The initial goal for any business venture is usually to make a profit and the dropshipping business model is no different. Still, it’s important to understand that profitability isn’t the end goal. Rather, competing for above-average dropship profit margins should be your focus. As an online store, you need to find a way to make a consistent profit to succeed.

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What Is a Profit Margin?

The Profit Margin is the percentage of the total revenue that’s left after all expenses, costs and taxes have been deducted. It’s what you make as a profit on each dollar of sales.

 

Why Is Profit Margin Important for Dropshipping?

Dropship profit margins are important because they show you how much your online business is making and will indicate if there are any pricing errors that you need to address. 

 

Assessing Profit  Margins will Show you the Following:

• Your store’s performance vs. your competition’s performance
• The stability of your business
• How well you manage your expenses
• The effectiveness of your pricing strategy
• The potential for your store to get investors, etc.

 

What’s the Average Profit Margin Range for a Dropshipping Businesses?

It falls anywhere between 15-20% on average. With that said, it’s possible to get less or more than this average dropshipping profit margin depending on your niche as well as the average cost of your products. Some products can provide over 200% profit margins. The trick is to identify profitable dropshipping products as described below.

 

How to Calculate Your Dropshipping Profit Margins

There is a simple formula used to calculate profit margins:

Profit Margin = (Total Sales – Total Expenses) / Total Sales

This formula caters to each product that you sell in your store and not all products together. Practically, it means that you subtract the sum of expenses from the sum of revenues and then divide this number by the sum of expenses.

 

Factors to Be Considered When Calculating Dropshipping Profit Margin

These factors are also elements that play a role in the product journey and they include:

• Advertising costs
• Operating expenses
• Shipping costs

Types of Products and Their Profit Margins

There are two types of dropshipping products. The low-profit margin products and the high-profit margin products.

a. Low-Profit Margin Products

Engaging in low-profit margins may not sound like an exciting venture; however, there is an art behind this approach. The secret is in the number or volume of sales. You make up for the low margins by selling a high volume of your products.

 For instance, if you have a margin of 10%, it will make great business sense if you sell about 400-500 orders a month. This is comparable to online dropshipping stores that sell at high-profit margins a few products per month.

 

Examples

Low dropshipping profit margins products include inexpensive items that are often on a daily or regular demand such as baby food, household consumables, hygiene products, etc.

Source: Amazon

 

Pros of Low-Profit Margin Products

Higher Traffic – with a good advertising strategy you can get sufficient exposure, traffic, and sales both for regular prices and discounted prices. Often because most of these products do not cost very much.

More Sales – a small discount can get customers rushing for the bargain especially when they are considering bundles of products rather than per piece purchase.

Increased Turnover – as an online store you will rarely have a slow period lasting for a long time because the products are constantly moving thanks to their regular consumption nature.

 

Cons of Low-Profit Margin Products

Marketing costs – running a marketing campaign for discounted items on products that are already offering slim margins can be hectic.

Meeting customers’ expectations – when you’re regularly offering discounted prices, customers might get attached to the trend. And make it difficult for your store to make any sales at a higher price level.

The Question on Quality – When you’re constantly offering discounted prices, your customers may start doubting the quality of your products. It is important to strike a balance.

 

Low-Profit Margin Products Best Practices

Sell by packs – one of the easiest ways to make a profit when selling low-margin products is to sell them by packs or small wholesale packs. That way even when discounting, you will discount per pack rather than per item.

Offer them in bundles – this is another best practice to ensure you stay in business. Cluster your products in bundles that function together. For instance, when selling roller-skates accessories, you can cluster the elbow and knee pads plus gloves together as a bundle.

 

b. High-Profit Margin Products

These are products that leave you with high net profits. For instance, you can buy the product at $10, but sell it for $70 or more. These products have a high return for a very small investment.

 

Examples

Some products that would easily give you high dropship profit margins include jewelry, beauty products, some electronic accessories among others. These are products with a wide variety and you can always have something to offer a customer.

Source: Ebay

 

Pros of High-Profit Margin Products

• Most of these items are often easy to sell, for example, beauty products sell easily.
• They are often easy to market and showcase e.g. jewelry.
• Their demand may last year-round.
• Most of them may offer sub-niches to enter into, e.g. electronic accessories; you may deal with mobile phone accessories, car radio accessories, computer accessories, etc.

 

Cons of High-Profit Margin Products

• The competition among dropshipping products with high-profit margins is always very harsh.
• More advertising is usually needed thanks to the high competition, especially from the big brands.

 

High-Profit Margin Products Best Practices

• The first best practice when dealing with high-profit margin dropshipping products is to know exactly the profit margin for each specific item.
• Adjust your retail pricing based on each of the above individual profit margins.
• Know how much it will cost you to acquire an individual customer.

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How to Improve Your Dropshipping Profit Margins

There are several ways you can maximize your dropship profits margins. Here are some quick tips that double up as best practices:

 

1. Check Various Selling Platforms

You need to leverage the weaknesses of the market. Check the different platforms such as Amazon, eBay, Alibaba, and the rest to check on how they are leveling the competition and you can take advantage of whatever void that could have been left out. 

Going through customer reviews will also give you insights into unique customer needs that you can use to rise above the competition.

 

2. Find Unique but Lucrative Products

You don’t want to sell what everyone else is selling. This will do nothing for your unique selling point. Find something unique that will help you stand out as a dropshipping retailer.

 

3. Get into a Niche

Another best practice to improve your dropshipping profit margin is to niche your inventory and get identified with it. This way you will create a name for yourself and make it easy to compete with other sellers.

Source: Thenicheguru

1. Keep Up with the Trending Products List

Ecommerce can be quite volatile and unpredictable. Things are regularly changing and therefore you need to stay up-to-speed with what’s happening within your niche. This emphasizes why you need to narrow down your niche, it helps when you have to keep adjusting your pricing strategies as well as other product dynamics. 

When you see a new product in your niche that has good potential, you can seize that chance and make a kill.

 

2. Avoid Back Orders

This is every dropshipper’s nightmare. A backorder happens when your sole supplier runs out of stock for the selected item and you have nothing to ship to your customer (who is waiting). Plus, plenty of explanations to provide. And it makes you lose credibility. That’s why you need to have more than one supplier whenever possible.

 

3. Cross-sell and Up-sell

These two play well into increasing the value of a customer. Cross-selling means selling a different product to an existing customer. For example, if a customer is buying a camera, then you sell them a memory stick to be used with the camera, then another lens. 

Upselling on the other hand means persuading the customer to buy an upgrade or premium variation of what they wanted to buy. These two methods easily work since the customer has already shown interest and therefore easier to get them to spend a little more.

 

4. Pick Wisely Your Suppliers

Besides avoiding issues such as backorders, it’s necessary to wisely pick your suppliers in order to boost your dropshipping profit margin. 

One reason for this is to get the best price for you to offer the most competitive retail price to your customers. 

The second reason why this is crucial is to ensure your supplier has access to more than one producer of the product to avoid backorders.

 

How to Find Profitable Products to Dropship

 

 

Some products are more profitable and more sellable than others. Here is how to pick your products for a higher dropshipping profit margin:

1. Pick Passion Products

Most often people are more likely to pay attention to products that belong to their area of interest. Products that are related to their passions appeal faster to them. 

For example, pet products, photography products, computer games products are considered passion products because they relate to deep interests and personal pleasure. 

2. WOW Factor Products

Differentiation plays a huge role in sales. As such, products with attention-grabbing features or particular qualities sell easier and faster than common products. Think of the last time you saw a product and thought “look … how cool is that” – you just identified a  Wow factor product. 

3. Products with Varying Styles

Products that come in various styles, sizes, and designs tend to sell better especially when they are customizable. This means each customer will feel that what they have gotten is unique and personalized to them. 

Take for example a rug. If customers can get a rug cut to fit their space or with the possibility of having colors that match the rest of their home, then it will definitely be easier to sell this than a rigid product.

4. Unique Products

Some products are so unique that a customer will be more than willing to wait as long as they can to get it. An example of this type of product is lighting. Think of a unique chandelier. You can take advantage of the uniqueness to level up your pricing strategy.

5. Know Your Customers

No matter the product you choose, it won’t be profitable unless you have clearly understood your customers. Get to know their preferences and identify the product categories that have greater selling potential based on your research findings.

 

Conclusion

Dropshipping has been changing the eCommerce industry a delivery at a time. And this definitive guide shows how to increase your dropshipping profit margin so you can reap the benefits.

To obtain an edge on the competition, leverage the Sell The Trend solution, and you will get all the resources you need for dropshipping. 

You will learn more about the dropshipping products with high-profit margins and get help with all your dropshipping work from page creation and order fulfillment to ad creation and market analysis. The only remaining thing for you to do is engage your creativity in researching the next high-profit margin dropshipping product. Sign up for the free trial and scale up your dropshipping business.

Winning Product Fridays Episode 115 brings you another hot product that tons of stores are selling in September. This Compact Jewelry Organizer has around $395k in sales. The average product cost is less than $2 and the selling price is $31. That’s a $29 profit margin. The profit margin is the wow factor itself for dropshippers.

Why This Product?

Jewelry is a hot and trending niche, and this jewelry organizer covers a wide array of audiences. Be it a 13-year-old teenager or a young college girl, this product has that wow factor to attract more audience. It is available in 4 different colors (except partitions) and the sales are booming in the last 2-3 weeks.

The product isn’t saturated yet and has enormous potential in the next few months.

The sleek design, quality leather, storage space, multiple partitions, and hangers make it an obvious choice for young women. Women love organizing their necklaces, rings, earrings, and bracelets.

It can also be an excellent gift for someone special.

Add This Stylish Travel Jewelry Box to Your Store

This product was last added to a Shopify store only 3 days ago and it’s still bringing in enormous sales on daily basis. The product already has a good number of orders with a 4.8 EXCELLENT product insight rating and the sales chart keeps rising (daily!).

There are over 500 orders in few days and the numbers are still increasing. The product is selling in 17 stores only and isn’t overly saturated yet.

Go grab this product and add this to your store with our one-click Push To Store Feature!

Pro Tip: Create engaging video ads and upscale your dropshipping game with Sell The Trend’s Facebook Masterclass course here https://www.SellTheTrend.com/facebookcourse.

Find More Winners in the Members Area

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There’s been quite a talk lately about dropshipping businesses. Almost every young entrepreneur, influencer, and digital marketer want to build a Shopify dropshipping empire and earn passive income – a six-figure passive income!

Unfortunately, as appealing as it seems, almost 90% dropshippers fail in the first month because their product isn’t making enough money. The reason can be anything – from wrong niche selection, lack of patience, delayed shipping, to inconsistency.

We came across some of the best dropshipping stores (most of them subscribers at Sell The Trend) that excelled greatly and made hundreds of dollars following an effective plan and execution.

Sell The Trend presents, the best dropshipping store bi-weekly “SPOTLIGHT” where we’ll be reviewing winning dropshipping stores that you must follow to make your dropshipping business a success.

This blog series is intended to be an inspiration and guidance for novice dropshippers who are just starting.

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What Defines a “Top Dropshipping Store”?

Dropshipping success requires patience. You can’t expect to be successful overnight, nor does success in dropshipping come by chance.

The stores we select in our bi-weekly spotlight all have a unique selling point (USP) that defines them.  The earning comes later! They have something that others don’t – even in the same niche.

A unique selling point can be outstanding product photography, unique font selection, eye-catching landing pages, and untapped products.

The best part is, a successful dropshipping store with a USP doesn’t look like a dropshipping store at all. It’s a vibe!

Before you get started, put your passion into it (maybe your signature design) and you’ll be surprised by the audience’s response to your dropshipping business.  

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Some other things that define a top dropshipping store include good SEO and social media following. 

This Week’s Spotlight: Wayfair

Wayfair is one of the biggest e-commerce marketplaces that runs on the dropship model. That means all customer orders are sent to the manufacturer or supplier’s warehouse where they prepare, pack, and then ship the order to the end customer.

Why is it one of the biggest dropshipping stores online? Well, you’d be surprised that it has over 14 million products. You heard that right!

While you and I are looking for that one winning product to sell online, they’re managing 14 million products that are being dropshipped.

How do they do that? Who are their suppliers? How did they start? What are their key strategies? What if I want to sell my products on Wayfair?

Keep following and I’ll try my best to answer each possible question about this top dropshipping store.

Wayfair: A Brief Introduction

Wayfair is an American dropshipping company that was founded in 2002 by Niraj Shah and Steve Conine. It was formerly called CSN Stores.

They have over 14 million products listed that come from 11,000 global suppliers. The headquarter of this e-commerce beast is in Boston, Massachusetts. However, they have offices based throughout the USA, UK, Canada, Germany, and Ireland.

Currently, Wayfair is operating 5 major branded retail websites: Joss & Main, Birch Lane, Perigold, AllModern, and the WayFair main website.

Wayfair’s Niche

Wayfair is your online home store to buy furniture, lighting, cookware, and more. It started as a furniture store, later, more niches were added including kitchen, baby & kids, renovation, outdoor, pet, appliances, rugs, and more.

Wayfair completely reinvented the way people shop online – especially furniture.

If you have ever searched for furniture online, you have most likely come across Wayfair. That explains why it’s a giant home store.

A simple search of “bed” on Wayfair yields over 50,000 results.

You can further filter the results by color, size, material, box spring requirements, and bed type.

Similarly, a simple search of “teacups” gets you 48,000+ results.

People who visit Wayfair to buy furniture, kitchenware, appliances, home décor, or anything else, are likely to buy more than they expected.

In a nutshell, Wayfair is not limited to the furniture niche in 2021. In fact, it has everything you’d need inside your house – be it for kitchen, bathroom, outdoor, or bedroom.

Though they’ve been operational for more than a decade, the recent COVID-19 crisis further bloomed the Wayfair store when people started buying more online.

According to an online survey, more than 20% of people said they bought from Wayfair for the first time in 2020.

That’s a 21% increase in their customer base in COVID-19 crisis. Don’t forget that these numbers are taken just from a single social media platform. 

Moreover, one can always find hundreds of items on sale on Wayfair.

Can You Work on Furniture Niche in 2021?

I do not recommend selecting a furniture niche (as a whole) in 2021. The market is extremely saturated and if you’re a starter, it’s impossible to survive without huge marketing budgets and product fulfillment.

Wayfair started this at the beginning of the dropshipping business model era. They started with a few products and eventually ended up with the 14 million products listed today.

However, there are still some attractive opportunities and you can get some useful product ideas from their store.

For example, these “Sofa Slipcovers” are trending these days and you’ll see dedicated slipcovers Shopify stores.

Similarly, go through different products manually at Wayfair and check how many Shopify stores are selling these products, find Facebook Ads, and check audience response.

A similar product was also picked up by Sell The Trend’s Nexus AI product research machine:

You see, the product cost is $18 and selling price is $64.95. The profit margin here is more than $40.

If we compare the prices with the Wayfair listing, there isn’t much difference.

Need help with your niche research? Find profitable dropshipping niches with Sell The Trend’s AI product research. You can also sign up for 7-Day Free Trial.

Who Are Their Suppliers?

It seems unreal dropshipping over 14 million products on a single store, isn’t it? How does Wayfair do it? Who are their suppliers?

Their inventory is managed by thousands of suppliers across the globe. Their suppliers are general furniture and home décor manufacturers, suppliers, and even resellers. The product owners/manufacturers ship 95% of the orders.

These also include Amazon, eBay, and AliExpress sellers who have signed up for the Wayfair dropship program.

Furniture, lighting, renovation, outdoor, and appliances suppliers/manufacturers can simply sign up on Wayfair as a supplier and list their products.

It is a simple 3-step process:

• Sign up
• Add products
• Sell & ship

With 14 billion in sales, thousands of suppliers are making thousands of dollars just by listing their products to Wayfair’s loyal customer base.

Wayfair is so dominant that suppliers reach out to them now – not the other way around.

But how do starter dropship businesses find reliable suppliers? Starter businesses typically must find and test different suppliers before they find some reliable ones.

I always recommend ordering from different suppliers before you list the product in your store. This way, you can determine the product quality, delivery time, product packaging, and make an informed decision.

Learn more about the 1200+ suppliers on Sell The Trend. Each product you find on Sell The Trend also comes with a list of quality suppliers.

Just click on the supplier option and you’ll be redirected to their listing on AliExpress.

Why are they successful?

Their success lies in the huge inventory, fast shipping, free membership for suppliers, and minimalistic store design.

Huge Inventory

With millions of products, Wayfair covers a vast audience. They have any to everything people need inside a house.

This gives them an edge over other home stores, and they retain most of their current customers. They have now 31+ million customers – and the number is increasing rapidly. This fast-growing and loyal customer base is the key reason for their success.

Free Membership for Suppliers

Wayfair gives an easy way for suppliers and manufacturers to sell online. With the huge customer base and free membership, hundreds of suppliers join Wayfair dropship every month.

Their customers, products, and suppliers are increasing at a rapid pace. 

It is the primary selling source of many furniture manufacturers in the US. 

Store Design

I didn’t have any problem while navigating through the Wayfair home store. It was as if I’m browsing a small e-commerce store. When I searched for “Bed”, it showed me the best options along with prominent filters, number of total results, pricing, and shipping information. That was a good start!

Moreover, the home page is pretty basic yet attractive.

They always have some offer displaying at top of the page. Whether it’s free shipping, 70% off, or maybe an off-season sale, they never fail to bring the news to their customers.

Moreover, they have a separate “Sale” page that brings in enormous sales.

Value Proposition?

The three main value propositions of Wayfair dropship home store include accessibility, customization, and brand. Customers are always satisfied with their purchases and their furniture assembly is top-notch as well.

The main Wayfair websites offer a wide range of options, thousands of suppliers, and product experience.

They also have other websites for a more personalized buying experience depending on the shopping habits, easy browsing, and personal preferences. Their 5 main brands are:

• Wayfair.com: The main home store with a wide range of options.
• Allmodern: Another home store to buy modern house décor and furniture.
• Joss & Main: Focused on home décor and offers discount and sales on various products.
• Birch Lane: Offers classic farmhouse, and traditional home décor, and unique furnishings.
• DwellStudio: An online home décor store focused on fashion-forward home décor.

In a nutshell, Wayfair is now a strong and large home store brand in the U.S.

Specific strategies or practices unique to niche or industry

Wayfair solely operates online. There is no physical outlet. It has its five brands unique to the niche that provide a more personalized experience to customers.

As mobile searches are increasing day by day, they also launched their mobile apps for Wayfair.com in 2014 and Joss & Main in 2012.

Wayfair always stays up to date with the furniture industry and marketing trends and never misses an opportunity to grab more customers.

They utilized the COVID-19 crisis, did aggressive marketing, eye-catching sales, and got a lot of customers – even when the whole world was collapsing.

Cost Structure

The cost structure of Wayfair is like any other dropshipping platform out there. They try to minimize the expenses by keeping everything online, use automated tools to save time and labor costs, and do not handle inventory at all.

They mostly ship directly from supplier to customer.

The primary expenses of Wayfair group are the marketing expenses. Even now, they spend a lot on reaching more new customers and retaining the current customers by email marketing, newsletters, and other means.  

Retaining old customers is one of the key factors of a successful dropshipping store – especially if you have a micro-niche store.

Considering their huge customer base and high traffic, Wayfair also earns revenue from advertisements on their website.

Present Day Update

How much are they worth? What is their estimated annual revenue/profits?

Wayfair is the biggest online home store in the U.S. It has generated 14.8 billion in the past 12 months – ending in June 2021. Its headquarters in Boston, Massachusetts, and other operation offices in North America, Europe, and Germany employ over 16,000 people.

The operating income of Wayfair is $360.3 million, and the total assets of brands are worth $4.570 billion.

Learn more about Wayfair’s quarterly net income of 2020 and 2021 here.

Conclusion

Wayfair is the biggest dropshipping success we’ve ever seen. The enormous product range, personalized brands, and huge customer base – the numbers are just unreal.

Think your store is one of the best? Contact Us and let us have a look at your store. Maybe your dropshipping business can be our next dropshipping spotlight.

Keep following and we will cover more successful dropshipping businesses for you.

And if you want to build your dropshipping empire, Sell The Trend can help! Sign up now and get a 7—day free trial. Our subscriptions also come with a free in-depth dropshipping course.

 

In this video we are going to use our new A.I. Supplier List feature to generate a big list of suppliers using advanced machine learning tech. This new list will allow us to find a supplier for our product with better price and shipping options.

Check out the full video on our youtube channel

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