Home eCommerce Blog The True Cost of Drop Shipping

The True Cost of Drop Shipping

Today I want to take away two things:

1. It's hard to make a lot of money with drop shipping and;

2. While drop shipping is a great way to get started, for most sellers, it should only be used as a short term stepping stone to eventually selling items bought at wholesale rates. 

The Lure of the Drop Ship Model 

At a glance, drop shipping offers the perfect solution to making money online: It reduces risk, eliminates the need for start-up capital and reduces your work load. Sounds perfect, right? Well, as with all good things in life, drop shipping has it's drawbacks. The most painful drawback is that products that you drop ship are more expensive than if you bought the same items at wholesale.

Are Drop Ship Surcharges a Scam? 

Because suppliers need to process orders and ship items on your behalf, they need to add a drop shipping surcharge to cover the time and cost involved. Does this make them scammers? No! As you know yourself, it takes time to process orders and ship items away and just like you, suppliers can't work for free, so the drop shipping surcharge is necessary.

Surcharges can make it hard to make sales, especially on eBay where price is everything to a lot of buyers. For this reason, I believe that drop shipping is a great way to get started but for the most part, it should be seen as a way to earn some cash to buy wholesale lots of items that you can sell for a better profit.

The Real Cost of Drop Shipping

I want to demonstrate the difference between drop ship prices and wholesale prices. I want you to see how much more you can profit when you invest in wholesale buying, rather than just drop shipping. To do so, I got in touch with a few SaleHoo suppliers and asked them the difference in pricing. I've listed a few examples below of products and their wholesale prices and their drop ship prices.  Check it out: 

Wholesale Electronics

From Enroute Global Exchange 

 

Remote controlled helicopter

 

Drop ship price: $39.41

Wholesale price: $29.97

Additional income from wholesale buying: +$9.44

Label maker

Drop ship price: $48.91

Wholesale price: $39.97

Additional income from wholesale buying: +$8.94

Radar laser detector

Drop ship price: $45.91

Wholesale price: $32.97

Additional income from wholesale buying: +$12.94

Wholesale Fashion 

From eFashion Wholesale

Ladies Ralph Lauren polo shirt

Drop ship price: $45.00

Wholesale price: $36.00

Additional income from wholesale buying: +$9

Kenneth Cole New York handbag

Drop ship price: $69.00

Wholesale price: $45.50

Additional income from wholesale buying: +23.50

Calvin Klein travel toiletry bag

Drop ship price: $27

Wholesale price: $12.35

Additional income from wholesale buying: + $14.65

Wholesale Computer Games

From Computer Gallery

Fallout 3: Game of the Year Edition

Drop ship price: $10.25

Wholesale price: $8.25

Additional income from wholesale buying: +$2

Sim City 4 Deluxe Edition

Drop ship price: 10.25

Wholesale price: $8.50

Additional income from wholesale buying: +$1.75

Civilization V: Game of the Year Edition

Drop ship price: $18.25

Wholesale price: $15.75

Additional income from wholesale buying:  +$2.50

As you can see, drop shipping can really eat into your profit margins. That's why I don't recommend the drop shipping method as a long-term approach to eCommerce. If you really want to make big profits, I cannot stress the importance of buying wholesale lots!

When Drop Shipping Does Work 

Of course, there are scenarios when drop shipping does work. For one, if you sell on your own website such as SaleHoo Stores your prices don't need to be as competitive as when you sell on marketplaces like eBay. Second, when you sell a good range of wholesale products and you want to offer your buyers a little more variety. Drop shipping allows you to offer a wider range of products, without having to take on the risk of buying wholesale lots of items you want to test out first.  

Do you source products by drop shipping or buying wholesale? Why?

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17 Comments Add your comment
Your also forgetting the price of shipping to get ranking at the top of Ebay you have to offer free shipping. I sell lot of things on Ebay but none are drop shipped. It also depends on the market up of the product some manufacturers tell you in order to sell there product you have to use there price guide lines or you won't be able to sell there items Reply
The comparison is simplistic. There is no mention of the extra shipping costs "both ways" for items bought at wholesale. Some drop shippers get volume discounts for shipping that are not available to the average Ebay Merchant and pass at least part of it on to their customers. At best, there are some additional packaging costs if you stock and ship your own merchandise. Reply
En realidad la compra al por mayor si que conviene , ya que podemos incrementar nuestras rentabilidad, en el caso de mi pais Argentina es muy difícil por las restricciones existentes, muy buen artículo , los felicito muchas Gracias un abrazo Sergio Zavalla Reply
Free Member
Thanks for the article. Now, what percentage markup is applied by wholesalers? For example, let's take the 'Remote controlled helicopter'. (Drop ship price: $39.41 , Wholesale price: $29.97) If this is being sold by wholesalers at, say $40, then drop shipping is not viable. However, if wholesalers are selling for $60, a 100% markup, then it would still be worth selling these via drop shipping at, say$50; leaving about $10 in near pure profit. Or not? Reply
I can see you can have more profits buying wholesale rather than dropship . Can you show examples of the profits after shipping costs for the items listed. Some items look like it's a break even proposition after shipping. Reply
very interesting this is good stuff,l have tried dropshipping programmes and tried to get a website running only to find out later l was so ripped off, l have also studied prices on ebay too and found you can't buy cheaper than what a lot of sellers are selling for so where's the excitement of running your own show anyway l will follow you a bit more now thanks eddie Reply
I am currently a drop shipper because I cannot afford to wholesale. Reply
Hello, Alice! The system dropship is still the best option for those who will start or is a novice seller. See wholesale buying for the future, when getting enough profits for purchases of larger lots. Or not longer be a dropshipper, but an e-commerce retailer. But anyway thanks for the article because there is a difference between good profits, depending on each product. And I think it very interesting! Thank you for the post! Reply
Very useful information to make note of. Reply
In many cases in order to get wholesale prices, you have to buy bulk quantities. This means you have to carry inventory, which costs money. This can be costly. Much more costly than drop shipping. As for fees, many companies do not charge a drop ship fee. Reply
While it is true that drop shipping in certain cases can eat into your profit, not all drop shippers charge for their service. It does take some research to find a good drop-shipper that does not charge for drop shipped orders, but they are out there. Even if a drop shipper does charge a small fee, it may be worth the trade off. The biggest problem with the drop ship supplier is low inventory on "Hot" items. You may list an item for sale that is not any longer in stock when you get an order. For this reason, selling on your own web site is an advantage. If you sell an item on eBay that you can't fulfill, you won't last long on eBay. Buying wholesale and stocking inventory does give you better control, but it has it's drawbacks too. With buying wholesale you will also have shipping cost to pay just to get it to your facility. This adds to the cost and can quickly eat up the difference between having the item drop shipped and shipping the item yourself. With buying wholesale you also have to do your own shipping. This means buying boxes, tape, shipping peanuts, shipping lables, etc. Not to mention the time it takes to package, run to the PO or UPS. If you do your homework and ask a lot of questions, both methods can be profitable. Wishing you success. Pete.... Reply
Free Member
You comment on a $10. Savings when buying wholesale lots which is significant, but what is the cost of wharehousing, insurance and capital on held inventory, handling and shipping. This doesn't cover the cost given or accounted for , with the ability to travel and have a smaller permanent foot print when drop shipping. I am still in the infant stage of my business plan, but am wondering if the extra ten dollars in expense may be justified in some business scenarios. For me, time will tell. Reply
Full Member
Yes agree with all above points the other danger with buying wholesale is even though it saves you money, but if that product suddenly stops selling you are stuck with the stock, where as with drop shipping is not your problem Reply
Free Member
I live in Hawaii. Dropshipping seems to be the only realistic way to go for me. If I buy wholesale, I have to pay shipping from the mainland to Hawaii and then when I sell something, pay to ship it back to the mainland from Hawaii. I am beginning to wonder if it is even worthwhile it try to do this from Hawaii. Reply
Dropshipping is the Best of all Business Have you ever used the words “drop ship” or “drop shipper” in a sentence before? These words have both become extremely popular in terms of the online business worlds. Why? There are now thousands of small e-commerce retail websites starting up each day that follow the stockless retail business model. However, Dropshipping is the Best of all Business in their process. There is a very strong relationship between dropshipping and doing work from home. In dropshipping a retailer can do the work from home if they are running an online business. With the dropshipping method a retailer or a seller can successfully work from home running the online business by opening a website which has all the details and images of the products are that are available. An online business retailer usually does work from home due to the low overheads and flexible working conditions. By running an online business using the dropshipping supply chain process the online business just needs to concentrate on attracting customers to order goods from the website. As the marketing increases, so too does the number of orders increase due to the growth of customers and profits will rise. By doing their work from home, the online business retailer has fewer overheads enabling the business to make more profit from the dropshipping business. With the dropshipping process the online business does not require any shop, any workers, any lighting or other major expenses, and they don't even require a warehouse to store the product. The online business can easily manage all the various aspects of the business by fulfilling his/her responsibilities all from a desk . There are lots of opportunities available with dropshipping, for example with the internet there is now better information on product description and the prices available with just a few clicks, and the latest product updates and availability are all available at wholesaler's online store. But getting success from dropshipping, you have to look for a company which will give you proper opportunity , Though it is very simple and easy way to make money home, some company will not give you proper opportunity. So you must be careful selecting a company. I know about a company who will give you better opportunity than any other dropshipping companies . It has not taken membership fee, dropship charge and there is not middleman . It supplies the products to your customer directly and is not any minimum order quantity ,It can be big or small . But in other dropshipping companies, you will not find such opportunities. Therefore, I strongly recommend you to get sign up in http://letusdropship.com Reply
I think it's unfair to say that buying wholesale always results in higher profits. As mentioned in some of the comments above, there are a lot of factors that you have to consider when making this argument. For instance, two shipping charges incurred before reaching the customer when you're buying wholesale versus just one when using a dropshipper. Also, consider the extra work and added responsibility that dropshipping takes off your back. You don't have to worry about packaging, shipping, lost or stolen items, etc... If and when your store grows very large, you'd have to hire staff to help you with these tasks and pay them hourly. With dropshipping this cost is factored into your dropshipping fees and remains relatively constant. I would recommend reading more about our guide on how to choose between going with a wholesaler or dropshipper to source your products here: http://www.dropshipcritic.com/whats-right-for-me.html Reply
Another reason for the higher prices for the dropship is the manufacturer and/or distributor take all the risk. They build/buy the products, store, warehouse and carry insurance for the product, ship, warranty and accept returns on the product. When I have dropshippers I must stock enough product for extremes, they might not sell 10 between all of them or sell 1,000s and I have to be able to ship next day or they complain that their customers are upset.Dropshippers have no skin the game as if my product isn't selling the best or they choose not to market it for whatever reason, I'm stuck with no sales and all the exposure. When a retailer gives me a PO for a set amount of units and have terms to pay for said product, I can figure my cost down tight and offer them a better price because there are way less variables. Plus I will cut deeper into my margin for someone who is willing to commit to the sales of my product by investing their money with the wholesale purchase. And for John the post above me, you don't even make any sense. That first shipping is almost always either comped because they bought a minimum amount of product to make my numbers work and all the reasons you listed as why people shouldn't wholesale doesn't go away because they don't do it. It means I have to do it for them. Now think about this because I'm going to stay in business no matter what; if you do those things listed in house you don't pay my overhead. You will pay for all of those things to happen and you will pay my overhead too, I guaranty it! Reply
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