Today, we're going to cover five reasons why you may have lost money while dropshipping. Make sure to stick around for number three because very few people know about it.
So let's say you recently sold an item on eBay or Amazon that you are dropshipping. You fulfill the order. Everything looks great, but when you crunch the numbers, and you take into account, your eBay fees, your Amazon fees, sales tax and everything else, you will realize that you lost money on a purchase. These are five reasons you may have lost the money:
- The first reason is you're not using a repricing tool.
There is a software out there that will reprice your items on eBay or Amazon. If the price changes on your supplier's website, then the price will change accordingly on your sites like eBay or Amazon. Some people say you don't have to use this software and I get it why some people might not want to use it, but you are putting yourself at a considerable disadvantage here because if you don't use that software, it will end up to the things like where the price changes on Walmart and you don't catch it in time, you're not able to make that change on eBay or Amazon on time before someone buys it from you. This software that you can use is affordable. It's effortless to use once you set it up. I don't see any harm in using the software in most cases. If you want to learn more about that software, I'll have it linked here.
- Second is the price changes quickly.
Let's say the price changes on Walmart. You check the prices at 12:00, saw that there were no pricing but then at 12:05 the price changed on Walmart. Let's say it went up 20 bucks and now someone buys it from you on eBay before the repricer rechecks the price at one o'clock. In that situation, what happened was there's nothing more you can do about it. It's not going to happen very often, but it will happen sometimes. The best thing that you can do is either fulfill the order and take the loss or wait to see if the item goes back down and stop back down in price because a lot of times they will go back down to the original price later on. Those are the first two they deal with reprice errors.
- The third are Pricing Errors from the supplier.
I think that a lot of people don’t know about this. It sometimes happens that there are pricing errors on our supplier's website. Let's say an item on Walmart for $100 suddenly would go down to $1.00 and it's an error on their site. Usually, it only lasts for a concise time. Generally, less than an hour and during that hour some people will buy it for a dollar on Walmart, and if our repricer sees that it's a dollar, it will change the price on eBay or Amazon for us to mark it up from a dollar which is pretty bad. People will buy it from us for a lower price on eBay. By the time we order the item from Walmart, the pricing error has been fixed. Now the price is back up to where it was before. These pricing errors are pretty rare. There are websites which are devoted to alerting people about these pricing errors because when they come up on sites like Amazon or Walmart, people like to rush in and buy the product for the meager price. Sometimes the suppliers will honor that price and other times they cancel the orders. It's kind of a hit or miss with those, but that's why people are devoted to finding them and spreading the word about them so they can get a quick, cheap deal on those items. But for us dropshippers, it's not a good thing because usually, we're not placing orders every hour. We come in later in the day to place orders and if the price has gone back up after one of those pricing errors. That sometimes happens when we suddenly realize we lost money on the purchase.
- Fourth is setting your margins incorrectly
When you are listing your item, and when you are setting up your repricing software, you got to make sure your margins are set correctly. Make sure you take into account the price of the item whether that item has shipped or not. A lot of suppliers will have free shipping but only under certain circumstances. You want to make sure that you apply shipping where it's supposed to be used. Make sure you compensate for the fees whether that's eBay, or PayPal fees or Amazon fees. All that has to be added in as well. Make sure you're doing the math correctly. Make sure you understand how the math works because if you don't mark it up enough, that's another good reason why people lose money with dropshipping, because they don't understand how the margins work.
- Fifth is waiting too long to order the item
Let's say someone buys the item from you early in the day and you wait until the end of the day to purchase the item. During the day the price of the item on your supplier's website might have gone up, and I'm not talking about a pricing error here I'm talking about how it naturally goes back up. In that case, you waited too long to purchase the item. Generally, I think it's okay only to buy items once a day. Once you start to get more sales, I encourage you to place orders at least twice a day. In the meantime, that's going to happen. You've got to be aware of that evaluate if you want to take a loss on this and fill the order or do you want to try to wait to see if the price goes back down, or know if it's cheaper on another website. All those options are available to you, but be aware that if you wait too long, never wait more than a day and especially once the orders picked up. You want to be placing orders at least twice a day.
I do have one bonus for you. People also forget about sales tax. Whenever you purchase an item from your supplier's website, a lot of times you'll have to pay sales tax for that item, and sales tax always changes for every purchase. It depends on where the item is being shipped to. It doesn't depend on where you live. It depends on where your buyer lives. For instance, some states have no sales tax. Other states like California have a high sales tax, and other states have really low sales tax. You have to find an average here. Let's say it's about 6 or 7 percent, and add that into your margins which I talked about before. Make sure you calculate that as part of your margins when you mark up the item. Know that if you put it at 7 percent, and you ship the item to California, there's a chance you might break even or lose money on that purchase depending on what your margins are.
If you want to learn more about eBay or Amazon drop shipping, I have free courses about both of them linked here: