How Much Does It Cost to Start DropShipping Business?

Dropshipping is a business model that has become popular among aspiring entrepreneurs. It is a great way to get started in e-commerce without having to invest in inventory upfront. Understanding the costs of starting a dropshipping business is important for budgeting and planning. This article will provide insight into the factors that affect these costs and break down how much it costs to start a dropshipping business.

1. Initial setup costs

Dropshipping does not require you to purchase inventory in advance, but there are still some setup costs. These are the major expenses you’ll incur when starting your drop-shipping journey.

1.1. Subscription to E-Commerce Platform

Setting up an online shop is the first step to starting a dropshipping business. Shopify, WooCommerce or BigCommerce are popular platforms for creating online stores.

Shopify: The most popular platform for dropshipping, offers different pricing plans. Basic features start at $29 per month and can go up to $299.
WooCommerce: A WordPress plug-in, is available for free, but it requires you to pay extra to host your website, register a domain, and add additional plugins.
BigCommerce: This is another popular e-commerce platform for dropshipping. Pricing for BigCommerce ranges between $29.95 and $299.95 per month, depending on features.

Your monthly cost will be directly affected by the platform you choose.

1.2. Domain name and hosting

Domain names are essential to building your brand online and creating a professional presence. Domain names cost an average of $10 to $20 per year. You can buy them on platforms such as GoDaddy or Namecheap. Premium domains can cost more.

If you use WooCommerce, you’ll need web hosting. Shared hosting plans range from $3 to $15 per month, and more robust hosting solutions cost up to $100 per month.

1.3. Web Design and Development

You may need to hire a professional designer or developer if your website is complex. While some ecommerce platforms provide free templates, hiring an expert web designer or buying premium themes can give your store a polished look. Professional website design can range from $300 to $5,000 depending on how customized it needs to be.

Also read: Step-by-Step Guide to Starting a Dropshipping Business

2. Costs of Product Sourcing

Dropshipping is a model where the main cost of products comes from the suppliers. While you do not need to keep inventory, it is important to choose suppliers that offer high-quality products at affordable prices.

2.1. Supplier Membership Fees

Some dropship suppliers and directories charge for access to their catalogs or supplier networks. Platforms like SaleHoo or Worldwide Brands, for example, charge a membership fee that can be paid annually or once to gain access to their verified supplier list.

SaleHoo: Charges an annual fee of $67 to access its supplier directory.
World Brands costs around $299 per lifetime membership.

It’s important to do your research before you commit.

2.2. Product Price

Although you do not pay upfront for the products in a dropshipping model, understanding product pricing is essential to determining your profit margin. You will typically be sold products at wholesale prices by suppliers, while you are responsible for setting the retail price of your website. Remember that low-cost suppliers might offer inferior products. You should balance price and quality.

3. Costs of Marketing and Advertising

To attract customers to dropshipping stores, marketing is vital. Your marketing budget will have a direct impact on your sales and traffic. Find the most popular marketing channels for dropshipping and take advantage of them.

3.1. Search Engine Optimization (SEO).

SEO can help improve your website’s ranking in search engine results and drive organic traffic to your online store. SEO tools such as Google Analytics and WordPress plugins are free to use, but you might also hire an SEO specialist to help improve your website rankings.

Costs of SEO services for small businesses can range from $100 per month to $500. Some companies invest in premium SEO software like SEMrush and Ahrefs which can cost anywhere between $99 to $199 per month.

3.2. Pay Per Click (PPC), Advertising

PPC advertising can be a very effective way to increase traffic to your drop-shipping store. You are charged for every click of your ad. The cost is determined by the competition in your niche and your keywords.

Google Ads: You can expect to pay anywhere between $0.50 and $5.00 per click depending on your keywords.
Facebook Advertisements: Facebook ads can cost $0.20 up to $2.00 depending on the audience and type of ad.

Your budget can range from $200 to $1,000 per month, depending on the goals and niche you are targeting.

3.3. Email marketing

Email lists are an effective way to convert leads into customers and nurture them. Email marketing platforms such as Constant Contact, Klaviyo and Mailchimp offer free plans to small email lists, but will charge you more if your list grows. Email marketing services usually range between $10 and $50 per month.

4. Operational Costs

Dropshipping businesses have recurring costs that can accumulate over time. Included in these costs are fees for payment processing, apps and customer service.

4.1. Processing Fees

Each sale will be subject to a processing fee. This fee varies depending on which payment gateway you are using. As an example:

PayPal: Charges an average fee of 2.9% plus $0.30 for each transaction.
Stripe: Charges the same fee of 2.9% plus $0.30 per transaction.

The fees you pay may not seem like much, but as your business grows, they add up.

4.2. Apps

These apps can be used to improve the functionality of your store, including live chat, automated shipping calculators, product review tools and more. The monthly fee for these apps can range from $5 to $50 depending on the app.

4.3. Customer Service

In dropshipping, you will need to provide excellent customer service. You’ll be handling inquiries, returns and possible disputes. It may be necessary to hire customer service agents to handle support tickets or invest in customer service software. Outsourced customer service can cost between $200 and $1,000 per month.

5. Miscellaneous Costs

Additional costs may arise depending on your specific business. You may have to pay legal fees in order to register your business. Or you might need accounting software so that you can manage your finances. Budgeting should include these expenses.

5.1. Registration of Business and Legal Fees

You may be required to register your company as a legal entity based on where you live, such as LLC or sole proprietorship. The cost of registering a business varies by region, but it can be anywhere from $50 to $500. Budget for legal services as well, particularly if you plan to draft contracts with your suppliers.