What you can realistically make all boils down to your profit margins and sales volume.  

Over the years, I have learned so many things about dropshipping that beginners may not immediately see as a challenge. These are the things that I will share with you today as far as dropshipping salary goes.  

I will discuss:

• Profitability of dropshipping
• Best dropshipping pricing strategies
• How to build profits with dropshipping
• Important things to know before dropshipping to reduce failure

In the end, I am confident that you will approach your dropshipping business the right way—as a retail business ready to compete with other dropshippers. 

Key Takeaways: 

• Building a reputation is more important than spending thousands on ads
• It is not a wise approach to lower your prices even at a loss just to make sales
• It is not true that the only money you need to succeed in your Shopify rent or subscription

Let us start!

Profitability of Dropshipping Explained: Best Profit Margin

What is a profit margin? 

Profit margin is the amount of money you earn on top of the capital of the item you sell. The two main types are the gross margin and the net. 

Gross margin refers to the overall amount of money you put on top of the cost of goods sold or COGS. For example, if the cost of an item from your supplier is $8, and you sold it for $15, your gross margin is $7. 

As a percentage value, your gross profit margin is ($7 divided by $8) x 100 = 87.5%.

Net margin represents the percentage of profit after paying all your expenses, including your taxes. In our example, let us say that we sold 100 units. Our gross revenue is $15 x 100 = $1,500

Here are our expenses: 

• Shopify subscription = $25
• COGS = 100 units x $8 each = $800
• Tax = $150

The total expense is $975. Since our revenue is $1,500, the remaining money we have, or net margin, is $525. 

The percentage value of the gross profit margin is ($525 divided by $1,500) x 100 = 35%. I can say that 35% is a healthy margin, as most experts say that the ideal profit margin for dropshipping is at least 10%. 

For more details about profit margin, I recommend that you read our tutorial: Dropshipping Profit Margin: What Is It and Why Does It Matter?

4 Best Dropshipping Pricing Strategies

It is important to note that dropshipping is a retail business, without the inventory. As such, the best pricing strategies for dropshipping are the same ones with traditional retail. 

The best dropshipping pricing strategies are: 

• Value-based Pricing
• Cost Plus Pricing 
• Economy Pricing 
• Penetration Pricing

Let us look at each of them. 

1. Value-based Pricing

Value-based pricing means you will put a price on your product based on what you think customers are willing to pay for it. To know what customers are willing to pay, look for an item:

• That is selling at a regular price
• That has lots of sales
• That has positive reviews. 

Here is an example that I took from Amazon: 

As you can see, customers are willing to pay $49.99 for this small drone, and many of them are happy with it based on the 19,417 feedback ratings.

In value-based pricing, you must make sure that your price is higher than your production and operating costs. However, you do not need to take not account what other sellers are selling the item for.

2. Cost Plus Pricing 

Cost-plus pricing is an approach where your final selling price depends on your production costs. It is best used in print-on-demand dropshipping. In addition, you will add profit based on your desired profit margin.  

Here is an example product:

The cost of this product, including the print, is $16.34. If I want a profit margin of 50%, then I will get 50% of $16.34, which is $8.17. 

My selling price is going to be $16.34 + $8.17 = $24.51.

Cost-plus pricing is the best approach if you sell unique goods. You can price your products based on your ideal profit margin with little worries about competition because your products are not found anywhere else. 

3. Economy Pricing 

Economy pricing is a business strategy where you sell items at a low price, even if it means reducing the quality of the product. It is the best pricing strategy for dropshippers who want to target the “masses.” 

The fashion industry is notoriously known for this—you can sell clothing for less than $10, but then these items are not of high quality. Economy pricing is also common in electronics accessories or toys and trinkets, such as the one below. 

Economy pricing is too competitive. In the worst-case scenario, you may even compete against your supplier. On the other hand, economy pricing works best for many dropshippers who operate a general store. 

4. Penetration Pricing

The last best pricing method I can recommend is one where you set low prices at the start of your business. This approach works if your dropshipping store is new and nobody knows your brand yet.  

Once your company gains traction, you can raise your prices and make more money. Typically, you want to use penetration pricing if you want people to try your product first, such as a private-label or white-label lipstick.  

Summary: There are several ways to price your products in dropshipping. The one thing to ensure is that you do not sell your products at a loss (loss leader pricing). While this may sound like a good idea, it is not the best approach to dropshipping as you will not make money.

How Soon Can You Make Money from Dropshipping?

You can make money from dropshipping in as little as a day after opening your store. However, this is rather an exception, not the rule. 

In my experience, I have seen many people take at least three months before they make their first sale. Why does it take so long and what can you do to earn faster?   

While it is easy to build a store, you need to remember that a dropshipping store is not a physical store. If you build a physical establishment, people see your store right away, and their curiosity will bring them in.

Online, nobody knows about you, and they will not find your website unless you bring it to them. Below are some of my tips on how to make a sale from dropshipping quickly.

1. Know your customers

You must understand what your customers need and want. Essentially, you want to know their pain point, and then sell your items by presenting them as the solution to the problem. 

Many dropshippers fail at this. They merely select products that they think are cute or nice, but they do not take into account what their customers want. Because of this, they cannot see beyond their perceptions.

2. Create a sales funnel

A sales funnel is a process where you take your customer to each stage of the buying journey. The typical sales funnel goes this way: 

1. Attention – you let the people become aware that your products exist.
2. Interest – you create curiosity by telling people what your product can do or how it can help them
3. Desire – you make your products desirable, and you can do this by offering it on sale, or by giving a unique value proposition. 
4. Action – you convince the site visitor to take action now, like signing up for an email subscription or making a purchase. 

This technique is what we call AIDA, a common approach to copywriting and selling that has been around for decades. 

3. Use social media

Advertising is the most common approach that dropshippers take. However, advertising is costly, and you will stop generating traffic once your marketing budget is depleted.  

My recommendation is to create social media channels and post things that help people. build a community around your brand. The goal is to make people see you as a reliable provider of knowledge. 

Do this, and you can easily build credibility. For example, you can create videos of make-up tutorials and post them on TikTok. If your followers ask what lipstick you use, give them the link to your dropshipping store. 

This approach takes more time and is much more difficult to do. However, your content is yours and it will stay online forever. The viral videos you make will continue to generate traffic for years to come.

4. Use the best sales tactics

Sales tactics refer to several things, including the psychology of buyers. Some of the most common approaches are: 

• FOMO – fear of missing out; reduce the price of your goods but only for a limited time. This way, the customer has to act now.  
• Bundling – group products in three and sell the entire bundle for a lower price than if the customer bought them individually. It is a good offer because the customer can save a lot of money. 
• Freebies – offer free items that will not hurt your profitability, such as small trinkets. if the business model allows it, you can also offer free shipping. 

Sales tactics are best used one at a time, not all at the same time. If you do them all in one go, your customers will only feel frustrated. They will also be likely to dilly-dally, get paralyzed mentally and emotionally, and end up not making a purchase. 

Summary: Dropshipping is hard. While it is easy to build a store, getting customers to notice you and come to your store is difficult, let alone making a sale. To make sales quickly, you must approach your marketing the right way, have a plan, and then execute without fail.

How to Build Profits with Dropshipping

Adding dollars on top of your capital is profit. However, it is not enough to go by that principle. There are ways by which you can increase your profits in dropshipping, and that is what we will discuss in this section. 

The four best methods to build profits with dropshipping are: 

• Increase Your Average Order Value
• Decrease Your Business Costs
• Penetrate New Markets
• Reduce Price But Increase Volume  

Let us discuss each of them.

1. Increase Your Average Order Value

Order value is what your customer er paid without the shipping cost. The average order value, or AOV, is the average that customers pay for transactions.

Here is an example: 

• Customer 1: Paid $45
• Customer 2: Paid $62
• Customer 3: Paid $27

To get the AOV, add all the amounts and divide them by three (three transactions). In this case, the AOV is $44.67. From this number, we can say that each transaction that a customer makes is around $44.

To increase our profit, we must increase the AOV. Let us say that we want the customer to spend at least $60 per transaction. Doing this will increase our revenue. 

There are several approaches you can use to increase AOV. For example, you can bundle products. You will sell the bundle at a lower cost, but then you will also sell more items instead of just having customers buy only one product at a time.   

2. Decrease Your Business Costs

The most common practice in making a business profitable is by reducing expenses. The same thing goes with personal finance and dropshipping. 

For example, those who operate physical businesses will turn off the A/C in rooms that are not in use. In dropshipping, most of your costs are online. 

Here are some examples of business costs you can reduce in dropshipping: 

• Advertising costs
• Marketing production costs
• Cost of refunding customers due to bad suppliers 
• Website maintenance costs
• Employee costs
• Cost of apps

Dropshippers usually spend a ton of money on applications that are not important. Many of these are merely bells and whistles, which you do not need right now. 

3. Penetrate New Markets

The next way to build profit with dropshipping is by increasing your market presence. It is a good idea to first sell in two countries only. This way, you are in control of your strategies, shipping costs, etc. 

As you go along, these markets will become established—all processes are in place. The next logical step is to sell to other countries. A good approach is to penetrate a new market close to your current one. 

For example, if your current markets are Canada and the US, it makes sense to target Mexico or the UK. These countries are close enough, and it will be easy to find a supplier who can ship to these locations.  

4. Reduce Price But Increase Volume  

The last way I recommend for profit-building is to reduce your price but increase the volume of your sales. Let me explain. 

• Scenario 1: Profit per product is $10 but you are selling only 100 units per month.
• Scenario 2: Profit per product is 5$ but you are selling only 500 units per month.

In the first scenario, your gross profit monthly is $1,000. In the second scenario, your gross margin is $2,500.

This approach will work if your product is desirable, but customers want to buy it at a lower price. If you do this, you can move products quicker at a low profit but your sales volume will compensate for the losses you incurred for reducing the gross profit margin. 

Summary: The only way to get big as a dropshipper is to increase your revenue but reduce costs. The same principle applies to all businesses. How you do it is a matter of choice. No matter what, do not forget that the customer comes first—do not compromise quality over money. 

Important Things to Know Before Dropshipping

Dropshipping, being a retail business, comes with the same challenges as other retail businesses. In this section, there are some things I will share with you that most dropshipping teachers or gurus don’t. 

These things are: 

• Reputation is important 
• Small stores are better than big stores
• Your supplier is a key component of your success
• You need a lot of money to operate a dropshipping store

Let us go through each of them. 

1. Reputation is important 

Your reputation as a dropshipper matters more than the ads you launch. As a dropshipper, expect that people will think twice before purchasing from you. That is why you need to build a brand around your dropshipping store.  

There are many ways to build a reputation—choose a few that you can do and stick with these tactics for a long time. 

2. Small stores are better than big stores

Many dropshippers select hundreds of products because it is easy to click them and import them to a store. This is a mistake that many dropshippers make. They think that more products mean more chances of making a sale. 

It may sound counter-intuitive, but a smaller store is much more effective. This way, you can write your product copy better. In addition, you will find it easier to standardize what all your product pages look like. 

In addition, a small store makes it easier for site visitors to decide if they should buy from you or not. Overall, my recommendation is to stick to a small niche and keep a short list of your products.     

3. Your supplier is a key component of your success

Many dropship gurus always say that AliExpress is the best place to find dropshipping products. While AliExpress is one of the biggest, it is not the only product source. 

There are sellers in AliExpress who do not even care about your business—this is the truth. They will send items that are different from what you ordered. Can you just imagine how bad this is for your business? 

I suggest that you really take the time to find a supplier you can trust. I always say that you should at least buy the product from your supplier to see it and test how reliable the supplier is. 

4. You need a lot of money to operate a dropshipping store

Once a customer pays, you will not get the payment in your bank account right away. It can take days for this transfer to happen, or even weeks. It is not a good idea to wait for this money before ordering the product from your supplier. 

In the worst of situations, a payment processor like PayPal will put a hold on your money. They will require that you send proof of shipping before they release it to you. 

Just imagine if they do this for hundreds of sales. You will have to front the money for those hundreds of sales to be able to get a shipping label, save them as screenshots, and then send these screenshots to PayPal so PayPal will release your money.

As such, you need money more than your monthly or annual subscription to Shopify.

Summary: All in all, dropshipping is not a walk in the park. Before you start, you must understand the challenges that lay ahead and prepare for them, too. 

Dropshipping Salary FAQs

How much money can you make from dropshipping?

There is a lot of money to be made through dropshipping, but this will only happen if you have a plan that works and if you stick to it. 

Who is the highest-paid dropshipper?

There is no known record of this. Many gurus online show their sales but there is no credible repository of information on who has the highest sales.   

Is dropshipping still a good way to make money?

Very much so. Dropshipping is a good way to make money if you do print-on-demand and white-label. If you do the typical way to dropship, you will still make money, but you will be competing against so many sellers. s

How successful is dropshipping?

Dropshipping is an easy business to set up. Success is another thing, however, because it works like just any other online retail business Success will happen if you keep at it and you do things right. 

Summary

Dropshipping is a profitable business, but only if you do it right. There is no such thing as a salary in dropshipping because you are not employed. 

To calculate your profit margins, I recommend that you use our calculators. These calculators can help you do the math not just for your profitability but also for your return on investment for your ad spend and cost-per-acquisition.