I'm creating an eCommerce shop specialized in fitness products. I intent to source products from wholesalers or manufactures but some of the items I want to sell are big and bulky so I'll have the supplier to ship them to the customer.
I'm just starting out but today I've had a response from a supplier that I approached and they agree to drop ship the products to the end customer but the margins they offer seem extremely low to me. The product I'm interested in is an indoor rowing machine from and the brand is Concept2. The supplier is the official distributor in my country (Spain) for those rowers.
The retail price for this rower is 1095€ and I can't sell they for a higher price as the distributor has an online shop as well and is selling them at that price.
Do you thing this is a reasonable margin? How would you approach the supplier to improve this margin?
I have been working with drop ship suppliers for almost eight years now and I've found that margins are truly ALL over the board. I've had some suppliers offer me 5% margins and I sell for some where I make 200% margins. The average is probably around 30%.
I personally will not sell anything for less than a 20% margin and that's after all expenses... advertising, shipping, cc transaction fee's, etc, etc, etc... sometimes it's just not worth working with certain suppliers. There are always other opportunities out there.
Yep - I find that in general margins vary from niche to niche but even more so from supplier to supplier. It seems that suppliers who sell higher priced products within a niche typically offer better margins.
For example; you're more likely to receive a higher margin when drop shipping a $500 barstool than a $200 barstool. Premium brands typically take better care of their retailers.
In many industries, the way they make money is on the upsell. For example, margins on Apple products are extremely slim, but you sell people an external hard drive, a carrying case, and a fancy speaker system and suddenly you're doubling or tripling your profit. That's the way it often goes with these things.
If you sell appropriate products like electronics, computers, appliances, TV, cell phones, furniture a great way to lift margins is to sell warranty protection plans. Margins are 40%+ and help raise the margin mix. We work with merchants to do this and have been very successful. Our Shopify app automates everything and is free. Selling accessories also helps this cause.