There is money in drop shipping
Earning money with dropshipping: cost overview and professional price calculation
Anyone who opts for the dropshipping trading model as an online retailer benefits from many advantages. A low capital requirement, location independence, easy scalability or quick access are just a few of the advantages.
You don't yet know what dropshipping is or how earning money with dropshipping actually works? We answer all of your questions in one post.
How much you earn with dropshipping, how much dropshipping costs you and why this business approach doesn't work all by itself, you will find out in this article. The dropshipping expert Sebastian Huke explains why a professional calculation is a prerequisite for your success and accompanies you through the demanding calculation process.
Table of Contents
- How Much Do I Make Dropshipping?
- Why is pricing a success factor for your dropshipping earnings?
- Why should I know all dropshipping costs?
- What are the differences between dropshipping costs and the costs of classic online trading?
- What does dropshipping cost?
- Which terms and parameters do I need to know for price calculation in dropshipping?
- How do you correctly calculate sales prices in dropshipping? Step-by-step instructions
- What do I have to consider when calculating prices in dropshipping? 5 tips
- Stay motivated in terms of pricing
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How much do you earn from dropshipping?
Shopify merchants know very well that success in online trading is always a question of experience. You have to experience certain events, procedures and processes several times in order to be able to deal with them with confidence. Nevertheless, the following applies: Intensive preparation also leads to success and can be strongly recommended to new founders.
Nevertheless, you can start selling and making money with dropshipping right after you have found the right supplier. Your earnings depend heavily on which products you sell, at what prices you offer them and how high the further dropshipping costs are, e.g. B. for suppliers, marketing or shop system.
However, these costs are significantly lower than the costs of traditional online trading. You can start your dropshipping business with a small amount of capital, which is why the financial pressure is less. At the beginning you don't have to contribute a lot of resources like warehouse or personnel, but outsource a large part to your partner suppliers. Your products are therefore likely to have a larger profit margin than similarly priced products in your market competition with classic online trading.
But how much do you roughly earn from dropshipping? To answer this question, let's look at real numbers. In a survey, the majority of French dropshipping companies stated that they earn between € 100 and € 500 per month. Meanwhile, we did our own case study in which we were able to earn around $ 1000 dropshipping within a few days.
Your dropshipping earnings can therefore be between several hundred or thousands of euros. Depending on which products are being sold and whether they are located in a rather high or low-priced niche, with low or high sales.
In order to get the most out of your earnings, a correct price calculation is essential. You can do a lot wrong here if you don't study the topic thoroughly enough. The problem here is that a calculation error hits the company again and again and not just once.
In the following sections, our guest author Sebastian Huke provides you with the most important basics, step-by-step instructions and tried and tested practical tips for correctly calculating your sales prices. You will find out what dropshipping costs, the differences between the classic price calculation and the calculation for dropshipping and how incorrect calculations actually work.
Reading tip: You can find success stories (with and without dropshipping!) From Shopify retailers in Germany, Austria and Switzerland here.
Why is pricing a success factor for your dropshipping earnings?
Anyone who has made it through to earn their money in the future with their own company and has taken a lot of effort to do this, of course, wants the project to bring maximum success with it. In business, success is primarily defined by the fact that the company generates good sales and profits. Whether the dream of professional success will ultimately come true depends on various factors. This includes, for example, the structure of the product range, readiness for service or the quality of internal processes.
In this context, one should not forget one factor that is more important than many others: the calculation of the sales prices in your shop.
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Many retailers make a crucial mistake and instead of a careful and, above all, fact-based calculation, set a price based on their gut instinct. New online retailers often assume that you only have to determine the purchase price of a product and then calculate a certain percentage surcharge in order to obtain a reasonable and reasonable sales price. This approach would, however, completely ignore the actual costs in the company.
Instead, it is important to know, calculate and take into account all cost factors in the company and ultimately to incorporate these proportionally into the calculation of each individual price.
Why should I know all dropshipping costs?
To make this clearer, let's take a look at the consequences associated with calculatory errors. It is clear that we have a serious problem when the proceeds from a product are insufficient to cover all of the costs associated with the sale. We are deliberately talking about “all dropshipping costs” and not just the pure expenses for product procurement.
These go well beyond the purchase price granted by our suppliers. If we now make a calculation without taking into account all costs, the risk increases that we will incur losses with every single sale. The problem here: Often it is not noticeable at first that we are slowly but surely heading into the red with our business results. Often the costs and fees that we should actually have to take into account are billed at a completely different time, namely significantly later. At the same time, if we are in a phase in which we are generating increasing sales, losses can very easily be hidden behind the ostensible increase in business results.
Every single sale that we as entrepreneurs should be happy about drives us deeper and deeper into the red. So while we believe we are successful in view of the high number of visitors and increasing sales, our business continues to move into the red. It goes without saying that we, as shop operators, must by no means let things get that far. We have to deal intensively with the topic of costing from the start and must not ignore any important dropshipping costs.
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What are the differences between dropshipping costs and the costs of classic online trading?
The classic online retailer, who, for example, presents their shop via Shopify, stores products and sends them to customers themselves, is in a different situation than the dropshipper, who leaves the storage and shipping of goods to its supplier. This crucial difference in relation to the specific form of processing has a strong effect on the cost structure and thus also on the calculation. Let's take a closer look at the relevant factors to get an impression of what needs to be considered and taken into account here.
The reason for these decisive deviations lies in the structures that distinguish the two trading models from one another. On the one hand, there are certain cost areas that only play a role in the area of dropshipping. Classic retailers don't have to pay attention to these. On the other hand, there is also cost potential that only affects conventional shop operators and that dropshippers do not have to take into account. It is very important to recognize these differences. If you ignore them, losses can quickly creep into the calculation and making money with dropshipping becomes more difficult.
What does dropshipping cost?
Cost items that only affect dropshipping dealers are primarily the fees for suppliers so that they take over the direct shipping to end customers. No standards can be named here, as pricing is always a matter of individual negotiation between manufacturers and wholesalers on the one hand and the dropshipping retailer on the other.
Here again it becomes very clear that it is absolutely necessary for dropshippers to persistently negotiate the conditions with their suppliers. But it's not just the shipping and packaging costs that make the difference to classic online retail. Often you have to pay a little more for the purchase of goods when dropshipping. After all, you only ever buy one item at a time, while traditional retailers buy larger items and thus receive certain discounts.
In addition, it must always be checked whether the use of a system suitable for dropshipping such as Shopify does not result in additional costs in the company, which must be included in the price calculation.
Reading tip: You can read here how to find suppliers in the first place and how to get around the 4 most common problems in dropshipping.
Which terms and parameters do I need to know for price calculation in dropshipping?
In order to be able to calculate prices correctly, all costs of your company must be known and taken into account. The step-by-step table shows you exactly how you can proportionately include the dropshipping costs in your sales price. In the following we explain the various cost items in the table in detail:
- Gross prices and net prices
- Purchase prices and purchase prices
- Cost price and gross sales price
Gross price vs. net price
As a commercial trader: in you always differentiate between net prices and gross prices. If a price includes the statutory sales tax, which is 19 percent in most cases, one speaks of a Gross price. If sales tax has not yet been added to the listed price, you have it with a Net price to do.
In business contact between business partners, for example between you and your suppliers, you always speak of net prices without the statutory sales tax. If you talk to end customers about a price, you use the gross price, which includes sales tax.
This is because the sales tax for business people is just a transitory item that you get back from the tax office as part of the sales tax returns. Private individuals, on the other hand, do not receive the VAT back. For them it is an integral part of the price.
Reading tip: Find out more about VAT regulations in the EU in our post.
Purchase price and subscription price
It is common and useful to work with any supplier always to negotiate the specific purchasing conditions.
When negotiating purchase conditions, there are three main items that can be used to reduce the net list price in order to maintain the purchase price:
First, this is the DiscountThat the wholesaler grants you because you are reselling the goods you have bought. Second, you can bonus for example, if you buy a certain number of products in a defined period of time. Third, you have the right to deduct a certain amount from the invoice price if you pay the invoice within a specified time. This estate is known as Discount.
However, you do not receive your products at the purchase price, but at the purchase price. In this it is Dropshipping handling included, as the supplier will charge you a surcharge for taking over storage, packaging and shipping of your products.
Reading tip: You can find out how to find the right dropshipping partner with AliExpress here.
Cost price and gross sales price
In addition, you have to take into account what other costs you have to deal with in order to calculate your cost price. Which includes:
- Action costs
- Marketing costs
- Expenditures for marketplaces or shop systems
- Payment provider fees
The Action costs include general and administrative expenses. If you divide their monthly sum by the number of products sold each month, you get the proportion that has to be taken into account for each article.The other cost items are self-explanatory and must also be added to the subscription price. This leads you to the determination of the so-called cost price. Finally, hit the one you want on this Profit and the legal value added tax on. At the end of this process you will receive the gross sales price.
How do you correctly calculate sales prices in dropshipping? Step-by-step instructions
So far, we have shown you what consequences an incorrect calculation can have in a company. You also got to know all the important terms and sizes that play a role in price calculation. From now on you can use the following table independently, which will help you to calculate the correct sales prices for your dropshipping shop.
Here you will find all the elements that we presented to you and explained in detail. Short explanations ensure an optimal understanding. So that you have a better orientation, we give an approximate estimate for the individual positions. We will also show you the specific calculation method and show you exemplary results that are intended for your control.
Tip: In everyday life, it has proven useful to transfer the individual cost items and the calculation steps to a spreadsheet (e.g. Excel) in order to be able to calculate all sales prices on this basis in the future.
|Pricing factors||Calculation step||[€]|
|Net list purchase price||100|
|- Discount||5.00%||100,00 * 0,05||-5|
|- bonus||2.50%||100,00 * 0,025||-2.5|
|= Target purchase price||92,50|
|- discount||2.00%||92,50 * 0,02||-1.85|
|= Purchase price||90,65|
|Wholesalers' fees for dropshipping handling||up to € 20 per shipment, here € 7||7||+7|
|= Subscription price||97,65|
|+ Operating costs||All administrative and sales overheads (per month) per product sold (per month)||€ 5,100: 1,500 products sold||+3.4|
|+ Marketing costs||Depending on the advertising channel between 3% and 100%, here 20%||97,65 * 0,20||+19.53|
|+ Shop system / marketplace fees||Depending on various factors, here Shopify $ 29 / month¹ + 2.0% of the sales price||(29 €: 1,500 products sold) + (194.23 * 0.02)||+3,90²|
|+ Payment provider fees||here PayPal with 1.9% of the sales price + € 0.35 per payment process||(194,23 * 0,019) + 0,35||+4,04¹|
|= Cost price||128,52|
|+ Profit||Depending on the product between 5% and 100%, here 27%||128,52 * 0,27||+34.70|
|= Cash sale price||163,22|
|+ Sales tax||19.00%||163,22 * 0,19||+31.01|
|= Gross sales price||194,23|
¹ take into account the daily exchange rate when converting.
² If the gross sales price is not yet known, an imputed approximate value should be used here.
What do I have to consider when calculating prices in dropshipping? 5 tips
In order to be able to calculate the sales prices for your dropshipping shop optimally, you need on the one hand the technical basics that we have conveyed to you so far and on the other hand you need a little practice. The following tips and advice will actively support you in being able to quickly implement what you have learned in your own company in order to earn good dropshipping income:
- Success requires a flawless calculation
- Use your sales price as a marketing factor
- Price calculations must be strictly systematic
- Always keep an eye on the market and the competition
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