How to make money fast: Dropshipping explained
If you are looking for a way to make money fast online then one very simple way to start straight away is to dropship. I know this sounds like some sort of shady sales pitch but then so did I when I was first told about it. I gave it a go for about 5 months and found it was a very easy way to start an online business. If you are wondering why I stopped the simple answer was that I had other projects I needed to focus on. I do intend to have another go one day.
In a nutshell dropshipping also known as retail arbitrage is where you post a product for sale on say for example eBay for £20, wait for someone to buy it. Once it is sold you go and purchase the same product for cheaper from Amazon and ship it to the customer who purchased it on eBay. The difference between the sale price on eBay and buy price on Amazon is your profit.
In theory you could run an online store listing products without the headache and risk of holding stock. Dropshipping has been around online for a very long time and a lot of smaller online retailers most probably dropship the products that they list.
There are lots of high street retailers who do not mind their products being dropshipped. For them it just means more sales and more profits.
When I ran my own dropshipping business I soon discovered that it was quite easy to get up and running. In fact, I made my first sale the same day I launched my eBay store. The profit for the sale was about £1, but It was £1 which in effect I did not have to work for. The logic was that the more products I listed on in my eBay store the more sales I would get. In my first month of dropshipping my turnover was just shy of £10,000 with a profit margin of 20%, the second month my turnover increased to £19k again with a profit margin of about 20%.
So, how do you get started in dropshipping? before you get all excited and ditch your 9 to 5 you need to be aware that it requires some effort on your part before you press the go button on your online empire.
What you need before you start:
- Paypal account
- eBay account
- Amazon account
- Auto-Lister and Tracking account
- Auto Ordering software
- Amazon ZoneHunter
- Outsourcing your tasks
If you do not already have a Paypal account, it is required if you want to sell stuff on eBay. They are easy to open and require you to link your bank account to Paypal. You can choose to either register as a personal account or as a business. If you are going to dropship from eBay on a large scale, then it would be advisable to open a business account. I would read the terms and conditions of each of the types of accounts and take it from there.
When you register as a business you will need to start keeping accounts, filing tax returns etc. It might be an idea to start as personal account for a month or two to see if dropshipping is working for you before you commit to the bureaucracy of running your own business.
When you are working out your product mark-up you will need to consider that Paypal will take 2.9% + Fixed Fee per item value as a fee if you sell only £1,500 per month. Once you start exceeding £1,500 in a month then you will be charged lower fees.
Most of us have an eBay account. I have had mine since 2003 and have used it for little bits and pieces and over the years I have managed to get quite a nice amount of feedback which always looks great on the store.
When you open a new eBay account you will be allowed to list a small number of items until you have a certain amount of feed back from either buyers or sellers. If you wish to sell more items, you can call eBay and request they increase your selling limit.
If you already have an established eBay account, then you might be allowed to increase your selling limit along with how much you can sell each month. When I ceased my dropshipping adventure I had an eBay account with a selling limit of 10,000 items or £100k per month which ever came first.
It is possible to go right ahead and open an eBay shop which will allow you to list up to 1,500 items but you will still have to ask eBay to lift your account selling limits to match that. Many people mistake this part, they think if they open an eBay shop that they will automatically be allowed to list the shop maximum.
The benefit of having an eBay shop is that you do not need to pay any listing fees unlike a regular account. To open an eBay shop, you will need to register as a business. Here you can tell eBay that you are a sole trader. They may also ask you to confirm that you hold stock as eBay would prefer sellers with their own stock as opposed to dropshippers. An eBay shop will cost around £70 per in subscription fees.
When you set your postage costs on eBay make sure they are set to “free” within 2 working days. That’s right you will not charge the customer for the postage. When you order from Amazon you will use Amazon Prime which provides free shipping.
Set your listing locations to only include UK mainland. Do not ship to Northern Ireland since Amazon warehouses may not hold stock to ship there next day.
Like eBay accounts most of us have an Amazon account. Here you will need to connect your bank card so when the sale come into eBay you will be able to purchase the items on Amazon and have them shipped to your eBay customer.
Once you start making sales a good way to keep track of your expenses is to purchase Amazon vouchers and pay for all the purchases using the vouchers. If you can also apply for an Amazon credit card and use that to buy the vouchers using the credit card. The benefit to doing this is that the Amazon credit card will give you reward points in the way of Amazon vouchers for every £1,000 you spend (Believe me when I say that when your shop takes off you will go through £1,000 in one day. Just make sure that you keep an eye on the credit card balance as dropshipping can drain the balance very quickly as I found out, then you need to start transferring funds from the Paypal balance into your bank account to start paying the credit card bill, best to have two cards to work from.
You will need to register for an Amazon prime account so that you can offer free next day shipping. Your customers will love you for this as Amazon Prime is so good that they might even get their purchases on the same day. Which means even more great feed back on eBay.