Updated: Oct 8, 2021
If you're unfamiliar with Drop shipping you must fall asleep easily. I learned about drop shipping well after midnight one night when I was having trouble sleeping. I came across some YouTube tutorial by some guy in a gamers chair saying he made $100k in his first week. Down the rabbit whole I went. It's pretty simple. Anyone with a couple $100 can open a Shopify store and sell viral tiktok products straight from china. The plan is simple: create a Shopify store, upload products from AliExpress using the Oberlo add on, and set up some Facebook ads. The next step is to fly somewhere exotic, sit on a beach, manage a your ads, and collect cold hard cash. So what's the catch?
It sounds like the perfect business. You handle the marketing (copy someone else’s ad using Facebook page transparency). The software collects the money and then tells the factory in China to ship tiktok leggings to Jenny in Miami.
No warehouses. No inventory. No employees. Just a laptop.
There are teenager's running million dollar stores on a hand me down laptop. How hard could it be!
You buy an ad on Monday, someone purchases you product on Tuesday, the moneys in you account on Wednesday, and the products at their door next week. Between shopify's 14 day trial and credit card billing cycles you could get this business up and running with zero dollars out of pocket.
Why doesn’t everyone do this business?
It’s simple, takes a few days to a week to set up, and you just collect money. Where can you sign up? This is the problem, everyone is doing it. Well, almost everyone. Most of my business minded friends have a botch store they are still paying $30 a month for. Don't mistake the simple business model for it being easy. It still takes a lot of hard work, research, and trial & error. The margins are really thin. You may need to spend $1M on advertising to make $50k.
How can you cut through the noise, improve your margins, and make your drop shipping store successful in 2021. The answer is Brand. It is the only thing that will separate you from your competitors and make you stand out enough to develop customers.
What is brand?
Brand is how customers identify your company. It can be as simple as a logo on a generic item to something more fleshed out like Nike. You're familiar with their brand: The swoosh, the font, the fabric choices, the sneakers designs. Everything has a thread of consistency. Big brands don't sell product's they sell a lifestyle. By wearing Nike you're an athlete. It doesn't matter that you only put their sweatpants on in preparation of a movie marathon. You are a Nike Athlete. Now, your brand may never be a household name like Nike but that's okay. However, this doesn't mean you can skip essential steps while creating your brand. it needs to be fully fleshed out. Here is a checklist of what you need:
Company Colors and Font
Mission statement or Story (Read about the Significant Objects Project)
Apart from brand the other key element drop shippers forget is to think long term. Drop shipping is suppose to be a way to make a quick buck right. If you're expecting to put up your first ad and hit a home run you may be very disappointed when you realize you've spent $100 on ads to sell a $10 product. Here are some business terms and calculations you should keep track of.
Customer Acquisition Cost (CAC)
This is what you spend to get a customer. For example you spend $100 on advertising and get 20 customers you CAC would be $5. In reality, if you could get customers for $5 you'd be a rock star. The average CAC for e-commerce is $81-$87. (For more information on CAC for different industries check out this article by First Page Sage. ) This is why it's so important to keep your customers. CAC only matters as it relates to our next calculation. Customer service is a business strategy. You are going to have to sell that customer a lot of fidget spinners to break even.
Life Time Value (LTV).
LTV is essentially how much money a customer will give you until you loose them as a customer. Each industry has averages but at the end of the day its people. Some people will buy from you once and then never again. Other will buy from you every month for the rest of their life. Can you remember when you started buying from Amazon? It's hard to remember when you started buying from them but you haven't stopped since.
Customer service is a business strategy.
Now if you sell those customers a $10 fidget spinner and never sell to them again you LTV of that customer would be $4. Assuming the fidget spinner cost $1 and your CAC was $5. This is what most drop shippers do or at least the people that play drop shipping guru on YouTube do. What if you kept that customer and sold them a fidget spinner every single month. Your CAC would still be $5 but your LTV is near limitless. If they kept buying from you for 12 months your LTV would be $103. That’s a very different number then $4.
You’ll have a hard time finding anyone fanatic enough about fidget spinners to buy a fidget spinner from you every month. The plans still good the product just isn't. What if that customer identified with your brand? They’ll buy from you every month or however often you release a new product. This is how you go from a store hoping on trends to a real company. I walked into a Scotch & Soda by Union Square about 6 years ago and have been buying from them ever since. I think the brand is cool and I like the style. I identify with the brand. Whenever I need new clothes I check out their site. My value to Scotch & Soda is in the thousands.
Creating a powerful brand that customers identify with is the ultimate goal. Here is a number of ways you can stand out:
1. Unique products (T-shirt design or white labeled product or product creation) 2. Compelling brand or mission (4ocean) 3. Subscription based product or disposable (Quip)
These businesses are not necessarily drop shipping stores but examples of interesting business that you can borrow elements from.
The next step and often overlooked portion of marketing by many drop shippers is re-marketing to your existing customers. Every time a viral product comes out you need to be the first company sending them an email and giving them a way to get there hands on it. Now not everyone on your customer/email list will buy the next product but some will. This combined with your ads will make your store profitable and make your CAC affordable.
MiLK & BULL is a art-driven design and marketing firm who's mission is to build brands and launch businesses. Design-driven firms historically outperform competitors by 228% according to Fortune Magazine. If you need help fleshing out your brand or building a marketing program please reach out.