You wouldn’t want to waste your hard earned money dropshipping, right? There will always be loss vs. gain when you're doing any type of business. And I've been through all of these.
So if you're still starting your store, or you already have one and have been losing profit, then this episode of the podcast is definitely for you! I’ll be sharing with you my experience and what you can do to make the most out of every penny you spend.
What's Covered in This Episode:
Four ways to lose money:
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Hey, what's up everybody? Anton Kraly here and welcome back to the eCommerce Lifestyle podcast. So in this episode I'm going to teach you how to lose money dropshipping on Shopify. I know you're probably thinking, Anton, I listen to this show because I want to make money and I get that. That's why I'm here too but you need to understand that there are some common things that lead to people failing with this business model and honestly with lots of different business models if they go into it not knowing these things.
So what I want to talk to you about in this episode of the podcast are four specific ways that I see people losing money when dropshipping on Shopify. I'm going to explain to you why people lose money when they make these mistakes and hopefully that's going to lead to you avoiding them yourself so that your store is profitable from day one.
Now, the first way that you can easily lose money dropshipping on Shopify is not knowing your profit margin on every product that you sell. So a lot of people when they're just getting started, they're looking at top line revenue, but they're not knowing how much of that money they actually get to keep. So when I'm talking about your profit margin, what you need to factor in are things like your COGS, which stands for cost of goods sold. So what's your actual product cost? Because the way that we do dropshipping and basically all of our competitors do, we offer free shipping. So you need to factor in your average shipping cost per product so you can know your true profit margin.
You also need to factor in things like merchant fees, which are typically about 2.9% per order and that's giving you the ability to process credit cards, and debit cards, and accept money from customers. Then on top of that you need to factor in all of your fixed expenses and that can include your monthly fee to Shopify, which we recommend the $29 a month plan. It would also include any apps that you use or any services and the monthly fees associated with them because there typically is a baseline price. Then on top of that, if you're doing things like working with virtual assistants, whatever your fixed monthly costs to them are as well, you need to factor all of those things in.
When you get a new order, my advice is figure out how much money you made on that order every single time it comes in. So the way that we do this is we use an automation where every time a new order is placed on one of our stores, it gets put into a Google Sheet, which is basically Google's version of Microsoft Excel and we can have all of these costs added up so we can see how profitable each sale is. This allows us to make better decisions, make smarter decisions and if we ever see something where we're not making the margin that we want, we can figure out how to either fix it or how to stop promoting that specific product.
Now you definitely want to look at your numbers and your margins before you start getting sales on your store. So a way you can do that as well is when you're reaching out to your future suppliers and you're getting price lists, you want to look firstly at the difference between your wholesale cost, which is what you'll pay them for the product and the MAP cost, the minimum advertised price, which is most likely what you'll sell the product for. What we look for there is that the minimum advertised price, again the price that we'll be selling the product for, should be at least double what the wholesale cost is.
So an example, if I was selling this standup desk and the wholesale cost was $500 I would want the minimum advertised price for the same desk to be at least a thousand dollars. Now that doesn't mean I make $500 per sale because again, remember then we have to start factoring out our other expenses. Shipping because we're going to be offering free shipping, our merchant fees and then the other fixed costs that we have like Shopify, like apps, like virtual assistants. Extremely important. Do it sooner rather than later because one big way that people lose money dropshipping on Shopify is by getting their top line number, their gross revenue really high and then realizing too late that after all their expenses there is no money left. The way this equation starts again is by looking at your wholesale product cost and your minimum advertised price, meaning the price you are selling the products for.
Now, the second way you can easily lose money dropshipping on Shopify is by working with what I refer to as bronze suppliers. So in my program, Drop Ship Lifestyle... By the way, you can learn more at dropshipwebinar.com. But the way that I identify suppliers is into three different tiers. You have bronze, you have silver and you have gold. So I'm not going to get into all of that now, but just know that bronze suppliers are ones that it's very easy to lose money with because not only do they typically offer the worst customer service for you, the retailer, but they also typically have the worst quality of product. They are slow to ship out orders and they are just not responsive should something ever come up, let's say with a damage or something lost.
So what happens when people work with bronze suppliers, which again, I don't recommend. Learn more at dropshipwebinar.com. But what happens is they end up getting orders, they start shipping out products, and then customers get mad for a variety of reasons. Maybe it shipped out too late. Again, maybe the product wasn't what they expected and then what you're left with as the retailer is a situation where, well, what do I do now? Do I have to refund the customer? Does this bronze supplier even accept returns? And it can become a situation where quickly it can go from you thinking I'm making all this money to wow, I'm actually selling products from a supplier that I should have never worked with to even begin with. So very important, do not work with bronze suppliers.
This actually leads directly into the third way that people lose money dropshipping on Shopify and that is via charge backs. Now, if you're not familiar with that term, basically what it means is if you go online or even into a store and you buy something with your credit card, if for any reason you're not happy, if it was a fraudulent order, if you feel like you got scammed, you can call your credit card company or you can go online to your credit card company's website and you can do a charge back. You could file a charge back and when that happens, what's going to happen is your bank or your credit card company is going to give the money back and they're going to file this dispute with the merchant. What happens with the merchant is they can then plead their case. So was the order legit? Was the charge back even warranted? Then the merchant, right, the retailer can submit whatever evidence that they have and if it proves that the person buying was actually fraudulently filing a charge back, then the merchant gets their money back and all is said and done.
But there are also many ways that you as a merchant could get legitimate charge backs and unfortunately not only be out the product cost but be out the whole money that came into your bank so you can kind of lose on two ends. The reason that this would happen is first of all, if you are working with those bronze suppliers and you're selling sub-quality products. If you're selling expensive products and people are receiving either damaged items or products that don't live up to the description on the website, even if your supplier provided it, again, you got the money for the sale so you are liable for it.
Now, some other reasons that you can get charge backs and would be really on you, is by neglecting Shopify's built in risk protection and what that is is every time you get an order on your store, Shopify will determine how risky it is. If they think something is high risk, meaning Shopify thinks that the customer actually placed a fraudulent order, maybe they stole somebody's credit card, then you can just cancel the order, never ship it and no harm, no foul. So don't just think, "Oh, Shopify doesn't know what they're talking about. I'm going to approve every order that comes in," because it will lead to charge backs, it will lead to lost money.
Something else you really want to do when you're looking into the brands you want to sell for is research them before you get approved. You don't have to wait until you start shipping products to know if it's a good supplier or not. Just simply Google their brand name, look on your competitors websites or your future competitors' websites and check product reviews for those specific brands. If you see themes like the product was damaged, the product wasn't what I thought it would be, then you know that's a bronze supplier and it's not worth your time to even reach out and get approved because in the long run it could lead to charge backs. It could lead to you actually losing money dropshipping on Shopify.
So the fourth and final way that I see people losing money when dropshipping on Shopify is by outsourcing work to the wrong people. Now outsourcing I am a huge fan of. We have a pretty big team at my company and a lot of the team is virtual. We also work with a lot of contractors that we outsource different projects to and I'll tell you, when I first got into the whole outsourcing thing, I learned the hard way that pretty much the majority of the time you don't get what people promise. Because when somebody is pitching you a service and you know nothing about what they're pitching you, it's easy for them to put on a good presentation or to promise you the world. If you don't really understand what they're doing for you and the technicalities of it, it could be easy to get into a situation where you're paying someone, whether it's a virtual assistant or a contractor, on an ongoing basis and you're not actually getting any quality of work that's anywhere near the amount of money that you're paying that person.
So the first tip I can give you to avoid this is first to do your research and become a student of whatever it is you want to outsource. So if for example, you want to outsource paid traffic, I'm not saying you first need to become the number one paid traffic person in the world, but you should do it yourself. You should figure out the work that goes into it. You should know what looks like a good ad campaign versus a bad ad campaign and then when somebody starts doing the work for you, when they come on board, there should be clear goals that are actually in the contract. Whether that be we need X amount of leads in a month or we need our conversion rate to go up X percent in two months. Whatever that is. Don't just hire based on somebody's pitch to you. Hire an outsource based on actual deliverables. That way if things don't work out, you can easily just tell the person after one month, "Hey, this was our deal. Numbers weren't hit. Thanks, but no thanks. We're done here."
So in summary guys, that is four common ways that I see people lose money dropshipping on Shopify. Number one is not knowing your margins going into it. Number two is working with bronze suppliers. Number three is getting charge backs and losing money through that and sometimes even losing their business because they lose the ability to process orders. And number four is by outsourcing things they know nothing about, to people that over promise and under deliver. So hopefully you got some value in that. Hopefully it actually helps you make more money with your dropshipping business because you can avoid these things. And as always, if you got value from this podcast, please do go over to Apple podcasts and leave a review. It means a lot. Helps more people hear about this and as always, if you're new here, you want to learn exactly how we build highly profitable, semi-automated stores be sure to go to dropshipwebinar.com. Get my free training and learn how to do this the right way. So thank you everybody. I appreciate you and I'll talk to you in the next episode. Bye.