Drop-shipping and E-Commerce in general is a very tough business to sustain. The barrier of entry is not very high and almost anyone can do it without the need for much technical knowledge meaning competition will be very high. I started off my first E-Commerce store in 2018 and ran is for almost 9 months before I decided it will never have the kind of profit or even be worth the effort.
Below I will discuss the types of issues I encountered, how I plan to proceed in the future and what I learned to make my next venture more successful. First let me start off by showing the stats of my current business and why I decided it won’t work the way I want it to.
The niche I chose: Mailboxes
Are mailboxes a bad niche?
I think almost any niche can be made profitable if you have the right skillset and correct execution to make it happen.
Why was I unsuccessful in this niche?
Over the months I identified the following issues with selling mailboxes to the mass consumer.
- Mailboxes are a borderline commodity, everyone needs one and they are essentially available everywhere. Now that doesn’t mean they are all cheap, my average sales price was around $400 USD.
- The market is well established and competitors can offer a service that is unobtainable for someone first starting off: installation service. Surprisingly many mailboxes are not installed by the homeowners themselves but instead by contractors which make the transactions B2B instead of to the end consumer. Most of my competitors also offered an installation service which is incredibly hard to replicate since sales are nationwide.
- The margins are too small to make any money. Even though my average sales price was relatively high, after deducing operation expenses, advertisement costs and shipping costs there wasn’t much left. For example, when I sold a mailbox for $550, on average my margins were 30% in terms of purely my cost to the manufacturer. The table below highlights the exact numbers and how it would have been extremely difficult to make it profitable.
|Product MAP||$552||all competitors also selling at MAP|
|Shopify Fees||($16.01)||2.9% processing fee|
|Manufacturer Cost||($329.50)||Price quoted to me by the manufacturer|
|Shipping Cost||($107.00)||Averaged about 20% of product MAP|
|Advertising Cost||($75.00)||1.5% conversion rate with avg $1 pcp|
|Total Profit Per Sale||$24.48|
- Low conversion rate. With the amount of competition and additional services offered by my competitors my conversion rate also always remained very low hovering somewhere between 1.5% and 2%. The conversion rate also did not hold steadily when I increased the money I spent on advertising.
What will I improve with my next store
- Select a niche that is less established with less competition and fewer barriers to entries such as installation required that is a service provided by the seller
- Select products that are not so commodity-related with higher margins