How Much Does It Cost to Start a Dropshipping Business?

How Much Does It Cost to Start a Dropshipping Business?

In today’s article, we will give you some ideas on how much budget you should prepare for your new dropshipping store.

You cannot run a business smoothly without sufficient funds. Hence the reason why it’s important to raise enough capital to give your business the fuel it needs to start moving.

The only question is, how much capital do you need to set aside? To answer this question, let me share with you the budget example from one of my dropshipping stores.

The cost breakdown you will find here is based on my store’s real profit and loss statement during its first-year run. Here’s the thing: the numbers aren’t pretty!

A little background about my store

My store is a mid-level niche store that sells lightly-branded products: games, toys, arts and kids’ stuff.

When I started the store, I wasn’t a total beginner nor an expert dropshipper.  I knew a technique or two when it comes to acquiring traffic and marketing new products.

However, I have also made many poor decisions while running the store, causing me to backtrack from them.

Consequently, I won’t do what other bloggers dotelling their readers that starting a new dropshipping store is possible with just $500. It’s a wild thing to say because it is only possible if you are already an expert dropshipper who has successfully started several stores.

Shopify dropshipping with $500 capital?

Without further ado, I present to you an honest and unfiltered dropshipping store cost breakdown:

Dropshipping store cost breakdown

The One-off Cost

  • Business Registration
$ 75
As much as you’d like to save on this cost, you need to spend money to register your business like I did. There comes a time when platforms such as Paypal and Facebook will ask for your registration documents for business verification and other purpose.
  • Software License
$ 135

This is for a video editing software license. I know some people use pirated software to save costs. It’s your choice whether or not to do the same, but I don’t advocate for that.

  • Store Enhancement
$ 1,050
If you are a techie, you can probably save on this. I wasn’t a technical guy back then, so I had to hire a developer to work on my store. It was costly whenever I made any changes to it.

The Yearly Recurring Cost

A. Hosting

  • Domain
$ 18.80
  • Shopify
$ 491.76

This is for the Basic Plan and a free theme with Oberlo App, and two other paid apps: Loox and Gallery App.

Other blogs will likely advise you to spend on paid apps. After all, they can earn commission from those as affiliate sites. You should only spend on those, however, if you are already experienced in using them to make sales.

B. Marketing

  • Organic
$ 377.70
  • Paid
$ 3,620.00

C. Business & Legal

Unfortunately, legal requirements can’t be avoided.
  • Accounting
$ 591.00
  • P.O. Box Lease
$ 66.50
I needed a P.O. box for accepting returns. In retrospect, there were no returns during my store’s first year, so this cost was a waste.
  • Secretary & Annual Filing
$ 256.00

D. Employees

  • VA Salary
$ 0.00
I didn’t hire any VA for this store. I did everything by myself, but it turned to be such a rash decision. I did too many mundane tasks instead and missed the bigger picture for my store. That being said, spending $500-$1000 on a part-time VA should have been better.

E. Software Subscription

  • Google Apps
$ 132.58

This is for a professional e-mail address. It was a stupid decision to spend money on this, because Zoho Apps offer the same feature for free.

$ 33.32
I don’t wish any of my customers to call my personal phone number asking for support. But if you don’t mind, you can save on this cost.

Total Cost

One-off cost$ 1,260.00
Average monthly cost$ 465.64 / month
Average monthly pre-tax profit$ 900.00 / month avg.

Analysis of the cost breakdown

The key takeaway? Most recurring costs were spent on marketing. This includes running product testing campaigns. An overwhelming 72% of my store’s monthly expenses were spent on marketing.

Marketing cost compared with other typical dropshipping fees

It’s worth noting though that marketing costs can vary for every individual. This is because one can set a different budget for each marketing campaign being run. It can cost $5 to $25 a day or $100 to $1,000 a day, and so on – there’s practically no limit.

It follows then, if you want to save up on costs, you should look into your marketing expenses.

Usually, being able to save on costs depends on how much you know about marketing. After all, expert marketing helps a store earn more and become successful.

Some dropshippers choose to go slow with organic marketing, running an Instagram account, or doing SEO. Others prefer to go fast with Facebook or Google Ads to reach out to a broader audience range, which may require more capital.

Non-typical costs that you should avoid

Now, you might ask: are there other ways to keep costs down aside from learning to do marketing better?

Admittedly, I didn’t spend wisely on this venture. From the cost breakdown, you can observe that I’ve made some unnecessary purchases.

Later on, I found out that this is a common mistake for dropshippers who are just getting started.

Here’s a list of costs that you should avoid:

  • Course / guru fees. There are many good dropshipping videos available on YouTube, free of charge.
  • Buying traffic / links. Buying traffic isn’t a conversion assurance. On that note, there are traffic sellers who are involved in schemes like spamming.
  • Expensive premium themes. Premium themes are made for experienced dropshippers who open multiple stores. One premium theme can be repeatedly used to maximize a store’s ROI. But since you’re just getting started and likely dealing with one store, this type of theme isn’t worth your while.
  • Expensive personal expenses. It’s no secret that starting a new store has a high chance of failing. Before it breaks even, it’s best to cut down on unnecessary personal expenses and save these up for business.

To sum it up, there should be a return to every dollar you spend on your store. In my case, I found several winning products and made sales.

Other healthy costs

For examples, here is a list of things that can make a positive impact on your sales for you to consider spending your money on:

  • Sample testing. There are niches that require you to order product samples and check them for quality issues.
  • Good camera for taking quality photos. Good ad photos help with your store’s conversions and give you that much-needed edge.
Taking product photos using a model

Conclusions

I hope that this article has given you some ideas when it comes to budgeting for a new dropshipping store.

Better safe than sorry, as they say. There will also be unforeseen costs while you’re in this business, so make sure to prepare for it by budgetting as much as you can.

In case you get the urge to spend on something else, why not try asking yourself if that will contribute to your sales?

If you think otherwise, then it’s best to hold off the urge to spend. There are more important things that you can spend both money and time on, such as getting more engagement on social media or learning more about marketing.

Jeff Wong

Jeff has spent 12 years architecting data analytics and offering consultation services for clients in the b2b, telco, healthcare and e-commerce industry. He likes to blog about the problems online businesses are facing nowadays and share creative and inexpensive solutions.

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