How Much Money Do You Need To Start Dropshipping?
Updated: Oct 11, 2019
It's the Q4 of the year as of writing this. It's the favorite quarter of the year for e-commerce marketers as they get ready to ramp up their sales to end 2019 with a high.
If you are intending to start your Shopify dropshipping business but not yet to take action, I'll strongly encourage you to take action now as the easiest way to make money via e-commerce usually starts from October to December period (aka the Q4).
Halloween Season, BFCM (Black Friday, Cyber Monday), Christmas Season and New Year Season will be the time every e-commerce marketers will be crushing it. If you aren't going to take action, other people will take a piece of your pie instead.
With that being said, if you have decided to take action by creating your Shopify dropshipping store, you will be asking yourself how much do you really need to start dropshipping?
Starting a business is great, be it online or traditional brick & mortar business — till you realised you’ve run out budget.
Be it online or traditional brick & mortar business, starting a business is great — until all of a sudden, you just realised that you have run out of budget!
That’s one of the biggest reason why most start-ups fail.
And this applies to all businesses: you need money to make money, and if you don’t have the right amount of money, well — you’re screwed.
Luckily for you guys, I have taken the guesswork out for you by helping you guys with the expense budgeting for building a dropshipping store.
In this post, I will go through all of the expenses required when building up your store, by looking at three major areas in particular.
3 Major Expenses to Start:
When building a dropshipping store, there’s three major areas you’ll need to budget for.
Building your Shopify Store
Marketing your products
Money to purchase items
#1 Building Your Shopify Store
This is the most important expenses.
Without a store, you can’t run ads on Facebook or purchase items from suppliers. (Hell, you can’t even SELL!)
It is akin to not having a retail store for brick and mortar business.
Imagine having no retail space to run your restaurant — yeah, you get what i'm coming from.
Unlike traditional physical stores that cost thousands of dollars per month, in addition to utilities bills — you only need a relatively small portion of that cost.
In fact, with just $29, you can create a beautiful, professional, clean-looking store with Shopify and it offers you a 14 day free trial when you sign up. It’s well worth it.
There is little to no reason not to use Shopify. They are considered one of the BEST website builder for beginners (and even experts) because of just how simple and streamlined it is to use. They even have a 24 hour LIVE support to help you with every enquires that you will need about Shopify. Yes, I really meant EVERYTHING. (But hey, we paid for it)
And yes, you will also need a domain which you can easily buy from Shopify as cheap as $11, which also brings me on to the next issue.
You need a logo.
You’ll need a logo for your store brand and also to add to your website page. Of course, if you belong to one of those who have the natural talent in art, you could take it into your own hands and create one from scratch.
Unfortunately, ordinary folks like me aren't blessed with qualities to create amazing designs — but that’s okay! That is why sites like Fiverr exists.
For as little as $5, you can hire a freelance designer on Fiverr to create a logo for you. Don't worry about it as there are plenty of designers on Fiverr that offers $5 per logo design.
#2 Marketing your store and testing products
The bulk of your upfront capital (80%) would be going to testing products and marketing your products.
Why so much? You may ask!
Well, firstly there are two methods of driving traffic to your store. They are:
– Organic Traffic
– Paid Traffic
Organic Traffic, aka free traffic refers to strategies like optimizing your site for the Google algorithm to rank your store to the first page of Google when they key in a specific keywords related to your store.
Paid Traffic on the other hand, requires you to pay money to attract customers on site like Facebook, Instagram and Pinterest etc.
It's a no brainer that any experienced markets would definitely opt for Paid Traffic as you can see the results in a matter of days, probably even in a single day.
Free Traffic on the other hand, is slow. It takes a whole lot longer to organically send traffic to your store — especially as a beginner. Plus, there’s actually a learning curve involved, like learning SEO (Search Engine Optimization) and social media marketing (Bear in mind that you’re still learning how to build a store). Almost every apprentice that I personally taught under my wing who initially opt for free traffic eventually switched to paid traffic as the process is too slow for them to see results.
See those Google and Pinterest ads? All of them are paying them to show their ad at the top of your page.
I recommend running ads on Facebook or Pinterest (for fashion niche mainly) to different product in your store. Facebook is a gold mine for eCommerce stores, and probably the easiest way to advertise for beginners.
So how much you’re going to have pay money for ads? Well, that depends on how many products you’ll have to test.
I'll teach you the process of how testing your product is going to be like typically for a start.
Assuming that you are going to test 1 product. Each day you’ll spend $5 running ads on that product in your store. After those 4 days, if you made a loss, you kill the ad — then run ads to another product in your store for 4 days.
This varies for everyone but on average, it will approximately take you about 20 products to test until you’ve found a winner. So, if you do the math, each product “test” will cost $20 each:
$20 x 20 products = $400
This would be how much you will be spending on marketing alone. Sure, you will make a few sales here and there even though they turn out to be ”losers". But once you’ve made a PROFIT (making more than you spend) and found your “winner”, scaling up is the easy part.
So, your dropshipping start-up business should look like this at a bare minimum cost:
Creating your Shopify store / Monthly subscription: $29
Budget for ads: $400
#3 How much does it cost to buy a customer’s purchase?
You know, it always caught many people by surprise when they know that the money you receive from a purchase doesn't instantly lands in your bank account.
If you own a dropshipping store, you know your money actually arrives much later. This applies for other digital marketing areas as well, such as Affiliate Marketing.
Shopify uses two payment processors mainly:
When customers pay through Stripe, you will actually have to wait 7 days for them to process your funds. PayPal takes even longer — they are likely to hold your money as long as 3 weeks until they trust you. Consider yourself lucky if your country has Shopify Payments – your payout can be as fast as 3 days!
And please do not wait until you have received your payout and then start shipping the items out. Trust me, I actually came across a few people who did that due to cash flow problems and they ended up having multiple angry customers email support him for the refunds due to excessive waiting time.
From a customer’s perspective, we both know 7 days is super long for a store to DISPATCH our item, let alone have it delivered between 2 to 4 weeks.
So basically, after factoring into your start-up money on marketing and set-ups, please do ensure that you have set aside some additional money to purchase your products for your customers.
Because if you have nothing left to purchase the products customers buy, your business is as good as gone! That's the reason why you always hear so many people preached about the importance of having a good cash flow for your business!
One of the main reasons why so many business fail is because of poor cash flow issues. If you do not want to end up be one of them, be sure to prepare yourself by doing one of these things:
1) Have a credit card. Eventually you will get the money the customers paid you well in-advance of when your credit card payment will be due on it. Plus you’ll get bonuses too (such as free air miles, fuel savings discount and cash back rewards).
2) Have a debit card with $200-300 on it prepared in-advance to purchase the items from Aliexpress.
3) Get a part time job or stick to your full time job. (I mean, what other choices do you have? Every business needs capital to begin with. Even I began my journey by selling wine for a company first while starting up my affiliate marketing business back then.)
Overall, this means our start-up costs to start a dropshipping store amounts to roughly $500, with $200-300 in reserve cash. That works out to about $800.
So, do you think that’s a lot? Well before I finish this post, here are some simple takeaway.
Think about it. 20-25 years ago, people doesn't have the luxury of building an online store. There is no such thing as internet back then (even Jack Ma got slammed by his potential investors when he wanted to start internet business back then). Back in those days, people had to rent a physical store and pay thousands or even tens of thousands of dollars every month.
Besides money, that would’ve cost them a HUGE time sink getting people to manage the store.
To clean the store…
To close and open the store…
To get more people to assist in managing the store (which, indirectly would cost them more money)
And if their business doesn't work, they couldn't just simply cut off their rental contract terms just like how you could simply cut off your Shopify's subscription fee. And plus, they had inventories that could result in a massive loss if they just simply toss them away.
BUT all thanks to the technology age that we are currently living in today, starting a business is as simple as a few mouse clicks and a whole lot cheaper! Tell me, what other business that only requires you to fork out with less than $1000, and earn back a hundred times more with potential up to the millions?
That is how lucky we are. Being able to leverage on the internet entirely with a few clicks on the mouse and keyboard — from setting up a store to inventory to reaching out to potential customers at a worldwide level is something that is entirely impossible for a traditional retail store.
Appreciating and leveraging the resources you have now to build your store is something to consider, as it’s never been so easy to do so until the internet age.