While eCommerce is growing in popularity, it sort of becomes harder to start a business in the industry as time goes on.
A lot of people think about whether dropshipping still works, and I've written an article that talks about reasons how it could work, given it's done correctly.
Every day, new dropshipping businesses are started, and consumers are seeing homogenous products being launched and sold.
This makes it harder and harder for everyone else to separate and stand out from the increasing competition.
While dropshipping definitely still works, it's simply become much harder to pull off and build into real, long-term brand.
The new way of doing eCommerce
However, there is a new way I have not seen many people talk about.
This new way can eliminate many of the problems we see with traditional dropshipping, and could be a 'secret' that the gurus don't tell us about.
A few weeks/months ago, I went back to start a dropshipping business in order to better understand the reasons why I failed my first eCommerce business.
I then realised that I could offset most of those issues by making one small change with the business model - selling expensive products.
Yes! That's it.
Instead of finding products like insulated cups, you're going to find products that cost 100s of dollars.
If you're struggling to build an eCommerce dropshipping business, try this out.
Why is this a better solution? Let's find out now.
The first and most important reason why you want to sell high ticket eCommerce products is the profit margins you're able to make.
A lot of people believe the oversimplified version of dropshipping where you simply find a product, find a buyer, make the sale, and take what's leftover.
However, everyone in the world would be dropshipping if it were that simple.
Dropshipping has many other costs associated with it that you only find out once you start.
For example, there are:
- Shopify fees
- Product sourcing + delivery
- And some more
Let's make a quick comparison.
Let's assume that you want to sell something like a portable blender.
To source the item, you're going to pay up to $10.
The price point for a portable blender is around $50.
That means you've already lost 20% of your profits from sourcing.
Now, it's time to find customers. Finding customers costs money and time - many people decide to set up and run Facebook ad campaigns to get customers.
If we follow this strategy, we're looking at another $20 CPA (cost per acquisition).
That means another 40% is now lost per order you make.
Once we account for other fees, we're looking at around $3-$5 in fees.
This means that we went from a $50 price point to only $15 in profit. This is a 30% profit margin, which isn't terrible, but still pretty low.
On the other hand, if we decide to sell a high-end product, it could cost us about $100 to source, and the price point is $600 per item.
To find a customer, we could use the same strategy - paid ads, which could set us back roughly $100 per sale, however, in many cases, you might be able to get a lower cost per acquisition.
From here, the fees will account for around $20 max for an item of this price point.
If we work out the profit margins, we are left with about $380 in profit and a 63% margin.
Although this might sound a little unrealistic for eCommerce, it's not impossible.
More Revenue, fewer sales
Another great thing when it comes to selling high-ticket products is the fact that you're able to make more revenue with fewer sales.
If you're selling blenders for $50 a pop, you need to sell 100 a month to reach $5000 per month in revenue.
However, if we are selling something that costs $500 per month, we only need to sell 10 of those a month to make the same amount of revenue.
The reality is that it doesn't take a lot more effort to sell something that's expensive compared to something that's cheap - it's all the same.
Although it could be more expensive to find customers for high-ticket products, it's not much harder to do so.
You still create some ads, run them through something like Facebook, YouTube, or just use Google, and you effectively scale & optimize overtime to make more sales with less money.
Getting a sale for a product that's $500 isn't much different from getting a sale for something that's $50.
When we account for everything else in this article, it only seems logical to sell something high-ticket compared to something lower ticket.
Reaching 1 sale a month can net you $500, as an example.
Reaching 10 sales per month isn't very hard and can net you £5000 per month.
It won't take a very long time to get to 100 sales per month where you're now making $50,000 in revenue per month.
I would rather focus on getting 100 sales per month at $500 a unit than to get 1000 sales per month at $50 a unit.
Higher perceived quality
Building a luxury, high-end brand is much easier with expensive products.
Imagine you want to build a luxury brand for insulated cups - there is little to no difference between your cups and the others on the market, and so there isn't much that can justify your pricing.
Although it's not impossible, it's much harder to sell something that everyone uses for a really high price point.
Luxury brands are luxury brands for a reason - they're usually superior in quality and have a higher perceived value.
Compare something like Apple iPhones to something like the Google Pixel.
Both are good phones, however, the iPhone is far superior to the Pixel.
Their build quality, their perceived value, the way they look - it's the reason why thousands of people around the world queue up for iPhone launches rather than Google Pixel launches.
When you sell something that's expensive/high-ticket, you're able to justify a higher price point more easily.
You're able to easily shape your brand around your quality, make your branding more luxurious than others, and win bigger customers.
You shouldn't try to build a luxury brand around any product, however, it's much easier to pull off with expensive products.
Resturants are another great example - what's the difference between something like Nusr-Et and Five Guys.
Five Guys is 100x better, yet Nusr-Et charges 100x more.
It's the perceived value and the experience one has when one goes there.
One of the main reasons why many people question whether dropshipping still works or not is the fact that there's so much competition.
For every 100 new eCommerce businesses started, only a max of 1-5 are able to last longer than 5 years.
The rest all fail within the first few months of opening up because they don't understand what it takes to build a successful eCommerce business.
It's not as simple as making a site for a product you find on Alibaba then ordering it when someone uses your adverts and buys.
This is just arbitrage - you want to build a brand, not a reselling business.
Businesses come and go while brands last for the long run.
When you build an eCommerce business the same way everyone teaches, you're competing with millions and millions of others who have never started a brand before.
Although this makes your chances of success higher, you still need to put in a lot more effort than someone who builds a high-ticket business.
This is because dropshippers saturate the markets and leave customers wary from their bad experiences.
However, if you're selling high-ticket products, you're immediately shaving away 100s of thousands of competitors because no one thinks to start a high-ticket business.
Everyone wants to sell cheap products that are cheap to source, cheap to sell, in the hopes of making a few bucks.
Not a lot of people think of selling a product that's high-ticket and so the markets are far less competitive.
With less competition, you're able to make more sales, spend less on acquiring customers, and make a higher profit margin.
While normal, everyday brands compete on price, you don't have to worry about your competitor being $10 cheaper, you're focused on providing amazing products and improving your quality, even raising your price, over time.
Easier to scale
With all that said, it's much easier to scale an eCommerce business that sells $500 products compared to something that costs $50.
To scale a business, you need the right systems and processes in place, or else you couldn't scale.
For dropshipping, one of the biggest, most important changes is branding your products and ordering bulk inventory for fast delivery.
To do this, you need to have systems and processes in place to help you manage the entire cycle of ordering products, getting them inspected, storing them, and delivering them to customers.
All of this is simplified due to higher profit margins.
It's much easier to build a business when you have cash flow - cash flow is really king.
Although you run the risk of overfunding your business, it's not a massive issue to reverse.
Imagine you're making 20% profits - decisions on where your money has to be spent will be a lot harder to make.
However, with margins of 50% or higher, you're able to freely spend money to make money back.
You won't run the immediate risk of going negative and making a loss.
You can steadily and effectively grow your business because you know there's cash flow that can be reinvested back into the business.
You're able to hire people more effectively.
You're able to spend more on marketing.
You're able to introduce new channels such as free content marketing.
You'll be in a position to build a real brand, a community - not just another fly-by-night business.
If you're struggling to build an eCommerce business, try this out.
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