A Definitive Guide to Dropshipping Profit Margins

It is a common misconception that you can’t make a living with online businesses, specifically dropshipping. However, experts say otherwise. If you dare to and work hard enough, you can make a large dropshipping profit margin, if not a fortune.

It is not imperative to say that all e-commerce businesses are profitable. Dropshipping profits are huge because there is little to no start-up cost, no inventory cost, no delivery charges, etc. But not every dropshipper can make millions in this business.

The best novice dropshippers can do is provide better or same product standards as their competitors – but with high profit margins.

This is where Sell The Trend comes in handy. Before we get to that, let’s do a quick recap of dropshipping profit margins.

What is the profit margin?

Dropshipping profit margin refers to the percentage of the total sale price that remains after you exclude or deduct other expenses such as taxes.

4 ways to improve profit margins in Dropshipping

In this article, we’ll discuss what makes dropshippers go for low profit margin and how they overcome these problems.

Moreover, we will focus on buying and selling prices and try to optimize both.

High-profit margins on cheap dropshipping products

Adding relatively cheap yet winning dropshipping products from AliExpress can help you improve profit margins. You can source them at a cheap price from sellers in China and sell them at a higher price. However, this approach works only if you sell in volume or source the products in bulk. Unlike expensive products, that customers purchase rarely, they purchase cheap products daily.

You can sell a cheap product even multiple times a day and make a huge dropshipping profit margin. Selling cheap products at a higher price had originated from eBay. However, Shopify’s product research tool is working on the same algorithm now.

It helps the dropshippers find items that are trendy and cheap but can help get a high-profit margin. The high-profit margin from this approach will cover your advertising expenses, if not all campaigns.

Trending Products Guide: The Definitive Guide To Finding Trending Products To Sell Online In 2021.

High selling price of cheap products to improve profit margins

Let’s take an example. We have found an item, note 20 fast charger, which the dropshipper had listed on his store – probably with a lot of sales. Its price mentioned in the screenshot below is $25.00. As a dropshipper, you can begin your search and find a seller or a supplier who is selling the charger at a cheaper price. After that, you could sell it for double the price or a bit lower than mentioned in the screenshot.

To make it easier, we’re using the Sell The Trend’s product research tool to find more information on this product. As you can see, we have found a lot of suppliers selling the same items for as low as $8.

Now, let’s calculate the profit margin. Exclude the buying price, PayPal, and eBay fee, which is approximately $2. The minimum profit you will make per sale on this item is $14+. It means that you achieve a profit margin of 80%.

Commission rates- Problems with Dropshipping 

One of the parameters you use while calculating profit is the commission rate. It is often known as the ‘break-even’ price that every dropshipper has to pay. The commission rate is the fee you pay for using the services.

For example, eBay selling fee, PayPal selling fee, eBay insertion fee, and some taxes are examples of ‘break-even’ rate.

Generally, dropshipping platforms stick to a 14% commission or break-even rate. However, it can increase with policy amendments. The dropshippers, then adjust to the changing policies.

Low-profit margins on high-end products

Low-profit margins can make dropshipping boring and even like a fraud. For instance, if one is making a 5% profit margin, he feels like wasting the time and energy in the wrong areas. That is where novice dropshippers decide to sell high-end products, specifically above $50. While some consider going up to $500, others stay as low as $50.

Can expensive products help you achieve a nice income? Let’s take an example:

This custom wireless controller sells for $25-$35 averagely on AliExpress.

Now, look at this dropshipper who has been selling it for like $158.4 on his Shopify store. That’s a clear $120+ profit margin (if we cut off all the taxes and service charges) per sale.

The back-end profit method to make a high dropshipping profit margin

The methods we mentioned above focused on the selling price- the higher you sell, the higher you make. Now, let’s focus on another way that works by reducing the product’s cost.

The back-end profit method is one of the best ways to make a living. You take full advantage of your research and ability as a dropshipper to generate revenue. You generate back-end profits by reducing the purchase price. The customers can use discount coupons, gift cards, discounted sales, offers, and codes to purchase from you.

The ‘0% margin’ technique helps the dropshippers to find items they can sell for a lower price as compared to eBay. After that, they enjoy the profit, which is entirely from the discount.

There are countless back-end profit-making opportunities. However, you need to learn how to use cashback in dropshipping. On the other hand, you can make use of guides to know about the different discount and gift programs.

Long-tailing in e-commerce

To understand the concept of long-tail in commerce, take a product that sells 10 to 20 times per month on AliExpress. The higher the buying volume, the higher the sales, right? Most novice dropshippers fall for this truth. However, it is the half-truth.

Most winning products are naturally competitive. You might have to compete with a lot of products. Since dropshipping requires no inventory, you will have to keep an 80-20 ratio between most-selling and long-tail products.

To avoid circumstances as these, keep updating your store and eliminate all the products that do not perform.

How to find dropshipping products for high-profit margins?

When it comes to making high-profit margins from cheap products, you can explore trends. It is a great way to source and hand-pick cheap yet winning products in bulk. Because exploring trends is limited to cheap products, there’s not much you can do with high-end or expensive products. You would have to carry out the research yourself.

Conclusion

You can combine every technique you have so far learned from this article to improve profit margins. It is best to keep an 80-20 ratio between expensive and cheap products. Similarly, it is best to keep an 80-20 ratio between trending and long-tail products.

There is no unified formula or ‘one-size-fits-for-all’ pricing strategy to improve dropshopping profit margin. At the end of the day, you will have to use your experience, expertise, research, and knowledge to find what works best for you.

The best strategies to follow are to improve your pricing and sell trending/winning products to make high-profit margins.