How much do dropshippers make on average per month? Depending on the dropshipper and the type of product, they can earn anywhere between $10-$12,000 per month. However, on average it is about $2,000 in profits per month. Let’s break it down.
Disclaimer: We are basing our calculations on own experience and what friends that did dropshipping told us. Therefore, it is possible some dropshippers can earn more, however, it will be only a handful.
Costs
1. Advertising costs
This is by far the biggest cost for a dropshipper and many underestimates how much they need to spend on it. In our experience, 30-50% of total costs goes to advertising, depending on how many channels you advertise on. However, it doesn’t necessarily mean that the more you advertise, the more sales you would get.
As well as, you might even hire professionals to create beautiful video or image ads. Let us tell you this, they are not cheap. Just a tip for future dropshippers, if you are using Fiverr, we highly recommend those charging a mid-ranged price. You will most likely get the most value for the price from them. Also, hire a couple to compare and choose the best one.
2. Profit margin
Depending on what you are selling, if it is a niche product or the manufacture cost is very low, then your profit margin is wider. However, if you want higher quality then the manufacture cost would be higher and your profit margin would be narrower. In our experience, majority of dropshippers choose products that are more premium, otherwise they get tons of bad reviews for the low quality.
Either way, typically the profit margin should be around 20-120%, on average 80%. Why so high profit margin? Dropshipping pretty much only has two costs, advertising and opening an Ecommerce shop. Together with the fact that it doesn’t take much to produce many products allows for a substantial margin.
3. Ecommerce costs
Dropshippers typically use Shopify, ebay and similar platforms, or run their own web shop. Using an established platform, like Shopify, they normally either have a subscription or transaction fee depending on the plan you choose. Creating a web shop tends to have a fixed cost per month for hosting, and a transaction fee for the payment gateway.
These fees tend not to be higher than 5% of every transaction. You can minimize this cost by taking advantage of the trial period and sell as much as you can.
4. Import, sales and income tax
This varies according to the country you are selling to. Import and sales tax is the responsibility of the customer. However, as a common practice it is recommended that you mention this before checkout or even include the import tax in the price. Standard VAT or sales tax could be as high as 25% and import tax could be as high as 60% of the items’ value.
Typically, there is a limit before import tax is collected depending on the value of the items. For example, in the UK, as of 2020, import tax is not collected for items valued under £15 in total. If you sell to, but operate outside the US, then there’s potentially no import or sales tax (depending on the state) because you don’t have a nexus. That’s why sometimes you can ask the wholesaler to undervalue the items to avoid import tax.
On the other hand, income tax is unavoidable, unless you don’t declare because you aren’t making large amount of sales. Depending on the country and state you sell to, it varies a lot.
Potential costs
5. Labor costs
Many don’t count their time put into dropshipping, or they would tell you that it doesn’t take any effort. Trust us, it does. It is not as glamourous and easy as some dropshippers make it out to be. It takes time and effort to set up a sustainable dropshipping business. Such as, you need to have a great customer service.
It comes down to, do you count your time as a cost? You may even draw in some friends and do this together. Then obviously you need to divide the profits evenly, because it is unlikely that they would do this for free.
6. Shipping costs
Dropshipping’s weakness is the delivery time. Customers have to wait on average 2 weeks before they get their items from the wholesaler. This is why sometimes dropshipping gets a bad reputation or even at times being called a scam.
However, sometimes it is possible to negotiate with the wholesaler and choose another courier that could deliver faster at a higher cost. No one wants to wait forever for the things they ordered, especially if it isn’t a custom or luxurious item. By having a faster delivery time, customer satisfaction increases and you can get more positive reviews.
7. Returns
Dealing with returns is never easy. In fact, dropshipping is called a scam because many times the customer can’t return the item. This is a logistics problem.
Who should the customer return to? You, the middle man, or the wholesaler? What if the wholesaler doesn’t want to pay for shipping or refuses to refund the customer? If you handle the returns, which adds on another cost, would you refund the customer out of pocket and then you contact the wholesaler? That’s why you need to pick and sell quality products.
8. Other costs
There are many other hidden costs, such as, the cost of setting up a business etc. However, they are less common and most times can be avoided if you are smart. That doesn’t mean they don’t exist and you may encounter them on your journey.
Example: Stationary case study
Using our previous dropshipping business as an example, we made just around $1,500 per month selling unique stationary. To reach this point, it took us 3 months.
- Setting up our own Ecommerce shop: $30 per month.
- 2.9% + $0.30 for each transaction using Paypal.
- Wholesale price: $6. Our price: $24. Profit margin: 75%.
- Monthly sale: 190 orders per month.
- Facebook and Google ads: $1,000 per month.
- Hire professional help for image and video ads: $400 total.
- Income tax: 12%.
Total revenue: 190*24 – Costs: (30+189+1140+1000+400+410) = $1391