Some people find dropshipping very profit worthy, whereas for some – it’s just not worth it! Here we’ll discuss what the cost to start a dropshipping business looks like.
What is the cost to start a dropshipping business?
Dropshipping is not like wholesaling where you have to pre-invest a large amount of money into ordering an inventory before it can actually sell.
In fact it’s the complete opposite. You can wait till you’ve made a sale before you spend a dime.
Now, although the main phrase associated with dropshipping is “start at zero cost” that’s entirely NOT TRUE.
And just like that.. you’ll find out why!
If you don’t calculate your margins right, you could find your self making no profit at all, you may even be working out of pocket.
It’s a “you win some, you lose some” kinda scenario
You firstly have to consider whether it’s worth going into this business model before you lay the stretch. By that, I mean – calculating the costs to see if this business model is something you even want to spend your time on.
Some people do dropshipping for a side gig. Just to make enough for a night out each week or even a trip to the movies. However some are in it for the real deal. They want beef! By that I mean, a nice chunk of money (in terms of profit). Either way one should calculate the costs of starting a dropshipping business so that they can remain on top of their finances.
So lets craft out what the cost of your dropshipping journey could look like.
Please note: These are not exact figures and will differ to each individual depending on their products and platforms.
Although the dropshipping model follows the famous phrase “zero cost to start”, that’s false!
Costs ARE involved! and although they are not major, such as buying out a whole inventory costing thousands, you will still be investing in other things to get running.
With dropshipping on eBay, the main cost will be it’s listing fees. You will need to have these covered from own expenses before you can start relying on any profit to cover these. See it as an investment. After all every business requires investment right?
1. Listing fees – cost to start a dropshipping business
Ebay charges an amount for each item listed, along with a final sale charge.
They basically take two portions of your earnings.
Sometimes you can get away with free listings but that’s rarely the case unless you sell something between £0.01-0.99 (not possible if doing dropshipping on eBay as your items will be considerably higher to achieve profits)
Summary: You pay 10% of the price of every sold item + Flat rate (Listing fee)
‘Insertion’ fee – This is the basic fee to list the item – normally a flat 35p per item.
‘Final value’ fee – If and when your item sells, you pay a flat 10% of the final sale price.
2. Paypal fees – cost to start a dropshipping business
Just like any other company Paypal charges it’s users for the use of their service.
Paypal will deduct the fee before the amount hits your account, that way you wont see any final deductions towards the end of the month or so, what you get is what it is, after the deduction.
Summary: PayPal’s fees vary depending on the volume of sales you make each month. The current PayPal transaction fees for Paypal using eBay are :
£1 to £1,500 per month – 3.4% + 20p.
£1,500.01 to £6,000 – 2.9% + 20p.
£6,000.01 to £15,000 – 2.4% + 20p.
£15,000.01 to £55,000 – 1.9% + 20p.
The additional 20p charge is for each eBay transaction made.
The more your earn the less percentage they will charge.
PayPal fees are slightly different for international transactions and are a little higher.
PayPal take their fee before depositing the remaining amount into your account.
Related: Top dropshipping companies in the UK
3. Dropshipping membership fees – Cost to start a dropshipping business
Many dropshipping directories charge a monthly fee to use their services.
If you do wish to rely on these directories then you can start off by looking for the free directories instead. It will save you some money.
Check link below for the list of the top ones I and the experts in the dropshipping field recommend.
A directory could cost anywhere from $14.99 onwards, per month. Some have yearly subscriptions also, however I wouldn’t recommend paying yearly all at once unless your certain they are the directory you will be using.
This cost can be removed if you use a free directory or decide to source your own manufacturers. See here why you should source your own!
4. Advertising fees – cost to start a dropshipping business
If you decide to advertise or sponsor (promoted listings) your item on eBay, you will need to pay an additional ad fee.
This option is optional, however it can boost your visibility on the platform, giving your product more eyes and buyers.
In general if you were to make a dropshipping store on another platform such as Shopify and not rely on eBay, you would be spending MORE money on advertising as opposed to eBay.
Ebay is a ready made platform. It has it’s established audience hence you don’t need to spend a lot of money getting your product noticed.
Ebay does the work for you. Just ensure you have the right description and product title so it’s easily found by interested buyers.
To be eligible for promoted listings your seller level must be Above Standard.
The cost of ads on eBay?
You only pay when your item sells. The fee is based on the sale price (excluding postage cost) and only becomes due if a buyer clicks on your ad and purchases the item within 30 days.
The fee for each item will differ as it calculates a percentage based on recommended price for similar items which is updated daily. You’ll be able to see the fee percentage before you complete the ad listing.
You can set your own budget, basically the higher percentage you give for your promoted listing, the more audience it will be shown to.
You can read here on how you can add ads to your listings.
5. Legal entity fees – cost to start a dropshipping business
This one is more geared to dropship businesses who use their own platform other than eBay.
When dropshipping with eBay you are covered under the sellers rights hence won’t need to worry too much over legal entities.
Hint: Make sure to register as a business seller and not private, that way you will be covered.
If however, you decide to form you own store to dropship, you can check out this detailed post by Dropship lifestyle
They cover the basics on how to protect yourself and your business from legal proceedings.
Wondering how to start a dropshipping business on eBay from scratch? Click here 🙂