Updated: Apr 27, 2020
Drop shipping is taking the online world by storm. People claim to be making thousands of dollars a month by simply sitting in front of their computer and selling items on Amazon.
But can it really be done by the average, everyday person?
How do you find what people want and still make money doing it? The process isn’t as scary as it seems, and with a few tricks, your profit margin can be higher than expected.
All it takes to start up your own drop shipping store is an Amazon account. There are two types of accounts you can set up, individual and pro merchant. The pro merchant account is $39.99 per month when the individual account is free to open (only for under 40 sales per month, $.99 per sale plus the regular Amazon referral fees). Even if you are wanting to test the markets and see if this is something for you, go with the pro merchant account. You can cancel anytime and it will give you a more accurate look at the profit potential. The individual account limits the categories you are able to list products in and, therefore, also limits the number of people you will be able to reach. Without a pro merchant account you will also not be able to become a featured merchant (this allows you to eventually WIN the buy box), you will not be able to link any inventory/price/order management/repricing/feedback software or any other software via the Amazon API.
Consider it a small investment; it’s worth the $40 to see the full potential of drop shipping. Once you are set up with your Amazon account, you’re ready to dive in. It’s as easy as that!
Arbitrage? What language are you speaking? Big word but not a big concept. Basically it means that you are ordering items for sale or clearance from big box retailers, such as Walmart, Bed Bath & Beyond, Home Depot, etc., and selling them on Amazon for a higher price. That’s it. Buy low, sell high. Sounds easy, right? It can be, but there can also be bumps in the road.
What’s the Catch?
If it sounds this easy, there must be a catch. There are certain things that can catch a new drop shipper off guard. The first, and biggest, is customer service. YOU are the store so any and all complaints will come directly to you, not Walmart or the other retailers you are sourcing from. If you get too many bad reviews on your Amazon profile, you will not be the first choice for people making purchases and this will sink your profits and your business.
Develop your customer service philosophy from day one and stick to it. This should reduce stress and allow you to clearly state your policy on your Amazon account.
The second area of caution does kind of coincide with the first one, packaging and receipts. When you drop ship using retail arbitrage, the items are shipped directly from the major retails you are sourcing from. They will be using their packaging, packing slips, receipts, etc. in the items being sent to your customers. Generally, this doesn’t seem to be a big issue with customers but it can be challenging to build your own “brand” as an online source for shopping. There is a simple and convenient way to get around this problem, especially if you are dealing with big box companies.
Almost every major retailer has a “gift” option when you order from them online. When you are ordering and shipping the item, simply use this function. It may take a few extra moments at the time of purchase, but it could save you valuable time when dealing with your customers.
The third catch comes when your item is “Out of Stock” at the time of purchase or the shipping is delayed. Amazon shoppers are very particular when it comes to the timing of their purchase arrival, especially during the busy holiday season. As a drop shipper, you will need to be diligent when selecting the items you wish to list for sale. In order to avoid selling an item that is out of stock you will want to use a professional inventory management tool built for this specific function. OAGenius offers this functionality on each of its plans. It is a worthwhile investment into your business as your metrics on Amazon are the lifeblood of your business.
The fourth catch is that the pricing on the source site can change rapidly intra-day and across many items and suppliers; this is something that you will need to be monitoring constantly. In the beginning, if you are listing less than 5 items, you may consider doing this manually but as you begin adding more products you will certainly want to automate this task. OAGenius takes the guesswork out of this one. It will continuously search for the most updated selling price on your items and push updated total costs to your repricer. For a reliable and fast repricer we recommend Informed.co (formerly appeagle) and we have a direct API integration with them so your pricing on Amazon will not only be based on the most up-to-date cost pricing, but will be the most competitive at every second throughout the day!
The fifth and last item to discuss is order management. Once you have greater than a few orders a day, this process can become pretty hectic and unorganized. In the beginning a spreadsheet will do, but it will not allow you to grow long term. With a great order management tool you will not only be able to track the status of each individual order, create notes for customer service, and search for an order in seconds, but you will also be able to remove the tedious, yet important task, of completing your order by entering tracking numbers into Amazon.
You will also be able to pull reporting on individual skus and aggregate level data to analyze every part of your business.
A good order management system will automatically pull your orders into their system, import source Order ID/Cost of Goods, pull tracking numbers from your suppliers and confirm your shipments on Amazon. Sweet!
Maximize Profits with Minimal Time
There are a few tricks that can help you save time and money. The first is to use a price tracker app to keep an eye out for potentially high profit margin items from your favorite retailers. There are many on the market so take some time and find one that suits your needs and comfort level (keepa or camelcamelcamel are some of the most popular).
These applications take some guesswork out when you are looking for items to list. They can alert you when a “hot” item goes on sale or when a sale price is ending. Most of them do have a charge for the more advanced features that you will want to use. You can still do it all yourself but that means more of a time commitment on your part.
There are also applications that speed up the time it takes to find profitable items to sell. The OAGenius Product Sourcing extension helps you scan source retailers pages in bulk, create matches to products on Amazon, and easily identify profitable products to list. It will allow you and/or your sourcing team to find products 25x faster than manual sourcing.
Another cool trick is to use a cashback site to direct purchases through. Sites such as Befrugal or Ebates will reward you for your purchases when you sign up for their free account and funnel your purchases by logging into their site before going to the retailer’s site. It just adds one small step but can reward you with up to 30% bonus cash back on purchases.
The average reward is typically 5 - 7% but this can build up quickly when you drop ship business gets busy. Some of these sites offer VIP type memberships that could even save you more but they do charge a monthly or yearly fee for the privilege. If you want to go that route, just make sure that you will be earning more than you are spending on those fees.
So, that’s it. All you need is a smartphone or tablet, internet connection, and some time for you to start a dropship business on Amazon. And now you have some information and trade secrets to help you make the decision to start and a guide to make it just a bit easier!
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