(Transcript continued from the Episode 143 show notes and audio podcast)

I have been getting all kinds of questions about this drop-shipping work that I’ve been doing, people wanting to know how does it really work, what are you really doing, how can I start my own drop-shipping store. The latest question like that came from the lady who does a fantastic job on the Late Night Internet Marketing show notes. She was asking me, “What’s that course? How can I take it?”

The bad news is the 100K Factory course that I’m taking is closed and my understanding is that exact course won’t ever open again. Not only that, it’s a pretty expensive course. What I thought I could do is just give you an overview of how drop-shipping works and what I would do if I were starting a drop-shipping a store on the cheap today from a beginner’s perspective.

Let’s break this down and see what we can talk about with regard to how ecommerce works in general and how drop-shipping works specifically, and how you might get started on a low budget doing some drop-shipping.

The first thing is what exactly are we talking about here? What is drop-shipping? How does this work? Why is it appealing?

Normally we talk about affiliate marketing as being appealing because you can get started with affiliate marketing with a minimum investment. We really like that. It has less moving parts, we don’t have to create our own product, we don’t have to do the customer service and so forth, so we like that.

That’s also part of the reason that we like drop-shipping. The idea behind drop-shipping is that you do marketing for a product that you don’t physically yet possess. You identify a product in a niche that you really like or that you think would be good and you market that product and actually sell it.

For this particular example let’s say that you are selling a really clever coffee mug. Maybe it’s a Late Night Internet Marketing coffee mug, which I have in my hand. I’m actually drinking my coffee out of a Late Night Internet Marketing coffee mug.

say we’re selling Late Night Internet Marketing coffee mugs, this is an incredibly popular item, people all over the world are buying these coffee mugs. This is kind of a silly example, but you can imagine maybe it’s a funny coffee mug about a niche like basketball. Maybe you have a funny basketball coffee mug that says, “Basketball players do it in a hoop,” or something funny like that.

That was actually very funny, but you get the idea, something that has broad appeal that a lot of people might buy. I think particularly the kind of things that work well for this sort of model that I’m going to describe are things that are generally priced under $20 or $30 and that someone might buy on impulse.

So you’ve got this little item and you found a way to advertise this and you’re going to sell it to people and take their money. Let’s say that you sell this coffee mug for $19.95. You have this coffee mug for sale for $19.95 and people buy it for that $19.95.

You found a source, a wholesaler or a manufacturer of this coffee mug, that will sell you the coffee mug for $10 instead of $19.95 and for that price they will ship it directly to your customer.

In this case you take the order, you take the $20, you take $10 of the $20 and you send it to your supplier and say, “Please ship the coffee mug directly to my customer.” You put the other $10 in your pocket and use it to pay for your advertising expenses. That’s drop-shipping, that’s how drop-shipping works.

I think most of you are probably familiar with that. What you probably don’t realize is that there is a lot of stuff that you buy that is drop-shipped in that way.

We like this because the manufacturer, or whoever is doing the drop-shipping, actually ends up being responsible for all of the warehousing, they’re producing the product, they’re handling in the fulfillment in the sense that they’re packing the thing in a box and shipping it.

What are the complications? To get the margins that you need, sometimes (but not always) you choose to drop-ship these products from China. After all, a great number of the products that are manufactured in the world are manufactured from China.

One of the challenges that you run into with things from China is not so much product quality, which used to be a much bigger issue 20 or 30 years ago, but really more an issue of shipping times. You may be worried some of your customers are used to Amazon Prime and getting things the next day, so you may be wondering how will they be patient enough to wait on something from China. It turns out that’s not a big deal. We’ll talk about that in a minute.

That’s the model. You sell something that you don’t have and you have it shipped directly to the customer from your supplier, which could be anywhere in the world, including China.

This is different than other ecommerce models that you may have heard of where, for example, you might buy 1,000 of some item and store them in your bedroom and then try to sell them out of a Shopify store, on eBay, or somewhere and fulfill them yourself out of your house. That can be a very effective model and people have made a lot of money doing that, but the challenge is you have to worry about getting stuck with 1,000 items.

If you decide that what is really going to sell is a diamond studded cat collar and you go buy 1,700 diamond studded cat collars because you can get them for a really good price, and you put them in your spare bedroom, well, you have to sell 1,700 diamond studded cat collars or you’re stuck with them. That can be a real challenge, especially if you’re just getting started in some kind of ecommerce business.

On the flip side, if you’re doing drop-shipping you don’t have to have any diamond studded cat collars. You can find a supplier of diamond studded cat collars and you can sell those and then fulfill them from a diamond studded cat collar supplier. That can work really well.

Then if you find the market for diamond studded cat collars is amazing and I could do better if I bought 1,000 of these, now I have a track record selling diamond studded collars, I can get a deal from the supplier if I’ll buy a crate of 1,000 of these cat collars, I’m going to go ahead and buy those and store them in my house because my margins are better when I do that. You can do that with a lot less risk if you already understand the business and know what it takes to sell 1,000 or 1,700 diamond studded cat collars.

There we go, that’s how drop-shipping works.

If you were going to start a drop-shipping store, what would you do?

It turns out there are really only a few steps and it’s super low risk.

The first thing that you will have to do if you’re going to start a drop-shipping operation of any kind is you’re going to have to pick a niche in which to sell your products.

Maybe you already have a niche based business because of your affiliate marketing efforts. For example, maybe you already have a website about cats. If you already have a website about cats, you’re probably already selling affiliate products about cats on your cat website. If that’s the case, then it might be a natural thing for you to go identify some products in the cat niche to go drop-ship.

If you don’t currently have a niche and you’re looking for something that you want to sell by drop-shipping, I think what you really want to do is start imagining a niche where people are making impulse buys on a relatively frequent basis. One place to find these sorts of things is on Facebook.

The kind of things that you see advertised on Facebook where someone clicks and they actually buy something that was advertised, little items like funny t-shirts and coffee mugs, stuff like that. Eight or 9 times out of 10, a lot of those items that you see are being drop-shipped. You can start to imagine the kind of interesting niche products that you might want to advertise to people that you’ve seen around that are currently being advertised to you.

For example, one of the things that was getting drop-shipped a lot in the past few months has been these fidget spinners. That’s an example of a popular item that you see advertised on Facebook.

These are the little spinners that you hold and they have ball bearings in them, you spin them and they’re supposed to relax you and deal with your anxiety and so forth as you spin them. These are largely drop-shipped when you see them for sale online and buy them.

Of course, when some people realized what the market was for these fidget spinners, some people ordered thousands of them and are fulfilling them, for example, on Amazon with Amazon Prime and they’re shipping them much faster than drop-shipping because they recognized the market was there.

Here’s the flip side risk of that, like I was talking about. The popularity of fidget spinners now is going down and the market is getting really crowded. If you don’t time it right, you might end up with a warehouse full of fidget spinners because you bought too many too late and you weren’t able to get rid of them all.

So the first thing is to pick a niche of products that you want to sell. You’ll find that the kinds of products that you can drop-ship is an infinite array of things. The place to look for ideas for what to drop-ship, besides looking around on Facebook and seeing what ads are being run, is a place like AliExpress.

If you’re not familiar with AliExpress, AliExpress is not strictly a drop-shipping shop, but rather it’s essentially Amazon in China. Not really for China, but Amazon based out of China. If you go to AliExpress you can look around at all of the amazing products they have and you will see that there’s all kinds of stuff on there for ridiculously low prices.

Just for example, if I go to the AliExpress website homepage right now they’re featuring products on the front page, just like they do on Amazon, and I see an LED flashlight.

It’s a 10-watt flashlight, it’s waterproof, it has five light modes, it’s LED based, it has a zoomable lens, runs on AAA batteries and it looks pretty cool. That flashlight is $6.50.

This black flashlight looks pretty cool. In your travels around the internet you’ve probably seen a lot of people sell these LED flashlights in all different places.

Imagine in this particular case this LED flashlight is $6.50 and that includes the shipping. If you could sell this flashlight for $14.95 or $9.95, you could start to imagine how you could sell it. Let’s just say you simply double the price, so you sell this flashlight for $12.99 in your ad.

Maybe it’s really fantastic flashlight. It could be awesome. It’s good to know that ahead of time, so maybe you order one and see this is a really good flashlight for $6.50. You sell this thing for $12.99 and you fulfill it from AliExpress. You pocket the $6.50, because there is no shipping cost for you, and you make a 50% profit on this item before your marketing costs and operational costs.

That sounds pretty good and that’s how that would work.

Now, I will tell you that in my experience the more novel the item is and the more difficult it is to just go down to the store and buy it, the more likely that you are to be successful with this sort of drop-shipping operation. But, you get the idea with this flashlight.

I’ll tell you about one of the things that I’ve been seeing a lot lately. The other day I was at a neighborhood outdoor shopping area in my community where they have live music and there are outdoor shops and restaurants, one of the things that we really like to do with our friends who have kids that are the same age as ours is we go to this pub and we’ll sit out on the patio and eat dinner.

Unfortunately, lately I haven’t been drinking any beer because of this crazy Cliff Ravenscraft diet that I’m on that is almost over. I still have a few more pounds to lose, but that’s a whole other story. Maybe I’ll update you on that later.

We sit out there and we let the kids play out in the grass and so forth. When we were out there the other day we saw that there was a guy out there selling these inflatable couches. I don’t know how to describe these to you other than to say it’s a giant bag made of something that resembles parachute material, constructed in an air-tight sort of way. If you run with the bag, kind of like running with a kite, you could fill it up with air like a balloon, then you could seal it or close it, and then you tied it together in a way that it made a giant doughnut shaped pillow that you could lay out on the lawn.

This guy was selling these inflatable couch things out there on the lawn for about $80. My daughter wanted one, so I went up and talked to the guy, the guy was selling them for $80. My daughter, who is 7-years-old, did not understand why we couldn’t have an inflatable bag of air for $80, but I had to put the brakes on that one. I was like, “I know you normally get absolutely everything that you want, however we’re not buying a bag of air for $80.”

And I recognized that this was clearly coming from a place like AliExpress. Sure enough, I went back into the pub, pulled out my cellphone, looked on AliExpress, and in three seconds I was able to find this thing for $14.95 or $19.99. This guy was marking this item up 4X and selling them locally.

A little more digging found that you could find Shopify stores that were selling these for $50. Again, they were getting them for $19.95 and drop-shipping them.

That’s just to give you an example of what’s possible. That’s one of the kind of crazy things about marketing and retail, the right price for something is whatever people will pay. If you have a novel item that people haven’t seen before and that they want and it’s an impulse buy, they’re not going to go comparison shopping for this product, they’re just going to buy it. The question is can you find those products on AliExpress.

Once you find them, one of the things that you’re looking for on AliExpress is what kind of shipping is available from China. It turns out there’s this thing called ePacket. ePacket is this agreement that I think started with the Hong Kong government back before they were part of China, when they were actually still part of the British Empire, and it’s an agreement between the Hong Kong Post and the U.S. Post Office which is now extended to many other countries in the world where you can ship something out of China and get a valid tracking number that will be valid for the U.S. Postal service. If you ship something from China with ePacket, you get a USPS tracking number that you can give your customers and they can track their shipment online.

It takes it several days to leave from China, the shipping time is still 10 to 20 days, but it’s much faster than other traditional shipping methods from China and it’s trackable. Usually we find on these impulse buy decisions people don’t really care that it’s going to take a week or two. They didn’t this item that they’re impulse-buying in the first place and they don’t really care how long it takes to get there in general.

If it was something that they were looking for, they wouldn’t have been impulse-buying it off of Facebook, they would have gone to Amazon and searched for something that was available on Amazon Prime. We find that when these drop-ship items are advertised in the right way, you get the impulse buy, people will tolerate the shipping and everything is all good. So it turns ePacket works really well.

When you’re doing this kind of drop-shipping and you’re just starting out, my recommendation – and this is what is taught in the 100K Factory course – is that you find something on AliExpress and you look for ePacket shipping. You pick a niche that you want to operate in and you find some novel exciting products in your niche that you think people might be interested in buying.

Now that you’ve found a product and a niche, the next thing that you have to do is figure out a way to sell this thing.

If you have an existing website, probably the way to set this up is to add WooCommerce plugins to your existing WordPress website and utilize the structure the WooCommerce provides.

Now, I’m not a WooCommerce guy, but I hear wonderful things about that. I do hear that, like all WordPress things, there is an amount of technical support that is involved in maintaining WooCommerce, conflicts with other plugins, and stuff like that, that can be difficult, interactions with particular themes and stuff that can require a certain amount of technical expertise. This is not any different than anything that you do with WordPress. You add Plugin A and it conflicts with Plugin B and you have to figure that out, or WordPress gets updated and it breaks your plugin or something like that. That happens.

If you have a reasonable amount of technical savvy, or you have someone that can help you, WooCommerce is a great low cost solution and way to get ecommerce up and running on your site. There are other ecommerce solutions for WordPress as well.

For me and what I recommend, if you don’t have an existing website and maybe even if you do, I’m now a huge fan of Shopify. If you’re interested in using Shopify, you can use my affiliate link at LateNightIM.com/shopify to sign up for a free trial if you want to check it out.

Shopify is awesome. I will tell you, I had heard about Shopify for a long time but I had never really investigated it. I didn’t really appreciate how cool it was. Instead of self-hosted WordPress, it’s basically equivalent to a WordPress.com thing where Shopify is hosting your website, Shopify is maintaining the code, everything is done on Shopify. Just like if you were running a blog on WordPress.com where everything is done by WordPress.com, but it is tailored for ecommerce, it is for online stores.

The number of people who are running Shopify, big and small, is absolutely mindboggling. You create a Shopify account and you connect it with your domain. You can go buy a domain like BobsStore.com and hook this to your Shopify store and you can literally be up and running in a few hours. It’s truly amazing.

Shopify can handle taking the money, they have payment processors. In fact, the three payment processors that I have set up on my site are Shopify Payments, which amazingly and magically includes ApplePay, which as an Apple fan-boy makes really happy, PayPal, which everybody needs to take on their store, I think most of the payments that I get in my Shopify store come through Paypal, and even things like AmazonPay, Bitcoin, and other things like that are supported by Shopify. That’s super easy and super cool.

People ask me, “How am I going to take money and all this kind of stuff?” All of that payment gateway and payment processor stuff, all of the themes, all of the how to list products, how to handle the fact that this product comes in four different colors, all of that is handled incredibly well by Shopify. So I really recommend Shopify.

So you start up your store and you populate it with the information for this flashlight, or this blow up air couch. You make that item for sale, you make your Shopify store live. If someone comes to your store then they can see this item and they can pay you money.

You will get an email when they buy this flashlight from you that says, “John Smith from Nantucket, Nebraska has just bought Item #7,” which is the flashlight. Then you can take that and go over to AliExpress and you can order the flashlight. John Smith has given you $13, you take $7 of that and you go over to AliExpress and you order this flashlight and have it shipped directly to him in Nebraska.

He’s happy he has his flashlight. You’re happy, you kept $6.50 of his money and put it in your bank account. You gave AliExpress the other $6.50 and it’s all good. That’s how that works with Shopify.

Wait a second, Mark, that sounds like a lot of work.

I think the next question is, “That sounds like a pain. That’s easy if there is one John Smith, but I want to make $100,000 a year in ecommerce.” Which, by the way, that’s totally doable and I see people in this 100K Factory that are already doing that. In fact, I see people making tens of thousands of dollars a month doing drop-shipping in the 100K Factory program.

That’s possible for you, too. If you’re selling tens of thousands of dollars a month worth of flashlights, that means that you’re shipping thousands of flashlights a month. You might be thinking, “Mark, this sounds like a pain. In my store I want to have lots of products. I need a way to get those products in the store and get them set up, I need a way to fulfill those orders, and doing them one at a time while I’m sitting at my desk in my house is not working for me.”

What I recommend for you there and what I would say most people in this situation use that are working with AliExpress and working with Shopify is a tool called Oberlo. There are other tools like this and I haven’t tried them all, but what I’ve used of Oberlo I’ve been very impressed with.

The Oberlo tool does two things for you.

One is it helps you search AliExpress for products that you might be interested in. It helps you evaluate and sort the good suppliers from the bad suppliers. It helps you identify which products have this ePacket shipping capability and which products don’t.

Once you identify a product that you want to sell in your store, it helps you push a button and suck the information for that product into your store. That’s really cool.

The other thing that Oberlo does is once you’ve sold a product it helps you push a button and transfer the shipping information that the customer entered. When the customer checks out in your store they put in their information, “John Smith, please ship my product to Main Street, Nebraska, zip code and phone number.” It sucks all that information out of Shopify and jams it into the order entry screen on AliExpress for you and ships the product for you essentially at the click of a button. So, Oberlo automates that.

What have we done so far? We’ve identified a niche. We’ve looked on AliExpress in that niche and identified products. We’ve fired up a Shopify store and we’ve populated the store with products that we want to sell. We have used some software technology called Oberlo to make it possible to get those products to our customer easily.

You don’t have to have Oberlo at first. You can do things manually at first, but that’s what you’re going to want to do. Once you have more than two or three orders, you’ll be ready to stop retyping that customer information and use a tool like Oberlo.

Where does the traffic come from?

Now the problem for your internet business is the quintessential problem for all internet businesses, which is where to get the traffic.

The reason that I took this Shopify-based ecommerce drop-shipping course 100K Factory was not really because I wanted to build an additional business around Late Night Internet Marketing, although that seems to be exactly what is going to happen, it was because I wanted to learn about Facebook advertising.

One way you can get traffic to your store is to advertise on Facebook. I think that has been and will continue to be a very common way to advertise drop-shipped products, because the targeting that you can achieve with Facebook is unparalleled in any other platform and is truly magical.

Do you need to find people who are between the age of 25 and 35 who love cats and scuba diving because you’ve got a t-shirt that is targeted at cat lovers who scuba dive and the design is for young people? Facebook can do that for you. You’re not going to be able to do that on something like Google Adwords because no one is going to be searching for ‘cat scuba shirt.’

Again, we’re generally targeting people offering them things that they didn’t know that they needed. They’re not searching for these things. We’re interrupting them, this is interruptive marketing, and we’re saying, “Hey you, guy who likes cats and scuba diving, we have this amazing cat scuba diving t-shirt that you just can’t live without. Here, it’s $19.95, please buy this shirt.” They buy it and it costs you $9.95 to fulfill the shirt and you ship it to him. He’s happy and he’s showing his friends this amazing cat scuba diving shirt, you keep the $10, and everybody wins.

Facebook is amazing for this because you can actually target exactly the right people. What drop-shipping turns into is a game where you as the player are trying to identify the narrowly targeted audience that buys your product at a rate that pays for the ads with the profits.

When you sell that flashlight, or that air bag couch thing, or that cat scuba diving t-shirt, in all of these examples I’ve suggested that you’re marketing the product up about twice what you paid for it. Maybe you mark it up three times or maybe you mark it up 75%, whatever.

For simple math, we’re saying that you’re buying something for $10 and you’re selling it for $20. With that $10 you made and have in your pocket, you have to pay your costs out of that. One of your big costs is going to be advertising.

The question you’re asking, generally speaking, is can you find advertising that will allow you to not spend all of the $10. If you spend $11 advertising a product that you’re making $10 on, then you’re losing money. I’ve always joked that I’m the master at spending $1.00 to make $0.90 with paid advertising, I’ve done that so many times.

What I’m learning from this course is how to spend $3 to make $10. Really, more accurately the typical result in drop-shipping is to find opportunities to have profit margins on the order of 40-50%. Literally to spend money on the product, the shipping, and the advertising so that when you make $20 you only have to spend about $12 in order to fulfill the product, ship it to the customer, and do that advertising with average advertising costs. You’re looking at a business that makes sort of a 40% profit margin.

If you can generate an online store that sells $500 worth of products a day… Let’s say that you have a $20 product and you are selling 25 of those a day. That’s not too hard to imagine, selling 25 widgets a day on an online store that is available all throughout the world where you’re running Facebook ads.

If you can do that at a 40% margin, you’re talking about $100,000 worth of profit a year on a business where you can easily outsource the fulfillment. You can easily hire someone to run Oberlo and ship these products out every day.

It’s really easy to imagine making $100,000actually clearing $100,000 – a year on these kinds of drop-shipping operations. I will tell you that I have met people in this course on the private Facebook group where we’re talking to people that are actually doing this. Real people.

Not me, yet. I have made money, but I’m not making that kind of money with it yet. I have absolutely sold products like this using Facebook advertising and it is clear to me based on the evidence in front of me that this is something that you can do as well.

What are the possible sources of traffic?

Of course we talk a lot about SEO. SEO for ecommerce is hard, but it’s certainly possible. Especially if you’re combining this with a content rich site and you’re adding drop-shipping on top of your affiliate marketing site, I think search engine traffic is definitely viable for this. As I said, it’s not optimum, because generally people aren’t searching for a cat scuba diving t-shirt.

Facebook is where a lot of people start and you can target Facebook for mobile. That’s another great thing about Shopify, it’s fully responsive so all of your stuff works equally well on mobile and a 27” display. Everything looks beautiful on Shopify. (In case you can’t tell, I’m really impressed with Shopify.) Facebook traffic appears to be a really good source of traffic.

Instagram, which is also owned by Facebook, is a newer and very interesting source of traffic that a lot of people are having success with.

Pinterest is fantastic, especially if your product pops visually. There are ways to advertise on Pinterest and ways that you can use social sharing inside of Pinterest to get traffic.

Other media platforms are worth a try, too. For example, Twitter. Although I think we find that to be less responsive, that’s another opportunity to get traffic.

Basically, anything else that you can imagine for traffic generation generally applies here. The big ones are the ones where you can target interests. Targeting interests is a little harder on Twitter, but on Facebook it’s really straightforward. I think that’s one of the things that makes Facebook advertising so powerful is you can get to exactly who it is that you want to get to.

To recap, the steps are…

Identify a niche. Identify some products in that niche that meet this test that they’re not too expensive, they’re good for impulse buys, people are willing to tolerate a little bit of shipping delay. Find those products on a place like AliExpress, very straightforward to do.

Open up a Shopify store and list some of those products for sale in your Shopify store. Set up your payment processors, make it look beautiful, so on and so forth.

Then, if you’d like, optionally use a tool like Oberlo to help you find those products and automate your fulfillment process.

Finally, drive traffic to the store using the method that you think makes sense. I recommend that you start with Facebook.

I will tell you that in this course that I’m taking we’re not talking about testing the viability and profitability of these products with thousands of dollars of ads. These guys test with a few dollars of ads per day per product. It’s not like you need $100,000 to get this business started.

In fact, you don’t need any money to pick your niche. You don’t need any money to find a product on AliExpress.

To get started on Shopify you don’t actually need any money, because at LateNightIM.com/shopify you can start with a free trial. Once you do start up your Shopify store the level that you need is the $29 per month level. So you’re in for $29 a month on Shopify, and possibly less than that if you choose the WordPress route. Oberlo, I believe, is still free for a low number of product shipments, and when you’re getting started out it’s essentially free. It’s very inexpensive or free when you’re starting.

Now, when you’re selling 1,000 products a day it’s more expensive, but you don’t care because you’re making money. That’s okay, you’re happy to pay that money because that’s just part of your business cost and you’re making enough profit to cover that easily. So Oberlo is really cheap.

The Facebook advertising that I’m talking about, to test a product you really don’t need $1,000 ad test, you need a $10 ad test or a $20 ad test. It’s really easy to experiment with this very inexpensively.

That’s the beginner’s guide to helping you understand how to start an ecommerce drop-shipping operation using Shopify and AliExpress. I hope that’s been helpful to you, I hope you found that interesting, and I hope to talk to you next week on the Late Night Internet Marketing Podcast.

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