Not all products are created equal. Some items are great for drop shipping, while others fall flat on their proverbial faces. Let's face it, you need to minimize the compromising products in your inventory.
So how can you avoid a tragic failure in your drop shipping product line? That's what I want to talk to you about today.
What makes an item a bad drop shipping investment?
This is a short and sweet lesson because the answer to the question in bold is simple: low profit margins. This occurs when the money you make from each sale is too small in comparison to the money you spent getting the item sold.
Low profit margins are rampant in small and/or cheap items as well as products in a highly competitive field of merchants. You have to beware of wholesalers who will always undercut you on price.
Which items should you avoid?
It's one thing to be aware that there are items you should avoid, but another thing entirely to know what those things are. Here is a brief list of items you need to keep out of your listings.
iPods and Other Apple products
Apple products are extremely popular, and they certainly seem like a legitimate product to consider for drop shipping. Unfortunately, the requirements to source them wholesale prohibit most potential sellers from participation.
To sell Apple products you need to fill out an application on Apple's website, meet an annual gross of more than USD $100,000 in products purchased, and provide two business references. That's just for starters. There are additional requisites listed on Apple's website for those intrepid enough to try this anyway.
Though you can't legitimately source iPhones, iPods, or iPads wholesale through anywhere but the company itself, you can wholesale Apple accessories through a number of suppliers. Even if you can get in touch with a certified Apple technology supplier (as I did when researching for this newsletter), the margins for selling these products are extremely low, and the MOQs make selling extremely cost prohibitive.
The supplier I contacted let me know that a 16 GB, second-generation iPad went for a price per unit of $270, with an MOQ of 20 pieces. That means you would need to spend more than $5,000 just to get your hands on the inventory. This would be particularly tricky for a drop shipper who was looking to pay with money from an online buyer.
After all, who wants to buy 20 iPads from a middleman? Prospective retailers could approach the supplier just as easily as you, store their inventory and then sell them individually. Putting a drop shipper in the sales chain just cuts away from their final profits. For that reason, not many people are willing to buy bulk orders of Apple products from drop shippers anyway.
Small/cheap items
Small and/or cheap items are also counterproductive to your profitability. Anything that retails at $5-10 is worth so little that it's impossible to make more than a few dollars per sale on each item.
That means you'd be putting in a lot of effort of very little profit, and that's only if you're lucky. Chances are, selling such low-cost items would put you at negative profit margins, also known as losing money for every sale you make. This isn't exactly a sustainable business model.
Smartphones
Smartphones are expensive, easily damaged, and often an object of supplier scams due to their popularity. One top of all that, they generally have low profit margins because of the high levels of competition that pervade in the market.
Another supplier I contacted priced a Samsung Galaxy S4 at an average of $510. That's a wholesale price! The MOQ? 30 pieces. That's more than $15,000. Talk about cost prohibitive.
DVDs and CDs
Beyond having low profit margins, many people just give the data contained on DVDs and CDs out for free as digital downloads. And those that don't, are more often than not, available for illegally pirated download.
There just aren't a lot of people buying DVDs and CDs in the world today, especially not online. Even if they were, the profit margins are so abysmal that you wouldn't really want to waste your time.
Just take a look at that. 100 DVDs for just shy of $70. This is a great deal, if you're running a Blockbuster in 1999. Nowadays, I'll take something that streams in 1080p for the price of zero dollars over these "spectacular savings" any day of the week.
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