When you’re looking for financial advice, one major suggestion for increasing your savings is to increase your income. It’s actually easier to increase your income than to decrease your spending, so obviously, we’re all looking for a new side hustle.
One very popular side hustle is opening a drop shipping business.
What is Drop Shipping?
When you sell using drop shipping, you setup a website to sell a product. A manufacturer makes the product. But unlike traditional sales methods, instead of shipping the product to you to then ship to the buyer, when you work with a company that does drop shipping, the manufacturer ships directly to the buyer. You as the seller act as the middle man, facilitating the purchase.
What are the benefits to a drop shipping business?
Low Startup Costs – First and foremost, it’s not expensive to start an online drop shipping business. You need to setup a website. Beyond that, you only buy a product from the supplier when a buyer has already purchased it from you. You can have shipping costs covered by the buyer. In addition, you don’t have to worry about buying shipping supplies like boxes and packaging materials.
Doesn’t Require a Lot of Time – Drop shipping businesses typically require some daily interaction to process all of the purchases, but much of this is automated and can be done with a few mouse clicks. It’s also something that you can do from anywhere, so no need to shutdown your business when you’re on vacation (unless you want to, of course).
Low Risk – Since you’re not spending a lot of money, you’re not risking a big financial loss if your business doesn’t workout.
What are the downsides to a drop shipping business?
Time Investment – While a drop shipping business might not require a lot of time to manage day-to-day, the design and setup of your business will take time. You can’t just throw up a website and pick some random products to sell. The best businesses cater to niche interests. Maybe you have a hobby that you can link to your side hustle. Maybe you’re big into fitness or paper crafting or camping. Consider setting up a drop shipping business related to these subjects. And of course, once you have a topic, you will have to find a drop shipper who can ship those items.
Competition – Because setting up a drop shipping business is relatively simple, there can be a lot of competition out there. You will have to work to keep your prices low and get the word out about your business. Thankfully, social media can be a great way to do this. Additionally, if you choose a business related to one of your hobbies, you might already have a network of people to reach out to.
Profits – The best way to get sales is to keep prices low – but you have to pay the drop shipper for the product, so you have to balance your potential profit against the need to get buyers via low prices. Obviously, more expensive products have more room for a profit margin, but people might also be reluctant to buy expensive items from an unknown store.
Supplier issues – Since you’re not shipping the product yourself, you’re at the mercy of your supplier. Mistakes can happen – it’s possible a supplier will accidentally ship the wrong product. Additionally, you can’t always vouch for the quality of the items, as even if you’ve ordered them yourself to try, the supplier may have changed the item without letting you know.
Should I try drop shipping as a side hustle?
The risk is relatively low, so if it’s something that intrigues you, give it a shot! It’s definitely not a set it and forget it type of business, but if you put in the work, you can definitely bring in some extra money. However, if you’re just looking to make money and your heart isn’t in it, your business has a much higher chance of failure. I really recommend only getting into it if you can sell something that you’re passionate about, something related to your hobbies. Having that extra personal interest will help keep you motivated to keep the products fresh and the advertising active.
Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.