The True Cost
This is a documentation blog post following “Creating A Dropshipping Company in a Month”. See how I did it right here!
Create a Dropshipping Store They Said…It’ll Be Fun They Said…
Actually it is really a fun project creating a dropshipping store. Reading testimonials and articles from people who made six figures in only a year using this ECommerce model can really get someone with an entrepreneurial mindset excited to be their own boss. Then building the store and creating your own logo can put you on a natural high that can keep you up until 2Am. It doesn’t require a lot to get started, some heavy product research, a basic understanding of web design and creativity. Oh yeah and money. I am going to give you the real rundown (in my opinion) with a number I think it reasonable that you should be ready to invest in an ECommerce store.
It’s Cheap, Not Free
Like I said this entire process of creating a dropshipping store has been really exciting for me and every purchase I have made, whether it was a monthly plan or a watermark removal was a purchase I stand by. I see it as an investment towards self education. However if you’re thinking about starting a dropshipping store, beware of the advertised “START YOUR BUSINESS TODAY WITH $0”.
I have nothing against any of these YouTubers, some of the most helpful research I came across were the first two videos in this picture.
Technically, you can start dropshipping completely for free on day one. If you’re incredibly quick at navigating Shopify, okay with selling an average or subaverage product, don’t care about what your logo or domain name looks like and aren’t planning on advertising with social media marketing ads, then yes, for 14 days you could potentially be selling for free. In fact, the coolest part about this model is that you don’t have to buy inventory.
Your store advertises the product the same way the supplier does, then it’s a waiting game to receive an order from a customer. Once you’ve received an order from your customer at a marked-up price, you fulfill the order with your supplier, pay the supplier’s price and they ship the product directly to your customer while you keep the difference.
To put that into perspective, your store could offer this product listed on SPocket without purchasing any plan. List it on your store for $7.43 and only pay $3.25 giving you $4.18 profit for each sale (as long as S&H is covered by the customer).
So essentially you’re never in the hole with this model if you’re able to sell within those first 14 days. After day 14 on Shopify, you have to pick a plan. Their cheapest plan is $29/month. So to break even your store would have to sell 84 of these units a year. I am not saying this isn’t possible, I am sure there are stores that have done it. I am saying that realistically if you want to generate traffic to your website to increase sales, you’ll have to have a budget for ads and other expenses to make your store attractive.
So How Much?
I like to think I budgeted my store’s startup costs effectively given this is the first time starting a dropshipping company. Let’s take a look at the costs, shall we?
Most of these expenses are under $30 a month and you can even save a little more if you switch to annual payments instead of monthly. I chose monthly plans in case I decided in the future that I wanted to close my store.
What are these expenses?
- Shopify Store Plan: $29/month
- Spocket Membership Plan: $24/month
- Domain Purchase: $20/one-time-payment
- Logo Watermark Removal: $1 Whole Dollar/one-time-payment
- Marketing Ads: $100-$500/month
What do I get out of it?
- You don’t have a choice, you cannot run a store on Shopify without one of their plans so I chose the cheapest plan. With this plan, I get a basic point of sale (POS), eight free customizable web templates and site analytics.
- Without a Spocket membership, I would have had to reach out to suppliers, wait for verification, set up an account and fulfill orders directly with them, filling out and sending customer information and calculating shipping rates. This takes time and increases the chances of backing up or losing orders increasing the chances of bad reviews or lawsuits. Spocket automates the exact process I just described but only with a monthly plan.
- Purchasing a domain gives your store a professional feel. If you chose not to purchase a domain you’ll be asking your customers to “check out your site” that looks like yourstorename-myshopifystore.com. If you’re gonna do something, do it right and front the one-time-payment for an attractive domain.
- This is where I made the most out of a single dollar. Using Canva, you can create and customize an incredible logo incorporating any color code and choose from 1000’s of templates and designs. The best part is that if there’s a watermark on any of the designs you can remove it for a dollar bill. I was then able to make it my favicon to give the website a professional look.
- Save the bulk of your budget for ads. The first ad I created and ran was on Facebook and Instagram and it cost me $6 a day. That doesn’t seem like a lot but you have to remember no one knows your store exists unless you advertise. That $6 a day may not even get enough traffic to the site and I’ll be spending $42 a week on it.
What is The True Cost?
Before I get into what I personally think you should have saved and be ready to kiss goodbye if your store is unsuccessful, I would like to explain my thought process behind this number.
I launched my store on April 14th and this statistic was updated on April 19th. To be clear I had not published any ads at the time of this update. The traffic I drew to my site were friends and family I told about my site. In five days I generated over 100 visits to my site but according to Shopify’s data, I needed to get those numbers up to get my first 10 sales. I created an ad and launched it targeting almost every major coastal city because the pain point I am addressing is ocean cleanup. I am hoping to reach around 3600 people a day and get as much site traffic as possible. That being said at $6 a day for 30 days I am spending exactly $180 on marketing on just two platforms, Instagram and Facebook.
$29/ store
+
$24/supplier app
+
$20/domain
+
$1/logo
+
$180/ads
=$254 is what I’ve personally spent to start up my store.
That being said, you have to cover the initial price from your supplier for the product. I sell water bottles in my store for $23.95 and I don’t have access to that money until I’ve placed the order with my supplier who sells them to me for $17.00. Once the order goes through, Shopify deposits the $23.95 into my account leaving me with a net profit of $6.95. So to cover the initial investment I have to sell 37 of these units in my store.
Because you have to cover the initial cost of the product before being paid I would say to start an ECommerce store you’re going to need between $250-$400 depending on what you’re selling and how you market.
The reason I think $250-$400 is a good initial investment for a dropshipping store is because you don’t have to use the same supplier as I did. There are many out there such as Alibaba, ALiExpress and Oberlo and I don’t know what they charge their retailers. It could be more, it could be less. If it’s less than my initial investment, remember you still have to purchase the product from your supplier before receiving the money from your customer when an order is placed. So just make sure you have a budget to cover the first few purchases. A final piece of advice, the more research you do, the more money you will save!