Drop shipping is becoming a popular fulfillment method in Canadian ecommerce, for businesses large or small. It offers a unique opportunity for Canadian entrepreneurs to start selling online without inventory or shipping. It’s also used in combination with traditional inventory to round out product selection or test the market. Additionally, Canadian merchants can access foreign markets and drop ship to consumers in that country, without dealing with cross-border hassles or lengthy shipping times.
Some of the biggest concerns about using drop-shipped fulfillment is making it profitable. Razor thin profit margins already plague retail, as they try to compete with large stores that rely on volume for profitability. Throw in middleman markups, fees and shipping and you’re left wondering how it could ever be a profitable online business model.
But it CAN be profitable with some strategic planning based on insider tips.
Why is Buying Wholesale Products Cheaper Than Dropshipping?
There are three main reasons that wholesale products are cheaper than going through a drop shipper:
- Profit margins are split with the drop shipper. Your profit margin should be at least 3-5x the cost of each item.
- The drop shipper is assuming the cost of storage & fulfillment, such as additional staff and shipping supplies.
- You’re filling one order at a time, as opposed to buying a thousand pieces of the same product.
Cost & Competition Aren’t the Only Factors
Of course, there’s more to being profitable and competitive than the wholesale cost of the product. Selecting unique products will help, but half the battle is in knowing your target market and engaging the consumers within it. Professionalism, creativity, excellent sales copy, fantastic images, customer service, and a knack for communicating superior value can set you apart and make the sale.
Always be thinking of ways you can tailor a niche to serve current and future demand. If you’re able to spot trends and find unique ways to ride the wave, you can do very well in drop shipping. One of the biggest advantages of using drop shipped fulfillment is you can pivot and change quickly & easily.
The experts at Salehoo have access to valuable data from retailers who use drop shipped fulfillment through their software. This data indicates the following categories have some of the best profit margins.
- Sleepwear & Underwear
- Pet Care Supplies (We’ve done well in this category, niched down to natural pet products)
- Outdoor Furniture & Accessories
- Phone Accessories
- Board Games
- Active Wear
- Beauty Products
- Bluetooth Accessories
- Formal Wear for Children
- Shoes (from fashion to collectibles)
Tools of the Trade
You’ll save a ton of time and make better choices if you use price research tools to find out how much potential competitors are charging on popular marketplaces. Salehoo includes one such tool to help ensure profitability for their dropshipping merchants and it will also suggest related niches to explore.
“The retail price sweet spot is between $15 and $200. Anything less than $15 and you might be struggling to make enough money,” say the experts at Salehoo. “Anything over $200 is harder to sell (buyers have to think more about expensive purchases).”
Once you have suppliers in place and have brought them sales, try to negotiate a lower price for better profit margins.
The cost of shipping can be crippling, especially in Canada. Keep that in mind as you choose products, avoiding large or heavy items unless their potential profit margin will cover it. You can charge the buyer for shipping, but they won’t buy if the shipping costs are too high.
Another challenge is the lack of Canadian wholesalers/distributors who are willing to drop ship. If you limit yourself to the Canadian market, it might be difficult to find local dropshippers. That said, shipping products from the US and other countries has become much more efficient so it’s worth checking out international suppliers. Overseas can still be hit or miss, however, so due diligence and test ordering is a must. Canadian wholesalers are catching on to the drop shipping opportunity and I expect to see their numbers grow over the next few years.
For more information about drop shipping, check out Wholesale Drop Shipping for Canadian Online Sellers.
How do you make dropshipping profitable? Please share your tips in the comments below, or join us in the Online Business Canada Facebook group.
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Melody McKinnon's formal education is in business management, which she enhanced with more than 60 certifications revolving around business, marketing, health, general sciences and writing. In 25 years of working online, she has owned or managed both educational and ecommerce websites. Her book, 7 Recession Proof Online Businesses to Start From Home, is available on Amazon.
Melody has worked with many businesses & brands in a multitude of capacities. She can often be found on CanadiansInternet.com, CanadianFamily.net and AllNaturalPetCare.com, as well as other quality digital publications. Her content has earned reference links from highly-respected websites, magazines and university textbooks.