What Does it Cost to Start a Drop Ship Business?

The cost to start a drop ship business can vary depending on a lot of factors. But there are general startup expenses that you can use to get an idea. Here is what you need to prepare with a little information on basic drop ship startup costs.

(1) Marketplace / Platform Fees

The first cost to start a drop ship business that you should look into is what you will be paying to sell online. You can either join an online marketplace or build your own store on an eCommerce platform. You can also establish a presence through both a marketplace and platform optimized for eCommerce.

Marketplaces

Joining a marketplace like Amazon or eBay can give you access to a ready audience. Amazon especially has a very large pool of loyal online shoppers. If you are ready to comply with the strict seller metrics and specific policies that these marketplaces have for sellers, then they can be a good option to jump start your store. Let’s look at the two most popular marketplaces:

Amazon

You don’t need to pay the $39.99 monthly subscription fee if you sell fewer than 40 items per month. Instead, the cost to start a drop ship business can be as little as 99￠ for each item sold. This works out cheaper when you’re just starting out. Amazon does not charge fees for listing on the marketplace, but they take a percentage of all sales. As a seller you will pay referral fees that range from 3% to 45% with a minimum of $1 or $2 depending on the item, plus variable closing fees for media items.

eBay

eBay charges an insertion fee for each item, which depends on the category. It doesn’t matter how many items you have. Your insertion fee is based on either your minimum opening bid or your reserve price, whichever is higher. The listing fee is free for the first 100 items per month, however, if you don’t have an eBay Store, your auction starts at 99￠, and you have no reserve. With an undisclosed reserve price of $50, the auction will cost $2 to post. For reserves in general, the listing fee depends on the amount of the reserve plus the reserve price charge. The fixed-price fee for a listing at $1 is 50￠ and goes up to $2 for items at $200 and above. Insertion fees are nonrefundable. You do get free insertions fee listings every month, however, and insertion fee credits for each items that sells.

The cost to start a drop ship business on eBay can get higher when you add the final value fee. This is at least 8.75% for items below $50 and an additional 4% on items up to $1,000. This fee is calculated based on how much the item actually sold for plus the shipping cost and other charges that the buyer pays. The final value fee also applies if eBay catches you offering your contact information or trying to take customers out of eBay. Customizing your listing is not free, and listing option fees run from 50￠ to $4 a pop.

Platforms

Building your own store with a website on an eCommerce platform gives you more control. The cost to start a drop ship business this way can also end up costing you less. This depends, of course, on the viability of your product, how well you can target your audience, and the level of customer service you provide. All things being equal, however, a platform can be a good choice for you to build your brand. Let’s look at the two most popular eCommerce platforms:

Shopify

If you’re good with one of the 10 free themes from Shopify, you will pay as little as $21.75 per month for them to host your store. This is your basic cost to start a drop ship business on Shopify. Then they also charge a 2% turnover fee plus around 3% + 30￠ per transaction to use the payment gateway. Fees for sellers based in the USA, UK and Canada are also usually lower, and you can also opt for Shopify Payments for more savings.

You will need to buy your own domain for your store, which costs an average of $9 per year. This really depends on the name you want for your store, however, since it should be the same as your domain. If your name is competitive, then your domain will be more expensive. You can monitor domain registrars to find deals and pay for years in advance to reduce the cost.

If you can put your store together using Shopify’s easy platform, you need only factor in the cost of your time. Getting up and running on Shopify usually takes about a day.

WordPress

With the WooCommerce plugin, you can turn almost any website with a WordPress theme into an online store. The WooCommerce plugin is free, and there are thousands of free WordPress themes that are compatible with the plugin. There are also about 100 themes designed from the get-go with WooCommerce in mind. This makes the cost to start a drop ship business free so far.

Woo offers a selection of compatible child themes that you can upload to a WordPress install. These child themes run from $39 and allow you a range of customization options, if you need them. WooCommerce fees are something that you need to consider, however, if you’re running the site through them. The fees aren’t cut and dry.

Through Woo, your hosting could be as low as $5 per month, but it is actually provided by third party hosting companies. You might be better off setting up your own hosting account, which usually also gives you a great discount on your domain. With Woo, there are also other add-on costs that are not clearly defined. First, you might also have to pay for additional extensions depending on what you want on your store. Second, you will have to purchase your SSL certificate to be able to accept payments. This costs about $100, but can be cheaper through your own hosting account.

Finally, factor in your own time costs as you deal with third parties. Note also that WooCommerce has a great connection with WordPress. It’s the most highly customizable and scalable platform that performs best for organic SEO, without having to purchase plans or upgrades.

If you have enough experience to put your store together using the latest simple themes or drag and drop WordPress builders, you again need only consider the time that it will take you to build your store. WordPress will tend to take a bit more time than Shopify, but that’s only if you want more flexibility of design and options for functionality.

(2) Laptop and Internet

These are the very basic tools that you’ll need to get started in eCommerce.

Laptop

You need a decent laptop that can handle your processes without lagging or stalling. Basically, an 8GB core i5 or AMD A9 or A12 should work fine for your needs if you’re careful. The cost for this type of unit brand new starts at around $500, and AMD is usually $100 or $200 cheaper for the same performance. Macs run from about $1000 for the same specs. I’ll leave it to you to choose the brand, but Lenovo has been a steady top choice for durability and price.

If you’re upgrading anyway, go for a 12 or 16GB core i7 or AMD FX series. Either of these should work wonderfully well. AMD units start at around $700, Intel from around $1000, and Mac from around $1800. If you plan to run multiple processes simultaneously or have other work to do while you run your store, consider scheduling your activities. Otherwise, prepare to shell out a cool $2000 to $3000.

Internet

You also need a decent internet connection to make sure that you can get things done fast. Everything is online, so you have a definite need for speed. Internet fees vary widely depending on the provider and the location. Generally, however, US subscribers pay an average of around $130 per month for a 150Mbps home broadband connection. You can, however, get a straight 100Mbps fiber connection – without all the unnecessary bundles – for as low as $50 per month from smaller providers.

Your concern with small companies would be the stability of your connection. But big telecoms haven’t really been all that reliable, either. Do research in your area to know what specific options are available to you, and don’t forget to read the fine print on applicable fees and surcharges. Note that you want to be able to hit around 5-10Mbps at the lowest mark.

(3) Time and Labor to Build Your Store

Are you building your store?

Let’s look at your time commitment, and you can work out the costs.

With a marketplace or platform, you will put in about half a day’s work to get your first few listings up. Then you will need to spend a couple of days playing with, for instance, EBC pages on Amazon or theme options in Shopify.

With a website, it takes about a day for a simple store to start with. You will already have a customized appearance for your listings, however. Then you can tweak a few things here and there as time allows. Having your own website is much more flexible in terms of implementing design changes.

Are you going to outsource your store setup or website development?

To set up Amazon, you can hire a basic Amazon or eBay lister from overseas for as little as $6 per hour. If you want them to take care of most everything for you, you’ll pay around $8 to $35 for an overseas freelancer. Local listers with the same level of experience will cost from $20 to $50 or more.

The cost to hire someone will depend on what features you want on your website, including Shopify customization. You can hire a Shopify or WordPress developerfor $10 to $40 per hour if you source outside the US, and $20 to $50 or more if you want someone stateside.

The time that each person takes to complete the setup varies widely from case to case. I can estimate a day on average for an experienced freelancer doing a basic setup. It is best to get solid estimates from the horse’s mouth, however, and always consider the specifics that you are asking for along with the worker’s level of experience. If you need help working this out, you can set up a meeting with FreeeUp CEO Nathan Hirsch to talk about your needs.

(4) Time and Labor to Build Supplier Relationships

This is something that you might want to do on your own to start, so you can get a feel for it. In view of that, we’ll focus on time commitment first. Give yourself 5-10 hours to do initial research into the best ways to find drop ship suppliers and to reach out to them. Give yourself another 5-10 hours for back and forth communications to pass along all the information you and the suppliers will need. Moving forward, give yourself another 1-2 hours per week to keep the relationship strong.

If you are considering outsourcing this area, you can expect to pay from $5 to $40 per hour for the research and taking care of communications, depending where the worker is from and their level of experience. You can also find freelancers who can take care of product sourcing, order fulfilment and inventory management for a little more than this per hour.

Continue reading this column on ConnorGillivan.com and find out more about the cost of starting a drop ship business!