Data Driven Drop Shipping

Drop shipping is an ideal solution for many eCommerce entrepreneurs. However, it does have its downfalls that are worth considering. Andrew Egenes from Shoplio has weighed the pros and cons, looked at the data, and built a multimillion-dollar eCommerce business in just a couple years.

This episode features Andrew’s methods for determining whether or not a niche is viable, his systems for working with drop shippers, and so much more.

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Here’s What You’ll Learn

  • Working with your drop shipping suppliers to create highly profitable partnerships.
  • How to use data to discover a worthwhile niche.
  • The details behind a drool-worthy first day in business.
  • Marketing a drop shipping business with 95% paid media (even with slim margins).
  • Utilizing self-paid warranty extensions to increase conversions.

What Was Mentioned

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14 Comments

  1. Very inspirational podcast! Would have been good to know more on what customer retention techniques he used.

    Just as a quick question Andrew if you don’t mind answering:
    I’m based in the UK and have called up some suppliers who all are very professional large companies who all require VAT codes. Currently i’m in full time employment and am setting up as a sole trader which doesn’t require you to pay VAT unless you have over £70,000 in turnover.

    1. How does 20% Vat affect cashflow? … Since i’ll be charging my customers the extra 20% it may be hard to be competitive when I’ll be dropshipping.

    Much appreciated,
    Ted

    1. Hey Ted. Customer retention has been difficult with the protective covers verticals. Purchases are one-offs 8/10 times. We are, however, working on implementing an email marketing workflow that does a better job of communicating our entire product offering (with discounts) to customers who purchase from one of the individual niche stores.

      Regarding the VAT, as with most drop-shipped products, you’re sacrificing margin for flexibility and lower risk so a 20% increase to COGS would certainly hurt. That being said, we spent several months trying to find pricing that allowed us to be profitable with our latest project, RugsNow.com. In the end, we stopped trying to compete on price and decided to focus on the segment of customers who don’t comparison shop. When we increased our prices across the board our conversion rate literally dropped in half but the increase to profit per order from the customers who still purchase allows us to be profitable and continue finding ways to grow and optimize.

      In the end, I wouldn’t let inability to compete aggressively on price prevent you from testing a vertical. There is (almost) always a segment of customers who either don’t comparison shop or will gladly pay more to buy from a better more trustworthy looking retailer. You just have to find out if that segment is large enough to offset the segment that bounces the minute they realize they can get the product cheaper somewhere else.

      1. Thanks for the advice Andrew. Yeah I never intended to compete on price but did want to at least be able to be within a 5% difference of the top competitors and do things a little differently. Just goes to show how much value testing does for your website. Best of luck with your venture!

    2. Hi Ted,

      We operate in UK as well and are as you below the £70,000 threshold that HRMC requires to be VAT registered businesses. we just started few months ago.

      In your case you’ll be most likely paying the VAT from your supplier (20%) and your prices will have to consider that element as well to make profitable your business. Your customers won’t pay explicitly the VAT but implicitly they will… if you want to have a sustainable business.
      At the end of the day having or not VAT doesn’t mean you are paying more for the goods you sell from your suppliers. It’s just a tax system in place in all European countries to tax the Value Added that the businesses generate. The good thing is that business like yours don’t have to deal with the headache of the VAT accounting. You just take it as a cost in your CGS.

      For the consumer customers what matters is the final price. So you need to make sure that the final price you charge to the customers is competitive and that it leaves you a good margin to keep profitable your business. Only if you deal with business clients they’ll be interested to know the VAT that they’ve paid on their purchase because that will be for them a credit VAT that will be balanced with the debit VAT.

      Hope I clarified a bit the VAT thing.

  2. Congratulations, but I’m utterly perplexed. How do you launch a site and immediately get traffic? PPC?

  3. Hey this was a great interview. I have a technical question that I’m hoping Andrew Egenes can answer. He mentioned that they attempted to sku out each car cover for each model which would have produced over a million skus and it caused huge magento problems. We’re also thinking of sku’ing out some of our products in a similar way but it would equal a huge amount of skus and slow down the system. What was your magento workaround for this?

    Thanks in advance for your insight and congrats on your success!

    Best,
    Danny

    1. Hey Danny. We ended up developing and implementing a dynamic part finder that uses stored structured data in our database to map the million+ potential vehicle combinations to their appropriate SKU(s). There are a number of commercial part finder extensions available for Magento. Amasty has one of the better one’s I’ve tried so I highly recommend giving it a try.

  4. Thanks to both Andrew, this was a great interview.
    I was trilled by the fact that you got 50 sales on the first day using PPC. Can you please share with us some more details on that? We’ve been using AdWords with http://www.rcmodelswiz.co.uk for about 5-6 months and although we’ve got some good sales from PPC we are quite far from your results and also I’ve to say far from a posititve ROI of the campaign. Btw we’ve been using an agency that supposedly has got some experience in running AdWords campaigns. What is the kind of budget you’d recommend to someone that is starting to invest on PPC? Anything that you could share in optimizing the campaign that has worked for you would be great.

    I believe it was not specified in the interview, but I’ve understood that you deal directly with the producers of vehicle covers. Is that correct and does that allow you to have a more reasonable/generous 30+% gross margin?
    I’m trying to figure out in which conditions it might be profitable to run an AdWords campaign. As Andrew also states in his blog many store owners that operate in drop shipping have an average 10-15% gross margins. From my personal experience with such margins it simply gets not viable to run a PPC campaign.

    I’d appreciate if Andrew Egenes can answer directly this question. Btw, how did you get access to the top 500-1000 online retailers results? I thought that was a great tip. I live in UK and I believe I’ve never seen a ranking of the top online stores.

    Thanks, Robert

  5. Hi Andrew,

    Thanks for the interview. Andrew E – What specific tools are you using for tailoring your ads to specific keywords or our you doing these manually as well?

    Thanks

    Jeff

    1. Hey Jeff, we use a suite of Excel based tools that we built from the ground up that allow us to build out huge amounts of highly targeted ads in an automated fashion. We’re then able to use an Adwords API for Excel plugin to push and modify campaigns, ad groups, and ads directly to our Adwords accounts.