Dropshipping has become all the rage the past couple of years (at least in my online world). I frequently see Facebook, Instagram, and Google ads for webinars and training courses with get-rich-quick schemes using dropshipping. With the simplicity of e-commerce platforms, like Shopify, and their numerous over-the-top apps allowing for end-to-end process automation, almost anyone can set up an online store and start selling products he or she has never even seen. Living the ‘dropshipping lifestyle,’ we are told, is the perfect way to kick up our feet and generate a surefire passive income stream. But is this realistic or just a facade?
In 2017, I built three e-commerce companies, each utilizing dropshipping as the fulfillment method of choice to eliminate inventory holding costs. I built them on different platforms and used several unique suppliers, which has given me perspective on which strategies and combinations work the best. While I have found success with one of the companies, I also have one that is stagnant and another that I had to take out behind the barn.
So is starting a dropshipping site worth it? At this point, the market is beyond saturated with competition, most notably with Shopify stores using suppliers that automatically integrate via apps. However, there are still opportunities lurking for underserved niches if properly executed, which is why I have compiled my lessons learned so that others can avoid my mistakes out of the gates, and so that I can reinforce these principles in my own head to avoid similar pitfalls in the future.
Competition Sucks. Be Unique
The foolproof way for an e-commerce site to fail is to sell the same products to the same audience as competitors. If there are no elements of differentiation, then it will be a tooth and nail fight to see who can outspend on marketing and/or achieve a higher level of viral content on social media. Customer acquisition costs skyrocket in this scenario as ad spend increases and the chances of driving organic traffic by appearing on the first page of Google Search results are slim. It should go without saying that for a business to be successful, it is imperative to differentiate, whether that be in the form of a unique product, a superior product, or a new product class entirely.
In the dropshipping realm, it is all too common to see tens or hundreds of sites selling the same products because most site creators utilize the same few suppliers, most notably AliExpress, which means all players have access to the same resources. It is crucial to fully vet and perform due diligence on any idea before launching it. I have had many ideas come to mind over time for e-commerce plays that I never acted on because my research showed there were too many competitors or too small of a market. This was one of the key reasons I closed shop on one of my businesses after just a couple of months. Although the market was huge and had plenty of demand, there were far too many competitors already established in the space for me to be able to build a brand and stand out from the crowd without emptying dump trucks of cash into marketing.
Find an Underserved Niche
Entering a non-competitive landscape and finding an underserved niche go hand in hand. The first task is to identify a handful of niches, either by focusing on a particular interest area or a unique product class. From there, the list can be whittled down to the niche easiest to exploit by pinpointing the one with a high potential demand in a relatively low competition market. That will allow for the highest likelihood of pricing power and compelling margins. It is an added bonus if you also have some personal interest in the niche because you will better connect with your audience, develop better products/content, and more thoroughly enjoy operating the business.
SEO & Content → Organic Traffic
One of the most challenging fields to master is Search Engine Optimization (SEO) because there is no single, clear cut recipe for success. If there was, then every website would have the maximum possible SEO rank, which is impossible by definition. There are guidelines to follow that can help improve your SEO rank, but it is certainly not a black or white issue, which is why most companies have a team dedicated to improving SEO. It is also why this section is by far the longest in this article and why many full-length books exist on the topic.
Although arduous, SEO is crucial to success for an e-commerce company. It is untenable to compete with Facebook/Instagram advertising alone because it turns into a game of who can spend the most dollars.
Instead, focusing on organic traffic through SEO can provide quality customers likely to convert because they are already actively looking for products like yours instead of being forced to look at your products on social media channels.
Nurturing your website with SEO principles in mind is a must in order to gain/retain market share from vying adversaries. Here is my checklist of some key rules to follow:
Apply SEO to your domain name and URLs. This comes first in the list because it needs to be addressed before you name your business and create the website. What keyword(s) will prospective customers search for to find you? Ideally, these keywords can be incorporated into your domain name, business name, and within the URLs to your various pages. For example, if I am selling costumes for pets and I think users may search for ‘puppy costumes’ or ‘kitty costumes,’ I could buy the domain name ‘puppykittycostumes.com’ and have my puppy costumes collection at the URL ‘puppykittcostumes.com/shop-puppy-costumes.’ Keywording your URLs directly can help you appear earlier in search engine results.
Create Link Juice by excessive intra-linking between pages within your site, as well as creating backlinks directed at your site. Intra-linking within your site is the easy part. All it requires is ensuring all of your website’s pages have multiple links directed at them via header/footer menus, links from photos, hyperlinks within paragraphs, etc. The harder part is obtaining quality backlinks (an incoming hyperlink from another website to yours). Search engines see links as votes by other websites that your page is valuable and worth promoting. The quantity and quality of links pointing to your page are important factors when a search engine is deciding where to rank your page in search results. In some cases, you can buy backlinks, but I generally advise against it because these backlinks are not typically the reputable sources you want linking to your site, which reduces the quality score of your backlinks. The best tactic I have found here is to simply have quality content worth linking to. Over time, this will be rewarded by links from social media posts and reputable external sources.
Use SEO best practices within the content and code on each of your website’s pages. If you are using a major service provider, like Wix, WordPress, or Shopify, you can easily update metadata and alt tags without delving into the code directly. Make sure your images have alt tags and all of your pages have completed title, description, and keyword metadata. Further, when formatting content, use headers like <h1> and <h2> to work in parallel with your metadata in supporting your keywords by which you expect users to search for your site. It is important to not bombard your page with keywords because the algorithms can see right through it, but rather focus on having a reasonable amount of text content on a page that clearly depicts what is offered and is unique to your site (bots can detect plagiarized content, so do not copy/paste from other sources).
Create as many pages as possible. This one is extremely successful because there is a direct correlation between the number of pages within a site and its SEO rank. The more pages created under your domain, the more potential entry points for your prospective buyers and the more content that is scoured by the bots. One caveat, the pages must contain relevant content and not just be useless junk.
Quality of content. In the end, the reason a user stays on a website is if there is quality content she is interested in. Focusing on quality content will not only help your SEO efforts, but it will also keep a user on your site longer and increase conversions.
Once you have a site built out with SEO in mind and unique products to sell in your given niche, it is time to action the marketing strategy. If you mastered the steps above, your marketing strategy may be to not spend any money on ads or social presence because you are driving organic traffic. That is the holy grail for creating a more passive business with better margins.
It is important to remember that increasing marketing for the sake of increasing marketing does nothing other than squeeze margins and kill your bottom line. Everyone and their mother is already buying Facebook ads in your space, so what is it about your products that will get your target market to convert on a sale with you over competitors? The answer to that question should be the value proposition in your marketing strategy.
There are countless ways to go about building the brand, the social media presence, and the targeted advertising. For first-timers, it requires some trial and error to get right. The main point is to remember the purpose of any marketing spend is to get a return on that investment. If you are not seeing one then you either need to alter your strategy or it’s a message from your prospective customers that they do not want your products.
Quit Selling Chinese Tchotchkes
Chinese tchotchkes are the ultimate reason behind me shutting down one of my sites. I originally began selling items from Oberlo and AliExpress because of the huge margin potential, upwards of 90% in many cases. However, there are two major points of caution I want to stress about this abundant dropshipping strategy.
First, in the age of Amazon domination, customers hate waiting 3-4 weeks to get their order. Dealing with an onslaught of customer support emails from angry customers is certainly not on my list of fun things to do and will surely not earn you repeat orders. Repeat customers are the bread and butter of e-commerce because it slashes down customer acquisition costs and earns you word-of-mouth referrals when the customer tells her friends about how awesome your store is. That will rarely happen when she has a sour taste in her mouth about your business as a whole.
When the customer finally receives the product, the second way to provoke her is with the poor quality of the item she received and feeling like she has been duped. On all international shipments, the sender is required to print the package’s contents and cost on the outside of the package. When dropshipping, this means the end customer is not seeing the retail price from your website, but rather the price you paid for the item from the supplier. How would you feel as a customer receiving something you paid $20 for and seeing you could have bought it directly off AliExpress for $2? Further, your website’s branding is nowhere to be found on the package. Talk about a great way to kill a brand and repel customers. Attention to quality products coming from quality suppliers that incorporate your branding is the recipe for success.
Automate Where Possible
While automation is not a must for a successful e-commerce business, it can sure help you scale and leave you with a few additional hairs on your head. After all, our goal is to create a nearly passive income and live the ‘dropshipping lifestyle,’ is it not? The largest efficiency gain comes from automating order fulfillment. A majority of the top-notch dropshipping suppliers out there will automatically integrate with dominant platforms, like Shopify, via apps. This integration allows all orders placed on your site to be automatically transmitted to the supplier for fulfillment without requiring any action from you. Without this automation, you would be manually placing orders with your supplier(s) for each order placed on your site, which really adds up as your business grows.
Another source of automation I employ is a social media bot. In today’s fast-paced world where real-time updates are customary and society tends to rarely put down phones, social media presence is a requirement. And what’s the best way to grow social media following? To be relentlessly active on the platform. My bot, coded with Python, scours Instagram day in, day out to like photos tagged with relevant hashtags to my products and follow users who like photos under those same hashtags. The goal is to convert a certain percentage of those users to follow my profile or, at a minimum, get them to visit my profile to learn more and click the link to my website. If this sounds ludicrous to you, then you are likely just naïve about the number of bots you have already interacted with on social media channels, especially Twitter and Instagram. Employing bots for the grunt work on your social media pages is a quick win for baseline marketing and gaining exposure.
Put in the Work
Having conferred the foundation for a dropshipping business, let’s revisit the original question. Are dropshipping businesses surefire streams of passive income? Yes, it is possible to create a mostly passive stream of income once the end-to-end system is put in place. HOWEVER, for the site to perform up to its max potential and have continued success long-term, it will take a lot of work. Creating new products, content, designs, web pages, social media posts, and advertising campaigns are all recurring tasks that must be addressed in perpetuity, and this list does not even mention some of the behind-the-scenes administrative duties like accounting and taxes.
We live in a competitive world, and if you are not willing to put in the work, somebody else will. While it certainly can be a great generator of mostly passive side income, there are a number of maintenance components that are required. The more work you put in, the more cash you will get out.
Building and operating an e-commerce business can be a lot of fun. The feeling you get each time you have a phone notification letting you know another order has been placed and there is more money in your PayPal account is addicting. It is also a great medium for channeling one’s creativity, design, and analytical skills. Nonetheless, very few people actually achieve the ‘dropshipping lifestyle,’ and it is by no means a smooth sailing source of passive income, evidenced by the fact that significantly more businesses fail than flourish. The success lies in the due diligence performed at each step in the process along with a splash of luck. With the right idea and execution, the next big opportunity may be imminent.