DropShipping startup costs: How much money does it take to get started?

When you’re starting out in DropShipping, or you’re just doing your preliminary research before launching an online retail business, you’ll be curious to find out how much setting up your business will cost you. There are so many articles claiming the wonders of DropShipping, and how amazing it is that you can do it too, and quit your job instantly… It’s a lovely thought, but unfortunately, if it really was the golden ticket that people are claiming it to be, we’d all already be doing it! The truth is, starting a business DropShipping really CAN be your ticket to quitting your job and working for yourself – but it will take you a bit of time and effort first.

If you’ve already identified the time you have to spend on your DropShipping business, you’ll be thinking about how much it is going to cost you to get going. Free is too good to be true… isn’t it? Well, yes. But like many online business models, you can start DropShipping with relatively little investment, if you do it right. Costs can be minimal, but you’ll need to have the time to invest, as well as a laptop, tablet or phone and an internet connection. However, you’ll need to plan carefully to avoid your DropShipping business becoming one of the 90% that fail in their first year.

So – let’s take a look at how to get started, and the real costs that are involved in setting up your DropShipping business.

What do you want to achieve from your business?

People decide to set up DropShipping businesses for all kinds of reasons. Some people want to build a small income to supplement their wage or to fund holidays, in the same way they might have selling Avon or Betterware in the past. We’ve heard of business studies students setting up a DropShipping business as self-driven work experience – which has then become their graduate career! (and quite frankly… we applaud that kind of initiative!) We know there are people who have found themselves unexpectedly out of work – or decided they didn’t want to work for a boss anymore – who have quickly built themselves a business and a full time income.

Although once you’ve made the decision to start your business, you’ll probably be keen to start making sales, just jumping in and ‘winging it’ is unlikely to create the business you’re hoping for. It’s worth spending a little time on creating a business plan, and setting tasks and targets that you need to hit. You won’t necessarily need to show this to anyone, so it doesn’t need to be presentation-worthy – but having it to refer to as you’re going along will help you to see how far you have come, which can go a long way to keeping you motivated if and when times get hard. Since you’re not likely to be presenting this to anyone (at this point anyway!) you can create your plan, and your task list however you like. Use Word and Excel, OneNote, an online tool, or keep it simple by using a notebook or ring binder – this is for you, so use whatever works best for you.

Whatever reason you’ve decided to get started with DropShipping, you’ll need to decide what it is you want to achieve, by what point in time, from your business. Whether you decide on a certain amount of income, or a certain number of sales, setting SMART targets – Specific, Measurable, Achievable, Relevant and Time-bound – can help you to get there, and to scale up at the right time. SMART targets, and some of the business tools that can help you might feel a bit too corporate, and make you want to roll your eyes (we may or may not have done that ourselves in the past!) but in reality, setting your targets this way really can keep you on track, so consider this when creating your plan and your list of tasks.

What do you need to get started?

Once you have your targets, you’ll need to identify a niche in the market, or decide which products you’re going to sell. You’ll need to do your customer research – which might seem like an unnecessary step, but is incredibly helpful when you get to marketing your products – and then you’ll need to find the tools that are going to help you achieve those goals.

A PC, tablet or phone

DropShipping isn’t a new phenomenon – traditional retailers have been doing it to extend their offering for years. In the past, that might have meant that they would phone to order an item to be delivered, but today almost all DropShipping is done via the internet. As a potential seller, that means you will need a device with a reliable internet connection to manage your business. You don’t necessarily need to buy a brand new piece of kit – if you have a smartphone with a web browser, that can be enough, or a laptop that is powerful enough to handle web browsing at a decent pace, then you’re probably good to go.

A word of caution, before you get started. It is always advisable (whether you decide to go ahead with your business or not!) to make sure your device – whether a Windows or Mac OS, Android or iOS or something else entirely – is kept up to date, with appropriate internet security installed and running, to keep your fledgling business secure. Yes, we know installing updates can be an inconvenient pain in the neck when you’re busy – but the consequences of not installing them can be catastrophic, so as Nike say… Just do it!

A supplier – or more than one supplier

Finding suppliers with the right products for you can be a bit of a mission. Finding and connecting technically with a number of suppliers with the right products used to be even more of a mission. Even if you easily identify several suppliers that you’d like to work with, that’s not the end of the challenge. Some suppliers may charge you for the privilege of selling their products, and some suppliers may insist on an upfront payment to cover your first orders.

On top of that potential hurdle, suppliers who are not offering their products via a DropShipping platform will have different arrangements to connect to their sellers. That means you could end up in a situation where you might only connect with one supplier – heavily restricting the number of products you can sell or it might mean you encounter the stress of trying to set up connections that are complicated and potentially conflict with each other.

The easy way to avoid these challenges is to use a DropShipping platform. On top of connecting you with multiple suppliers, without the hassle of needing to configure your setup manually, DropShipping platforms offer automation for the DropShipping process. These make it easy for you to manage your business and connect with as many suppliers – and therefore sell as many products – as you like.

A DropShipping platform

You probably knew we would suggest this one next! However, not all DropShipping platforms are created equally. Some DropShipping platforms only connect with one supplier, or place to find products – meaning you can only sell from where the platform connects to, or on a certain sales channel. An example of this is DSers, which connects you to suppliers – generally from AliExpress and so overseas – and pretty much restricts you to selling AliExpress products on a Shopify website. That’s not going to make you the kind of sales that are possible if you are able to sell products across a wider range of sales channels – selling on your website is fine, but it’s harder to make sales there than on marketplaces like Amazon and eBay. We talked in depth about choosing a DropShipping platform on our post comparing Avasam with Dropified and Doba, so head there for more in-depth considerations, but what we suggest considering when you’re researching your platform is:

The right DropShipping platform for your business is up to you. There are suppliers who will work with you and fulfil your orders without using a platform – but as we have already mentioned, be warned, the process of working with individual suppliers can be quite time-consuming. You might find that if you take the route of doing it yourself, you need to work with a developer to make your connections work if you don’t have the technical knowledge yourself – which all adds into how much your business will cost you.

DropShipping platform costs

Prices vary amongst DropShipping platforms, but that’s not the only thing you’ll need to consider when you are doing your research. You’ll need to look into each platform’s functionality carefully, so you’ll know whether you’re about to jump in with the right tool for your business. Just like when choosing a car though, don’t make a decision without doing a good test-drive first. And although getting a recommendation can be useful, remember – your business is unique, because you are, and the needs of your business are unique too. Make use of trial periods and starter packages before you sign up – it just makes sense.

Dropified gives you a 14 day trial to test their system and see whether it’s right for you.

Doba offers a full 30 day trial – which is almost certainly long enough to do extensive testing.

DSers has a basic package that is free forever – with restrictions, but the starter package should be enough to help you understand if it is right for you.

Avasam offers a starter package that is also free forever – although, like DSers, with restrictions.

If you think Dropified or Dobacould be right for you, then use those free trial periods extensively to really make sure they do exactly what you need them to do. Find out if there are processes you find difficult, and decide whether you can live with them. Make sure the pros outweigh the cons, because your decision will be critical for the success of your business.

The free forever plans that Avasam and DSers offer are great – they’re like unlimited trials. However, those restrictions are on the numbers of products you can sell. Once you make more than a set number of sales, you’ll need to subscribe to a package, which is fine, because you can use some of the profits from your sales to pay for that subscription. It’s worth looking at how significantly the subscription cost of your DropShipping platform increases after the trial period – if the cost is too much, you’re unlikely to stick with it, or find your profits are wiped out.

In terms of current fees, you’ll need to refer to each platform’s website – just like your business, DropShipping platforms have to react to increased costs and so on to remain profitable, so these figures may change. Bear in mind that we’re simplifying significantly here, so you’ll need to check that your intended platform – and plan – offers the functionality that suits your business now, and allows for you to scale up as your business grows.

It’s worth noting that you can minimise your costs with some of these platforms by paying for a year in advance. That might not be possible in your first year, and once you’re making a decent profit might feel a little bit pointless. But ignoring those small costs can add up to a big expense – the old advice about looking after the pennies and the pounds looking after themselves is very relevant to DropShipping!

A place to sell

Website or marketplace? Both? A combination of a few? We recommend multichannel DropShipping – selling DropShipped items across a wide range of sales channels – so, on a website, alongside marketplaces like Amazon and eBay, or perhaps Wish or OnBuy. You might, however, find yourself restricted in terms of the functionality your DropShipping platform offers as to where you can sell – we mentioned this before, but thought it worth mentioning again here. If your DropShipping platform only allows you access to sell on a Shopify website, you’ll miss out on potential sales on marketplaces – which severely restricts your potential profits.

Marketplace listing costs

As we’ve already said, multichannel DropShipping is a good way to maximise the number of sales you’re making, but it also means that if you find yourself with a problem on one sales channel, you can continue to trade on your others. It’s a sensible strategy, and one that many Avasam sellers have found can extend the reach of their business far further than they thought possible.

We talked about how different marketplaces make their money on our post about picking your sales channels. Deciding which sales channels to list your products on will depend on where your target customers are looking for those items, but you may also be impacted by how much you’re prepared to pay your marketplace up front, as well as the rates of commission they charge. If you don’t have any money to invest in your business and you’re starting from scratch, you might need to start out by listing your items only on commission-based websites until you’re starting to make a profit.

Amazon

As the world’s biggest marketplace, there’s little wonder if it’s at the forefront of your plans for your DropShipping business. Like many marketplaces, Amazon charge sellers a combination of subscription and commission fees, which can make it tricky to understand how much you’re actually going to end up paying to sell on there.

Subscription

As you’re starting out, and you’re selling just a few items, you can stay on the Basic plan. That means you won’t pay a subscription fee, but you will pay commission when you sell an item, and your selling fee will be around £0.75 on each item. Other fees might apply, depending on what you’re selling.

If you’re expecting to sell more than 35 items per month on Amazon, then you’ll need to subscribe to the professional seller plan. That costs £25 + VAT each month, and you’ll pay additional fees on each item you sell – your commission.

Commission

Commission fees get complicated really quickly on Amazon, because they charge different rates on different categories. Not only that, they break up the fees into different categories – referral fees and closing fees. Without getting into some complex maths, it can be difficult to try and understand your ballpark figure for commission fees on Amazon. The good news though, is that they have provided an online fee calculator, which allows you to establish roughly how much your fees will equate to.

Other fees

Unfortunately, that’s not the end of the fees you might end up paying when it comes to selling on Amazon. If you’re listing more than two million products, there is a monthly high-volume listing fee that applies. Now, you might not be considering this many items now – or ever – but it is something to bear in mind if you have ambitious targets in mind for the future. Currently, this high volume listing fee is £0.0003 per SKU (Stock Keeping Unit). Amazon give this example:

If during the month, a total of 3 million active non-media SKUs were made available by you, the fee applied for that month would be £300 (3,000,000 – 2,000,000 SKUs = 1,000,000 SKUs x £0.0003).

Finally, if you find you have to refund a customer after you’ve received payment, Amazon will refund your referral fee, minus the Refund Administration Fee. This is the lesser of £5.00, or 20% of the referral fee. Obviously, this won’t apply as you’re starting to sell, but is a cost you need to be aware you might encounter before too long.

Of course, these are the fees for Amazon UK – if you’re planning on selling on other Amazon websites worldwide, you’ll need to pay those fees separately. Although it’s the same company, Amazon treats each website as a separate sales channel – and unfortunately, they’re big enough to not need to offer you a discount for selling on more than one of their websites.

eBay

After Amazon, eBay is likely to be the next place you’ll think of for selling online – it has a huge number of customers, massive profits and huge brand awareness, after all. However, selling on eBay might not be right for you when we consider the cost of selling on there. There are two non-optional fees when you’re listing on eBay – a listing fee, and a transaction fee.

Listing fee

Firstly, you’ll pay to list your items (the listing fee, or the insertion fee). You’ll get a monthly allocation of 1,000 free listings (100 more if you decide to create an eBay Shop) and then it’s 35p per listing created.

The listing fee is non-refundable, so even if your item doesn’t sell, you can’t get that money back. If you’ve used a Good ‘til Cancelled listing, or you relist an item, you’ll need to pay that listing fee each time the item is relisted. That means you’ll need to find a way to remember to cancel those listings promptly if you decide to stop selling an item to avoid paying additional fees.

Transaction fee

Secondly, on top of your listing fee, you’ll pay the final value fee when you sell an item. That’s 10% of the final transaction value, up to £250.

Optional fees

If you want to boost the visibility of your item, eBay offers additional, optional listing upgrades. These include:

These additional extras add up – and don’t forget, you’re paying for these up front – so you’ll need to have that money ready to go.

On top of these listing fees, you can also consider using an eBay Shop. Basic eBay shop subscriptions cost £19.99, and you’ll get an additional 100 free listings. An eBay shop is an optional extra, and something you might decide to plan to add in the future if you want, or need to.

If, having read all this, it seems like selling on eBay can be expensive, then you’re not wrong. If you’re starting your DropShipping business and have no money to invest, then selling on eBay may need to come at a later point in your strategy. That’s OK though – as we talked about in our post about choosing your sales channels, you might never end up selling on eBay, but still have a really successful DropShipping business! Don’t get fear of missing out if it isn’t the right channel for you, either now, or in the future.

A final point on eBay fees: What we’ve discussed here are just the listings for eBay UK. If you’re planning to list your items on eBay in other countries (there are 23 eBay sites worldwide) then you’ll pay the fees that are specific to those websites, on top of your eBay UK fees. As always, do your research carefully!

Wish

There is one simple fee when you’re selling on Wish – and that’s sales commission (they refer to this as ‘Revenue Share’) that you pay after you have sold your item. There are no listing fees to pay, and no subscriptions. That means if you’re starting your DropShipping business from nothing, or you’re experimenting with new products, Wish might be an option to consider, since you won’t pay unless you’ve sold. That said, the Wish marketplace is particularly competitive, with lots of items being sold very cheaply from sellers in China, so you’ll need to price your items carefully to make sure you don’t end up out of pocket.

Wish commission fee

Wish set commission for each seller separately, which means that if you’re estimating costs it can be tricky to do. However, if you’re looking for a ballpark figure, you can make your calculations based on up to 15%. You’ll need to sign in to find out your sales commission, which is calculated based on the order and the shipping rates.

Wayfair

Selling on Wayfair, although potentially lucrative, is also a little more complicated to work out pricing for. There are no fees to pay with Wayfair, but the Wayfair setup is a little more complex than other marketplaces. They’re a DropShipping site themselves, so they want your wholesale cost (you will need to choose this, inclusive of your profit margins, rather than giving them your supplier’s cost) and then they set the retail price of your products on the Wayfair website. So, depending on the strategy their team decide on, and how competitive your price is, your sales may not be consistent – especially if your items are available for less elsewhere. You can find out all about selling on Wayfair here, with all the links you need.

Setting up your own store

At first glance, setting up your own website might appear to be relatively inexpensive – especially if you have seen advertising from some of the commercial website builders like Wix and GoDaddy. However, it’s rarely as simple as it appears, so as always – you know what we’re going to say – do your research. Setting up your own eCommerce website is not free, and in many cases, probably won’t be cheap either. If you don’t have the funds available to invest in a website for your business at the moment, don’t worry. You can start out by selling on marketplaces – whichever ones suit your needs – and as your business grows and you become more profitable, you’ll be able to invest some of your profits into your own website.

Since there are a world of website builders available, we’re going to have a look at costs for the three most popular. Shopify, BigCommerce and WooCommerce take the market share when it comes to eCommerce websites, but they’re not the only ones that might suit you.

Shopify store + DropShipping platform

Setting up a Shopify store is one of the simplest ways to create a website for your business. That’s what you’d expect from a system that was designed to do exactly that, right?! However, that doesn’t mean it is the best solution for all businesses, so be sure to make full use of your 14 day free trial.

Once you’ve got past your free trial, you’ll need to pay a subscription. Which subscription you decide to choose will depend on the functionality you need, but there are three main options for Shopify subscription fees:

$29 per month – Basic Shopify – for starting a new business

$79 per month – Shopify – for growing businesses

$299 per month – Advanced Shopify – with advanced features for scaling up your business

Although hosting is included in your Shopify subscription, you’ll need to pay for your domain on top of that.

If funds are really tight, you can use Shopify Lite for $9 per month. This doesn’t give you access to a website, but allows you to sell on Facebook, add products to an existing website or blog and accept credit card payments. If you’re just starting out and really can’t afford that $29 a month price tag, this might be a useful addition in the short term, until you can grow your business – and your profits sufficiently to create your Shopify (or alternative) website.

There is also an option for enterprise level businesses called Shopify Plus – this is aimed at larger businesses and sellers who are selling high volumes. It costs significantly more, and although pricing is on request, it is thought to be in the region of $2000 per month, or a percentage of revenue once you make over a certain amount of sales. While this might not describe you just yet, it is worth knowing that this is an option in terms of planning for the future expansion of your business.

Your Shopify website is just a website without any products though – so on top of your Shopify store subscription, you’ll need to get your products on there. If you’ve chosen to work with a DropShipping platform (as we advise) then you’ll need to pay your subscription for that too. So, as a bare minimum, we can see:

Basic Shopify + 3000 products for free on DSers will cost you $29 per month.

Advanced Shopify + over 10,001 products on Avasam will cost you up to $448 per month.

However, there are a number of features that you might want to access that aren’t included in your Shopify plan. That’s where the Shopify app store comes in, with optional apps and add-ons that have been developed by the Shopify developer community. Like other app stores, there are plenty of apps that are free to install, or have a free trial, but that will ultimately cost you – potentially dearly – in the long term. That’s why that 14 day trial period is going to be so important for you – once you have your store set up, you can go ahead and try out the apps that you think you will need, and establish the true cost of your Shopify store once you’ve added on those extras.

So, your checklist for Shopify costs:

Domain fees

Shopify subscription

Themes (free themes are available)

Apps (free apps are available)

Magento store + DropShipping platform

Businesses that choose Magento over Shopify do so because Magento offers a lot more flexibility than Shopify does. That means when it’s time to scale up – such as expanding sales into other countries – Magento is a much better solution.

Although Magento is free to use, it is not as straightforward as saying that your website is free to set up and run. A Magento website will have costs to get it set up and to maintain. Some of those costs are outside of Magento – so, your hosting, your domain registration and security – and some costs that apply directly to setting up your Magento website, such as themes and extensions (apps) that you can get from the Magento Marketplace.

So, your checklist for Magento costs:

Hosting – whether you buy a server, or use shared hosting
Domain fees
Themes (free themes are available)
Extensions (free extensions are available, but you may need to pay for some functionality)
Development costs (if you don’t have those skills yourself)

WooCommerce store + DropShipping platform

Like Magento, businesses that choose WooCommerce do so because of the superior amounts of customisation it offers in comparison with Shopify. Since WordPress is a popular option to create websites already, adding eCommerce to a WordPress website is easy with WooCommerce.

WooCommerce websites are free to set up, but they’re not going to be completely free. Like Magento, there are other costs you’ll need to meet, such as hosting, and your domain registration. If you want to customise your website and build in extra functionality that can boost your sales or help you take payments, you’ll want to make use of WooCommerce extensions. Like Magento extensions, these will help you build that functionality at low cost, without needing to employ a developer to create it for you.

So, your checklist for WooCommerce costs looks like this:

Essential costs:
Hosting
Domain registration
Security extensions for shared hosting – technically optional, but VERY advisable – from $100 per year

Optional costs:
WordPress or WooCommerce theme – from free, but on average between $20 to $100 per year
WooCommerce extensions – from free, but an average of $120 per year
SEO tools – up to you, but from $49 per year
Wishlist functionality – from $79 per year
Abandoned cart features – from free, but averaging between $20-$80
WooCommerce developer costs to support you if you get stuck – unlimited

There’s a whole world of possibilities when it comes to WooCommerce store customisation, so your optional costs can easily run into thousands.

Marketing costs

Oh boy – this is another point that we’re going to say, ‘it depends’! Unfortunately it’s true – you can spend anything from just your time on your marketing efforts, through to working with an agency and spending thousands of pounds on your marketing activities. Although we’re going to talk about some of these optional extras, you don’t need to use all of them, all at the same time.

Creating the name of your business might be a straightforward thing for some companies – but for others, it might take some time. That’s why there are some agencies that can charge you thousands for creating a great name! Luckily, there are plenty of tools to help you create your business name, and Mark spoke about these tools in his blog post recently. Some of these tools will charge you, but some are free, so check out Mark’s post if you’re lacking inspiration for your company name.

On top of creating your business name, coming up with a great company logo can be difficult – especially for those of us who excel in other areas rather than the arts! You could engage with an agency to create your logo for you – although this is likely to end up being expensive. There is also the option of engaging with a freelancer on a website like Fiverr – but this could end up costing more than you’re willing to pay too. If you have an idea, but don’t have the design skills you need in Photoshop or wherever, then using a logo maker app could be the way forward! Mark’s been busy on the blog lately, and wrote a post about some of the most useful logo makers online recently – and many of these logo maker apps are free to use (like Canva) or are much more affordable than using a graphic designer or an artist.

The majority of businesses will use social media of some description to market themselves. There are some that don’t, but when you’re starting out in eCommerce, you’ll want all the exposure that you can get. In the beginning, you can manage this by logging into each social media account separately, but once your business gets busier, you won’t have time to do this each day, so you’ll want a social media scheduling, or management tool. Some social media management tools – including Buffer and Hootsuite – offer free plans to get you started, so like when you are choosing your DropShipping platform, make sure you test their functionality and ensure that future costs are affordable.

SEO could end up being another cost to your business – but probably in the longer term, rather than right away. On top of that, you might start to consider Google marketing costs and the costs of marketing on social media channels. Again, these are optional extras right now, and certainly once your business is up and running, won’t feel quite so scary.

Other business costs

Depending on which country your business is operating from, you might need to pay for other business expenses. You might need to get a Tax ID, if you’re setting up business in the US (only five states don’t require a Tax ID!); you might need a business credit card (especially if your DropShipping suppliers won’t provide you with credit) or you may need to register your business with your government, which might have additional costs attached.

In most countries, you’re going to need to pay tax – either on your earnings, on each item you sell (e.g. sales tax or VAT) or both. If you’re unsure about the tax implications that your new business might have, it’s a very good idea to consult with an accountant or tax professional. You don’t want to end up with a huge tax bill that could impact on the long-term success of your business, or hit you in the pocket.

On top of these costs, there are other things you might need to pay for from your business – even if you’re managing your DropShipping from your smartphone! It’s best to think about these costs and how you’re going to pay for them, because even small costs can mount up. These can include:

The cost of your internet connection
Your electricity bill
Heating and lighting (especially if you’re based at home)
Premises costs (rent/mortgage payments)
Branding and other marketing costs
National Insurance contributions
Pension contributions
Paying yourself
Stationery
Travel costs (if you’re attending trade shows, or visit suppliers)
Credit card or loan costs (if you’ve chosen to take this route)