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What is a Good eCommerce Profit Margin for Dropshipping

8 min read

When it comes to answering the question about the profit margin for dropshipping, it’s not only about the profit margin alone. Let me explain my idea. How many units of that product you sell is a key factor in the equation. Selling 100 units a month of a $5 product that has 50% profit margin will result in the same total profit as selling 10 units of a $50 product with the same profit margin (it’s $250, feel free to check yourself).

In this article, we will cover 3 ways to make profits when dropshipping. We will focus both on the selling price and the buying price and try to optimize them both. Then, we will discuss how to find products for dropshipping so you could start looking for products to dropship as soon as you finish reading this article.

High Margins, Cheap Products

Selling relatively cheap products on eBay and sourcing them for a much lower price (usually from Chinese suppliers) can result in quite high profit margins for dropshipping. The “high margin – cheap products” concept works due to the ability to sell in high volumes, unlike expensive products that customers purchase less often. Cheap products can sell on a daily base and in many cases multiple times per day.

Cheap Buying Price, High Selling Price

In the example below, we have found an item that sold 6 times, its price is $14.71. If we find a cheap supplier for this product or for a product similar to that one, we could try to sell it as well for a similar or a bit lower price.

“Rotate 180 degree Magnetic USB Cable” Sold on eBay 6 times, price is $14.71.

We’ve been using the DSM Tool Product Search to browse products from 50+ websites using the keywords “Rotate 180 degree Magnetic USB Cable”. As you can see in the results below, we’ve found suppliers that sell the product starting at $4.21

Using the DSM Tool Product Search feature, we find similar products starting at $4.21 on AliExpress.

Profit Calculation

Let’s calculate the profit we’re expecting to make from selling this product.

Selling price: ~$14.71

Buying price: ~$4.21

eBay & PayPal fees: ~$1.9

Estimated profit per sale: $8.6

Profit margin: 58.4% 

Dropshipping Commission Rates

One of the parameters we used to calculate the profit margin is the commission rate, which is usually referred to as “break-even”. The break-even is the fees you pay to the services you use for dropshipping. Those are usually eBay insertion feeseBay selling fees, PayPal fees for selling and accepting payments and in some cases taxes on purchases.

In the example above, and in general, we use 14% as the break-even commissions rate, which is the average of 9% for eBay selling fees, another 5% for PayPal fees, no eBay insertion fees and no tax. That is of course just for the sake of an example.

Low margins, expensive products

Selling in low eCommerce profit margins could sound like a boring way to make money online. If you are making a 2-5% margin you can find yourself wasting too much time and efforts on store management for a very low profit. That is why you might want to consider selling products with a cost price above $50, some say you should even consider going over $500 where even a 2-5% margin can result in a nice income (just think how awesome can a 10-20% margin be).

Take a Look at This Example!

Below is an example of an opportunity with a high-priced product. The product’s price on Walmart is $59.99 with a free 2-days delivery.

Walmart is a website to be used for sourcing the product.

Now let’s see what is eBay’s price for it. To do that, you can search the product on eBay and on the left filters menu select the “sold items” filter.

While writing this article, we found out that this particular item and similar items were sold for prices a few times lower than Walmart, which might mean that the competition on selling this specific product is not going to be as simple as we thought. Yet, we also found some evidence for a very interesting sales that can generate very nice profits.

Same product sold 1.5 months before our search for $75.67 which will result in nearly $5 profit

Two sales of a similar product from a few weeks and 2 months before the search which will result in ~$11 and ~$24.

We even found a seller who managed to sell this product for nothing less than $191.96 which according to our estimation resulted in a profit of at least $100!

Managing to sell a product with a 325% profit margin is almost impossible. Yet, almost impossible is still possible.

What is Long Tail in eCommerce

You might be asking yourself if you should after all dropship products that sell on average maybe 5-10 times per month, and that is a correct thought. Looking for products that have a higher volume of monthly sales would mean a higher chance for you to make a sale, right?

But that is half-true. In some cases, items with a high rate of sales are naturally more competitive and it is the “long tail” products that you might be able to sell. Since you do not hold any inventory, you generally want to keep an 80-20 ratio between products that are more trends-oriented and long-tail products. Even more important than the ratio between the two, you should keep optimizing your eBay store to make sure you clean up products that do not perform at all.

The Back-End Profits Method

The first two methods we presented are more price-oriented techniques which focus on the selling price. Namely, the higher price you can sell – the higher your eCommerce profit margin is. Now let’s pay attention to the cost side by reducing the cost of the product you will purchase and dropship.

Back-end profits is maybe the most beautiful method of making money while drop shipping, you are taking advantage of your knowledge and ability to research online to generate profit. The back-end profits are all of the profits you make by discounting the purchase price using cash back, seasonal discounts, coupon codes, discounted gift cards, etc.

You can get money back for every purchase you make using cashback websites. Freepik.com

One of the tactics used together with back-end profits on eBay is the “0% margin”. While using this technique drop shipping sellers find products they can sell for a price similar or lower than the current selling price on eBay. The gained profit is entirely from the discount on the cost price.

To help you find back-end profit opportunities you might want to read the article on how to use cashback for dropshipping where you could learn about cashback websites for dropshipping. Also, you can read one of the dropshipping supplier’s guides (like the guide how to dropship from ChinaBrands or the guide about drpshipping from Tmart) where you could find information about their dropshipping program and discounts. If you have more back-end profit ideas, comment them below and help the community grow! We try our best to provide useful dropshipping information!

How to Find Products for Dropshipping

We talked about 3 selling techniques, and we showed some basic examples of actual products that were drop shipped. However, eBay dropshipping sellers tend to change their products very often, they optimize their store by “cleaning up” the products that do not perform well, replacing them with new ones. Shopify sellers, who tend to focus on a very small amount of products is completely another story, for instance. So you need a way to find a number of cheap and a number of expensive products. How to do it?

When it comes to cheap products (with high eCommerce profit margins) a popular technique for finding what to sell is using “trends exploration”. Using eBay Explore to find products for dropshipping, for example, might be a great way to source many cheap trending products.

For more expensive products, there are not as many eBay Explore opportunities as you can find with lower-priced products and trend-exploration alone is a limited technique. In that case, you might want to consider using a different technique for product sourcing called “sniping” which is finding another successful seller and trying to sell the same or similar products to their best-sellers. Zik Analytics software and others are experts in sniping.

Summary

The truth is that it is entirely wrong to say that cheap products should not be found using the sniping technique, or that you should not sell expensive products that are hot and trending. You can combine everything you have learned in this article. And remember to maintain an 80% trending products and 20% “long tail” products ratio, no matter if they are cheap or expensive. And try to also maintain a similar ratio between cheap and expensive products. You can use both sniping and trend exploration because there is no unified formula for success, and you have to find what profit margin for dropshipping works better for you.

Don’t forget also to optimize the content of the listings you post. Titles and product descriptions that sell is a great way to increase the chance your product will sell!

Written by Kfir Shapira

Kfir is a Co-Founder and the CEO of DSM Tool. He is working with eBay since 2008 and 8 years later in 2016 joined the founding team of a revolutionary drop shipping management platform - DSM Tool. He has a B.A in Business and Entrepreneurship from IDC Herzeliya. Kfir also plays the drums and owns a dog named "Bamba".

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