How to Do Retail Arbitrage Dropshipping (Or, How I Lost $500)

In business, you win some and you lose some. This article is about how I lost some, and how you might succeed where I failed.

A few months ago, I decided to create a new stream of income and try “retail arbitrage dropshipping.” It sounds complicated, but it’s really quite simple in theory. “Retail” means selling things in stores. “Arbitrage” is buying something cheap somewhere and selling it for more money somewhere else. “Dropshipping” is when you buy a product and tell the seller to mail it to someone else.

Retail arbitrage dropshipping works like this:

1. You find a product for sale cheap
2. You find someone willing to buy the product for more
3. You buy the product and have it sent to the willing buyer

We can set up a business under this model using readily available services online. You can find products at AliExpress for much cheaper than most places. You can use Facebook ads to find people willing to buy the products for more. You can use Shopify to create an online store. You can use PayPal to manage exchanges of money.

The beauty of it all is that you can create a fully functioning online store without ever handling a single product or leaving your house.

How to Start a Retail Arbitrage Dropshipping Business

Step 1: Create a Shopify account (www.shopify.com). Shopify is an online store builder. Plans start at $29 per month, but the first month is free. That means if you work fast, you can set up a store and only pay the monthly fee if it’s profitable. Don’t make the same mistake I did. I got busy with other things and let my half-built store languish for a few months before getting serious about it. I lost about $100 just because of procrastination. Once you have a Shopify account, go through the online training materials they offer and set up your store.

Step 2: Create a Paypal account (www.paypal.com). There are many ways to handle monetary transactions, but Paypal is probably the simplest.

Step 3: Find a product to sell at AliExpress (www.aliexpress.com). AliExpress is where you can find products for sale directly from factories and stores (mostly) in China. The items aren’t marked up nearly as much as they are in the United States (I’m going to assume you’re in the U.S. for the rest of this article. Adjust accordingly if you’re not). When looking for a product to sell, keep the following guidelines in mind:

• Find items that cost less than $4 (you will sell these for $15-$20)
• The product must have ePacket shipping available (or USPS, which I’ll discuss later)
• Make sure it’s small and easy to ship
• You don’t want anything that is easy to break during shipping
• No electronics or complicated gadgets that might malfunction or require technical support
• No brand names (you don’t want to get sued or banned for inadvertently selling knock-offs)
• Don’t sell anything that you can find at Wal-mart (you can’t compete)
• In general, try to sell things that you might want to buy for yourself

Step 4: Add your products to your store with Oberlo (www.oberlo.com). You don’t need Oberlo, but it does make easier a lot of tasks for managing your online store. You can add it within your Shopify store as an App. I use Oberlo for importing products and fulfillment. When you import products to your store using Oberlo, it will also keep track of inventory so you don’t inadvertently sell something that’s sold out or unavailable.

While you’re at it, another couple Shopify apps that I found useful were “Judge.me Product Reviews” and “AliExpress Review Importer”. Judge.me Product Reviews adds a review system to your store. AliExpress Review Importer can import customer reviews from the AliExpress website. Most customers will not buy a product unless they can first read a few reviews from other customers.

Step 5: Advertise your products on Facebook (www.facebook.com). Once your store is stocked and ready to open for business, you need to let customers know you exist. The most popular way to do this is to advertise your products with Facebook paid advertising. This is the trickiest part. This is the step that will make or break your business (Spoiler alert: it broke mine).

Step 6: Fulfill every order that comes through. If you did everything right so far, orders will start coming in once you start advertising. Each time you get an order, you have to purchase the item from AliExpress and have the products shipped to the buyers.

The six steps I just gave are very basic and oversimplified. I read a lot and did a lot of trial and error to create a functional online store. The information that I found most helpful was The Complete Shopify Aliexpress Dropship course on Udemy. I highly recommend it because it will hold your hand and take you step-by-step through the process of setting up your store and running a successful online business.

What Worked

Over the course of a few weeks, I set up an online store that was regularly generating sales. I made about eight sales and brought in around $200 in revenue over my first two weeks in business. But that’s where the good news ends.

What Didn’t Work

Two things eventually killed my store:

I spent more money on advertising than I made. To make $200 in revenue, I had to spend $300 on Facebook ads. If you’re an online marketing whiz, you might be shaking your head at me. I’m no online marketing whiz. My guess is that most people are not great at online marketing either.

Even ePacket shipping is too slow for Americans. We have to use ePacket shipping because it’s economical and gets to the destination much faster than than the cheapest methods. But ePacket shipping still takes 3-6 weeks. How would you feel if you saw an ad on Facebook for a beautiful piece of jewelry and bought it, but then had to wait over a month to receive it? Americans are used to Amazon two-day Prime shipping. Waiting more than even one week is unacceptable now (I got one canceled order because of the long shipping time). Also, President Trump has decided to end ePacket shipping (read about it here, here, and here). That alone might be enough to kill this entire business model.

Where Do We Go from Here?

If I were persistent enough and wanted to make my store work, I would do these things:

• Find a good book or online course about Facebook advertising and become an online marketing whiz. This business model only works if you can spend less money on advertising than you make from sales.
• Focus on shipping from the United States. Some products in AliExpress actually ship from the U.S. because they have warehouses here. Before I gave up, I did actually make a pivot to selling only within the United States. I revamped my product offerings and spent another $100 on Facebook ads, being sure to note “fast shipping from the United States.” I got no sales. Who knows, maybe my theory that Americans want faster shipping is wrong? Or maybe my Facebook targeting was off and I got unlucky. Either way, especially with ePacket shipping as we know it ending, shipping is something you should think about.
• Do better research on what products will sell well. I read that only about 1 in 10 products you try selling will be profitable with this business model. I tried nine. Maybe I just didn’t try enough products?

I could take my own advice and work on making my online store profitable, but in grand scheme of things, I don’t really want to spend more time on it. I tried it, it failed to become profitable, and I want to move on to things I enjoy more. Like writing more books.