Is There a Good Profit Margin When It Comes To Drop Shipping?

Drop shipping is a great business model. It allows you to make a profit without buying the products, shipping them out, etc. With all this said, the profit margins for drop shipping are slightly lower than the profits of buying wholesale products, marking them up, and selling them online. So what’s considered a good profit margin when it comes to drop shipping?

When buying products and selling them wholesale, profit margins could be anywhere from 30-50%. However, when it comes to drop shipping, any profit margin that’s 20% and up could be considered a good margin. There are many different factors that go into the bottom line when talking about both businesses including the cost of content creation, customer acquisition, storage costs, shipping fees and more.

In The rest of this blog post we’re going to dive into different ways you could improve the profit margin of your Drop Shipping business.

What Are Some Ways To Improve Your Profit Margins When It Comes To Your Drop Shipping Business?

We had the opportunity to speak with branding expert Allan Kerr, who is VP of Analytics at Design 1st and the man behind AllanKerr.ca. We had the opportunity to ask him what methods he’s used to higher profit margins when it comes to drop shipping. The example he used was his ability to help Kathy Corbett of Bloom Sexually, a drop shipping brand, increase their profit margins significantly with a few specific methods.

Allan worked along Kathy for a little while and he was able to come out with these takeaways from the experience.

We also were able to get the take of Ryan Turner, who is the founder of Ecommerceintelligence.com. Let’s dive into it.

Google Shopping Campaign for High Margin Products

The first method Allan mentioned was using Google Shopping Campaigns. The trick though, is only to use the Google Shopping Campaigns with the highest profit margin products. Using a tool like WooCommerce, they were able to connect the Bloom Sexually store with Google and optimize each high profit margin product for maximum success in the Google Shopping ads.

So instead of taking a promote anything approach, it could be a good idea to spend your money marketing and promoting the higher margin items first. In the case of Bloom Sexually, this was a very successful method which increased the businesses profit margins.

Optimize Product Pricing on Higher Margin Products

The second thing Allan mentioned was optimizing pricing on higher margin products. By taking the top 10 products in terms of profit margin, and comparing them to other places like Amazon, Walmart, and others, they were able to lower the price enough to be the cheapest, yet still maintain a high profit margin.

They also used a second tactic with their high profit items. They created promotions when two high margin products are bought together. By offering discounts when customers buy two premium products together, they were able to increase the order value and subsequently their profit margins.

Offer Free Shipping (After $50)

Another thing they realized is that when Bloom Sexually would have Black Friday deals, the free shipping limit would only be $25. Although this could definitely get a lot of customers in the door, it could also eat into profits pretty fast if you’re not paying close attention.

Because of this they increased the base cart limit from $25-$50. In return, the average individual order profit margin was increased quite significantly.

Content Marketing

If you’re an expert in the topic your business is in, I highly recommend you to write and share content. By doing this, you’ll be able to get free organic traffic to your store and increase the average order profit margin. You’ll be increasing your profit margin because you won’t have to spend money on customer acquisition or sales as much if you’re getting free visits from Google search. Let’s go over a quick content marketing strategy you could utilize:

Create Blog Content

Create blog content that answers questions for your audience. For example, if you have a drop shipping business in the fashion industry, creating blog content surrounding different articles of clothing could help you get leads to your business. One specific way you could do this is by finding underserved keywords for each product.

The key way to do this is by using keyword chef, which gives you question articles, best of articles, most articles, comparison articles, and idea articles using a score method of which ones are most underserved. They create a score for each article based on questions that are searched, but don’t have a lot of good results in SERP. They do this by filtering out keywords that rank on Quora, Reddit, and other forum communities. Writing complete articles on these topics will help you rank close to the top, because your resource will be more complete that the forums are (In most cases).

Take That Blog Content and Create Social Media Content

Social media content could also help you get eyeballs on your product. The very best place to promote your product is Pinterest because of the life span of the content. If you create a pin now, it can do well for a year or two.

You can also take the time to create communities on Instagram, and Twitter, but it’s going to take some time since the shelf life is not as long for this type of content.

Retarget Customers Once They Make a Purchase

The last thing you want to do is have to keep spending money to keep getting new customers in the door. It’s way more expensive doing that, than retargeting your existing customer.

Founder of EcommerceIntelligence.com, Ryan Turner recommends getting past customers into your email funnel, retargeting past customers with ads (more likely to make second purchase), and using SMS campaigns to keep them updated with weekly or monthly deals your business has to offer.

Ryan states that in order for this work, your product choice needs to be very niche. Every product should be closely related, and you need to have multiple products, otherwise re-targeting past customers could be a waste of time.

In Summary

If you implement the above strategies when it comes to your drop shipping business, you increase your chances of making a better profit margin.

I highly recommend following in their foot steps and A. utilize Google Shopping campaigns for high margin products, B. Optimize prices on higher margin products by comparing your prices to competition, C. Increasing the free shipping limit to $50 (particularly during Black Friday), D. Use content marketing to build a following and increase customer retention, and E. retarget past customers (which is cheaper than paying for new ones).