (including sales taxes, the cost of an accountant, declaring your business as an LLC, legal fees and so on).
With just what we considered in our example, you would be spending $29,184 to make $30,000, leaving you with a profit of $816. Yeay…
10. Lowering Your Costs & Your Marketing Budget
You may have noticed that the ad spend is high in the example above. That’s because the customer acquisition cost (CAC, or the cost to get one sale via Facebook) that we considered is $18.68. Of course it can be much higher or much lower than that, but we based our calculation based on average Facebook click through rates on ads, average conversion rates from Facebook ads, average cost per click and industry averages in 2019 (source – source). We also considered that it’s not so easy for a complete beginner to get a low CAC when starting out. Of course, every situation, industry, product, target market and so on is different.
However, you need to consider your marketing costs and skillset when jumping into PPC marketing. Of course, you could outsource the work, but you should keep an eye on your CAC from a distance. Everyone will want to lower their marketing expenses in some way or another, and here are some ideas to lower your costs:
- Reduce your customer acquisition cost as much as possible
- Learn more about Facebook marketing, A/B test and optimize your ads
- Negotiate volume discounts with your supplier if possible
- Lower percentage fees on sales as much as possible
- Use YouTube for marketing and to create a new revenue stream
- Test different market places and focus spending on places with the highest ROI
For example, if Amazon is working extremely well for your business but eBay is lagging behind, than cut your expenses and focus on Amazon, and vice-versa if the opposite is true. If you do not track your expenses, you cannot know which channels can provide you the most value.
11. Boosting Sales
I cover this much more in detail in my Ecwid eCommerce Power Course, but some ways you can increase conversions in your Ecwid dropshipping store are with cross-sells, up-sells, down-sells, promotions, offering free products, and sending customers through an email funnel that provides them value (not spam).
Another extremely valuable way that you can boost sales on your website is by creating a YouTube channel with the purpose of serving your audience. By this we don’t mean promoting your products by creating product reviews, but actually replying to the questions and the interests of the niche that you’re targeting. Your products can be a solution to the issues your audience are experiencing, but not the main focus of all of your videos. Provide value first. One way to do this is by finding a balance between educating and entertaining.
If we take Rick and Jim for example in Project 24, their entire YouTube channel is based on providing people value first before pitching them their course. The same goes for my own YouTube channel where I teach people how to make money with Ecwid eCommerce. My course and eBooks are byproducts of what I teach on my channel. The main goal is to inform, educate and serve first and foremost.
That being said there was a huge opportunity to make and come from YouTube itself (if you get a monetize YouTube channel), and by promoting your products. You can learn more about making passive income from YouTube in this guide. They’re actually the full YouTube course in Project 24 if you’d like to learn more directly from Rick and Jim.
12. Summary of Solutions
This table summarizes some of the negatives of drop shipping that we covered at the beginning of the article with the solutions we covered throughout.
|Lack of control over the quality of products||Start with smaller quantities and purchase a couple products to test them yourself. Talk to your supplier to be sure the quality stays consistent over time and that the product is available all year round and in stock.Thin profit marginsReduce your expenses as much as possible. Become a better PPC marketer or outsource the work. A/B test on platforms where you think your products could sell and focus on those where they do sell.Number of fees involved in multichannel salesA/B test on platforms where you think your products could sell and focus on those where they do sell. Negotiate with your supplier if you can.|
|Competition vs product research||Carry out in-depth product research. Check out the competition. Do not get into a price war. Provide more value and build a better brand.|
|Need For Paid Traffic to get sales “quicker”||Combine PPC marketing with an organic strategy. Check out Project 24 to learn more. Sure it takes more time, but it’s better in the long run. Turn off PPC ads and you will stop sales otherwise.|
|Low Return Customers||Provide excellent customer service. Want to keep your business passive? Use chatbots to do so. If there is a lot of customer service involved in your dropshipping business, outsource the work, but make sure customers are not left in the dark. Be upfront about shipping times. Create an email funnel to send clients discounts or to invite them to come back to your store in the future.|
|Lack of control over shipping times||Talk to your supplier before getting started – make sure they are clear about shipping times and methods. Purchase test products from them and see how long it takes and how much it costs. Were there import fees? Was the product well packaged? If there are issues, communicate with them before selling to real customers.|
|Lack of control over stock being available||Talk to your supplier before getting started. Is it always available? Is this product going to be seasonal? Is it still in stock around pique seasons like Black Friday, Christmas, Boxing day?|
|Negative customer reviews (long shipping times, product quality…)||Have a system in place with your supplier before getting started to know when products are shipped. Check the quality before selling.|
|No added value on your part||Create videos of the product. Create your own lifestyle images with the product. Provide your target audience value in articles, blog posts, images, videos and more. Become a pillar in your industry or niche.|
|No brand awareness||Build a brand so people will want to come back and purchase from you. Create a YouTube channel and demonstrate your knowledge about the product / market fit. Provide your target market information presented in an entertaining way. Create a website that is user-friendly, provides value, understands your target market, talks about the benefits of purchasing from you instead of the competition and so on. Become a pillar in your industry.|
|Recommending products you don’t care for||Recommend products you care about to a niche audience you are part of, are passionate about or are interested in.|
I think the most interesting things I learned when researching and writing this (9,500+ word) article is that overall, I have a very different view of drop shipping from those who are promoting it as a means to make quick passive income online. Other than the fact that I use Ecwid instead of Shopify, I just cannot agree with the way so many YouTubers are presenting dropshipping as the mecca of six figure passive income streams for any beginner to try. Most don’t talk about their expenses, which can be very high. I understand that talking about income values first is a way to get people’s attention (heck, we do the same thing at Beginners Passive Income!) but the most important thing you cannot forget in the process of creating any eCommerce passive income stream, is your customer.
If you write an eBook you think is awesome and there is no target market for it, you probably won’t sell very many of them. If you are trying to get people to click on your spammy ads for products they don’t need you will pour money into Facebook and may never see any return on investment. If you do not consider that creating passive income streams takes time, effort, hard work and skill, you will probably give up before you even start. If you do not provide people value first, you will probably wind up in a price war with a competitor.
Value. Value. Value. It’s all about your customer, and providing them value.
Treat your dropshipping stream like a business instead of a get rich quick gimmick and you will have a completely different mindset when selling online. Carry out in-depth due diligence with your supplier before getting started.
I have treated all of my eCommerce endeavours like a business, and I think that’s why my perspective is so different when entering into the dropshipping world. I’m looking forward to testing this out over the next couple years, and then giving you an update. Because you need to be in it for the long game, not short-term gain.
If you Don’t Dropship Daniella, How do You Make Passive Income Online?
At the beginning of this article, I stated that I do not drop ship products online, however, I do make passive income from eCommerce. Some ways that I make passive income from e-commerce include the following:
- Selling eBooks
- Selling Courses
- Selling Digital Products
- Selling Books fulfilled by Amazon
- Affiliate Marketing
- Blogging (Ad Display)
- YouTube Ad Revenue
The reason that I prefer these methodologies to make passive income online, Is because I know that these products actually provide people value. Not only am I selling something that I actually use or created myself, I am selling something I actually believe in. I have also always treated my eCommerce endeavours like a business, trying to serve others while knowing that money is a byproduct of the quality I provide my audience.
How Can I Be a Better Drop Shipper?
Here are some ways you can be a better drop-shipper:
- Sell products you actually believe in
- Build a brand and provide people value First
- Serve a target market you are part of or understand well
- Make sure to consider your expenses when calculating profit margins
- Keep in mind that money as a byproduct of providing people value
- I Thought Dropshipping was Supposed to Be Easy Money
It’s funny how they tell you “drop shipping is easy money”, and then totally contradict themselves with other videos on their channel that clearly demonstrate that you have to put in work. Product research, creating an online store, creating demo videos, setting up Facebook ads, A/B testing those ads, creating email funnels, and landing pages… That all takes time, especially if you have never done it before.
How Else Could I Make Passive Income Online?
There are hundreds of other ways you can make passive income online. Check out this page on our site where we provide hundreds of other passive income ideas.
Should I sell on my own site, or sell on Amazon and eBay?
My answer is, why not do both? Selling on your own site will save you a lot of money in the long run because Amazon and eBay take commissions on your sales. There may also be a cost to be listed or integrated with their platforms. However, if you do not list products on Amazon and eBay, you will not know how many sales you can generate from those sources. Therefore, just give it a try. In order to save you a lot of time and money, use Ecwid eCommerce to create your website, connect to a dropshipper, and then push your products to Amazon and eBay. You will then be able to see if it is worth selling on Amazon and eBay, only from your website, or all three.
Should I drop ship lots of products at once, or just one product?
You can test selling lots of products at once, or start with one product to test your approach. Your success will depend on the type of products you are selling, your target market, your price point, your choice of platforms, marketing and promotions, among other factors. Nothing was wrong with either approach, as long as you’re providing people added value. Also be attentive to fees, like insertion fees for 50 products or more on eBay.
Do I need a business license to be a dropshipper in North America?
You do not need a license to sell products online, or to dropship products online. However, talk to a qualified lawyer in your area if you have questions about this since it may change, or be untrue depending on where you are located or your specific situation.
How does dropshipping impact my taxes?
You need to claim your income on your taxes, and that includes any money you make from dropshipping. Talk to your certified accountant for more information.
How successful will I be at dropshipping online?
No success is guaranteed when selling online. Your success will depend on your work, motivation, skill, execution and industry choice among other things. Every business will have different success rates and income. Most claims or representations as to income or earnings are not to be considered as average or typical earnings. Best of luck!
Can you make passive income dropshipping? You can make passive income dropshippng and many YouTubers claim they are making $1,000 to over $10,000 per month dropshipping. However, you do need to take expenses into consideration including marketing, tools, payment processor, dropshipper, and other platform fees which can drastically reduce margins.
Is dropshipping passive income? Dropshipping can be a source of passive income if setup to be passive. If you are actively involved in your dropshipping business, for example dealing with customer support tickets, carrying out eCommerce updates, creating content and so on, dropshipping may be more active than passive.
Can you lose money with dropshipping? Yes, you can lose money dropshipping. This is on of the biggest mistakes beginners make when getting into drop shipping: imagining there will be no costs. Dropshipping costs money from ecommerce fees, marketplace fees, payment processor fees, payment processors costs, marketing expenses, to sales taxes. Ensure you are making ROI.