Can You Make Passive Income with Dropshipping in 2020?
I tend to do a lot of research around passive income and ways to make additional income on the side of a full time job. So, it kind of makes sense that eventually I would run into dropshipping. Dropshipping has gained a lot of popularity recently, and debatably it has started to become a very competitive market. But for those looking for a way to earn substantial income with a flexible time investment it can be the perfect option. It's also important to note that this isn't a source of completely passive income. You definitely can make sales while you sleep, but you will still have to process orders and handle minimal logistics such as sourcing new products, placing more orders, and creating and optimizing new ads. However, the amount of work will stay generally constant no matter what scale your business grows to which is why I'm still a fan of this business model and think there is so much potential in it.
Most people have seen the ads on YouTube, people claiming to have made tens of thousands of dollars in sales in their first month or even first couple days of creating their store. That sure beats most investment returns. That certainly isn't the average result but good results are still definitely attainable. Plus, the fact that these stores can be started for literally $0 up front takes out all of the risk that other forms of investments would typically come with. Since these stores can be started with such a small amount of money upfront, most of the investment will really be fueled by time. And that means these stores are assets that anyone with time, can successfully build.
So, I was intrigued. Super high potential for earnings and the scalable business model, that was proven time and time again to work if you put in the effort. So I made a Shopify store, bought a domain name for $10, and started listing a few products. And it took me under 2 hours to have the whole site up and running.
Now, dropshipping is definitely not easy. Yes, setting up the store can be free and you dont even have to buy a domain name. But that isn't the part that is going to generate any income. The income comes from sales, and sales are a different beast.
First, let's get into how a sale works. You have a product that other people want, and so they will trade you money for your product. More than 9 out of 10 dropshipping stores fail because they don't put serious thought into how simple this idea is. If you list products on your store that people do not want then they aren't going to buy anything and you will get no sales. You can spend an infinite amount of money on advertising, but if nobody wants your product they still won't buy it.
The real difficulty in dropshipping is sourcing winning products. That is where most of your effort will be spent, and what will determine if your store can make it or not. There are a few things to think about while researching and sourcing products.
Is Your Product Rare or Unique?
If you product can be bought at a local store, customer's will probably just stop by that store on their way home from work, rather than buying from an unknown online retailer that delivers in multiple weeks. However, if you are selling products that you probably wouldn't find locally customer's don't have any other option and they are significantly more likely to purchase from you. Let's make an example. Say a dropshipper was trying to sell plain white shirts. You as a customer have the option to buy these shirts, which will arrive in 2-4 weeks and you don't get to examine the product until it arrives. Or, you can go to a local clothing store where you can find the same or a very similar shirt, try it on in person, and only if you like it and if it fits well, you can take it home with you immediately. Which sounds more appealing?
Why are people looking at your product?
This is a super important question to ask yourself. It will help you distinguish whether or not customers are more likely to instead buy a similar product on Amazon. See, if your product is typically something that customers know they want or need, they are more likely to go straight to Amazon or a major store where they know they will find it. They won't even know your store exists, let alone spend time waiting very long for delivery when they also know Amazon can deliver it so quickly. You really want to select products that people do not know they need. People will likely land on your store through an ad as opposed to a direct search for your item, so your products need to be things people aren't already going directly to Amazon for. Additionally, since customers are likely seeing your ads and simply browsing your catalog, your products really need to be attention grabbing and emotionally intriging. If you source products that intrigue people and inspire curiousity, customer's won't be able to help themselves and will almost be forced to click through your ads to learn more.
It is incredibly important to review your products and determine the answer to this question. Am I selling something like a household supply that I know I would typically go directly to Amazon for? Or, am I selling something unique that I wouldn't have thought of, and is it exciting, attention-grabbing, and emotionally intriging? Those are qualities that all winning products share, and should be influencing your decisions while picking your next item to sell.
Is You Product Needed Immediately?
Obviously, dropshipping products from another country will naturally take longer than ordering the same product on Amazon and receiving it next day or relatively quickly. Therefore products that people buy when they need them will typically be bought either in person or from Amazon. Customers simply can't afford to wait weeks for your product to arrive at their door. If you are trying to sell products such as household supplies or items that are typically only bought when customer's realize they have ran out and need more, these customers are not going to wait for these goods to ship internationally. Additionally, these customers will only be interested in buying these goods if they happen to be in need, and most of the time they aren't going to be in need. This point is pretty straightforward but is a nice segue into the next section.
Slow Shipping Times
It can be stressful looking at how long some items take to ship to your customers. It's very normal for some packages to take over 30 days to deliver, that's an entire month. But there are a few very key ideas to keep in mind when thinking about this.
They Don't Really Matter
It's true, customers in general have been spoiled with shipping times of only a few days. But the reality is, when you source winning products that answer all of the above questions well, customers won't care. Your product is rare and unique, so they know they can't find it anywhere in-person. They are on your store's website BECAUSE they didn't first go to Amazon, and this means they really don't need it immediately anyway. This gives you a huge advantage, and having delivery times of a few weeks might not be ideal, but it does not have a significant impact on sales in the long run.
You Can Improve Them
Also, if this does really bother you there are a few things you can do about it. Talk to your suppliers, it possible to work on ways to make the process faster. Some also offer faster shipping methods for a slightly higher cost, and you can even offer this to customers if they want the product that much sooner. If you know you have a winning product, you can also order in bulk and store your inventory domestically, drastically reducing shipping times to customers near you. Ultimately, yes it is fair to say the shipping times are long, but after you crunch the numbers you will see this definitely not a reason to avoid dropshipping.
Now let's assume you managed to find a winning product. If you already have an audience or a following on social media or other channels, lucky you, you get free exposure to your product which gives you a significant head start on everyone else. However, most of us don't so we typically have to pay to target audiences. The most popular channels for this are Facebook Ads and Instagram influencers, though many successful dropshippers swear by other methods as well such as Google and YouTube ads. Ultimately, you should experiment and learn from each option as they all have strengths and weaknesses and perform differently based on the product.
You found a winning product. You optimized your advertisements and are bringing in traffic. Now you're making sales! But are you making any income, and is it worth your time and energy? One of the biggest mistakes I see new dropshippers making (besides trying to sell bad products), is in the pricing of their products. Surprisingly, it is usually because they are pricing their items too low.
If you are first getting into dropshipping, it is probably because you want to make more money. So this next point hopefully makes a lot of sense already. You should be pricing your items at LEAST 2x to 3x the cost that you are buying them from suppliers for. You need to make a good margin if you want any of this to be worth it. AND if you want more sales you need to spend more on advertising so you need that money coming in. Plus, eventually you will deal with problem customers, chargebacks, refunds, returns and if you don't plan for this and account for this in your margins you might actually lose money.
The psychological affects of pricing also play a huge role in conversions. In short, pricing your products too low can actually raise concern to your customers as they may start to wonder about the quality of what they are buying. On the opposite end of the spectrum, if you sell items that cost more customer's will naturally assume the quality of the item is superior. If I offered you a choice between a free pair of sunglasses that retail at $5 and a pair that retails at $300 which would want more? Definitely, the more expensive pair because you assume it is a better pair from the pricetag. I still have a lot of questions, and I'd love to hear what you guys have to say about dropshipping, but so far I really don't see any reason not to try it. For a $10 domain name, and 2 hours of casual work the risk is minimal.