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🗣 In this episode of the Dropship Unlocked Podcast, hosts Lewis Smith and James Eardley delve into the world of dropshipping profitability. They discuss how running a business is not just about revenue but more importantly about maximising profits.

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Links and Resources Mentioned:

For Aspiring Business Owners or Side Hustle Seekers Based In the UK…

New Book Reveals How To Launch A Low-Maintenance High-Profit E-Commerce Business Using The UK "Home-Turf Advantage”…

While also enjoying more time with your family, being free to travel, and setting the hours you work.

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Key Takeaways:

★ Profit margins, both gross and net, are crucial for understanding a dropshipping business's financial health.

★ Factors such as supplier negotiations, order quantity, and profit margins play a significant role in dropshipping profitability.

★ Profit is a key determinant of a dropshipping business's valuation when it comes time to sell.

★ Effective negotiation strategies can help improve profit margins with suppliers.

★ Focusing on profit, not just revenue, is essential for long-term dropshipping success.

★ Optimising Google Ads for profit involves bid strategies like 'Maximise Conversion Value' with a target return on ad spend.

★ Scaling a business can lead to greater profits, even if net margin percentages decrease.

★ Building a high-profit business is the key to achieving financial freedom and control over one's life.

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Topics Discussed:

In this episode, the importance of focusing on profit rather than just revenue in a dropshipping business is emphasised. The speaker discusses the significance of understanding and improving profit margins through negotiation with suppliers and making informed business decisions. They highlight the impact of gross margin and net margin on overall profitability. The importance of knowing and tracking key metrics and optimising store design and conversion rates is also emphasized. The section concludes by highlighting the potential sale of a dropshipping business in the future and how profit plays a role in determining its valuation.

00:00:00 In this section, the importance of profit over revenue in a dropshipping business is discussed. While revenue is important, profit is the true measure of success. Understanding and improving profit margins is crucial, and this can be achieved through negotiation with suppliers and making informed business decisions based on accurate numbers. Gross margin, which is the revenue minus the cost of goods sold, is typically around 30%, but can vary based on the relationship with the supplier. Net margin, on the other hand, is influenced by marketing performance and the overall setup of the business. By optimizing store design and conversion rates, net margins can be improved over time. It is emphasized that having a firm grasp of these numbers from the beginning is essential for guiding business decisions and maximizing profits.

00:05:00 In this section, the importance of knowing your numbers and understanding your profit margin in dropshipping is emphasised. The transcript highlights that as a dropshipper, you have control over several factors that can affect your profit margins. While buying larger quantities from suppliers can result in better margins, the decision to hold stock or solely rely on dropshipping depends on the type of business you want to run and the lifestyle you prefer. It is mentioned that negotiating with suppliers can still yield healthy margins even without holding stock, and there is often room for negotiation to improve the initial margin offered. Ultimately, the decision on how much profit to make and whether to sell the business depends on the business owner's personal choices and goals.

00:10:00 In this section, the importance of considering the potential sale of a dropshipping business in the future is highlighted. The profit of the business, specifically the EBITDA (earnings before interest, taxes, depreciation, and amortisation), plays a significant role in determining the valuation of the business. Store brokers typically take the average of the last 12 months of profit and multiply it by a multiple to determine the sale valuation. Increasing profit margins early on can lead to a higher sale valuation in the future. The importance of net profit and maximising it each month is emphasised, as it directly affects the potential sale value of the business. Free shipping is also mentioned as a way to increase conversion rates, as customers are more likely to purchase when shipping is included. Overall, understanding how profit fits into the sale valuation and maximising profit margins is crucial for long-term success in dropshipping.

00:15:00 In this section, the speaker discusses the importance of negotiating margins with suppliers and how to approach these negotiations in a professional and friendly manner. By building rapport and explaining the benefits of higher margins, such as increased sales and better marketing efforts, the speaker was able to secure better deals with suppliers. They emphasise the need to remember that suppliers are also business owners and understand the importance of making a profit. By focusing on profit rather than just revenue, dropshippers can prioritise suppliers with higher margins and ultimately increase their own profitability. The speaker cautions against solely focusing on generating sales revenue without considering associated costs and highlights the need for a shift in mindset to prioritise profit.

00:20:00 In this section, the speaker emphasises the importance of focusing on profit rather than just revenue in dropshipping. While revenue is important, profit tells the real story of a business's success. Metrics like average profit per order and cost per sale should be considered to ensure that each order is profitable. It is crucial to track and analyse numbers, such as supplier profitability, ad performance analytics, and return on ad spend. The speaker cautions against solely focusing on generating revenue, as it can lead to overspending in ads and negatively impact profitability. Optimising ad campaigns for high profit rather than just revenue involves using bid strategies, such as maximising conversion value and setting target return on ad spend. Being aware of profitability and tracking key metrics is crucial in dropshipping to avoid potential pitfalls and ensure long-term success.

00:25:00 In this section, the speaker discusses the importance of focusing on profit rather than just revenue in a dropshipping business. As the business scales up, operational costs will increase, potentially leading to a decrease in net margin. However, by doubling the revenue and accepting a slightly lower margin, the overall profit can still increase significantly. The speaker emphasises that what matters most is the cash profit at the end of it all, not just the percentage margin. It is suggested that business owners should take a long-term approach and reinvest some profits into growing the business rather than taking out high profits initially. The speaker also promotes their book, which provides a step-by-step guide on building a profit-focused dropshipping business.

00:30:00 In this section, the hosts of the Dropship Unlocked Podcast celebrate the success of a listener named Ben who made his first sale while on vacation with his family. Ben's sale totalled £679, and he expressed his excitement and desire to scale his business further. The hosts congratulate Ben and highlight the importance of being able to make money while enjoying time away from work. They also share a positive review from a listener named Katy who appreciates the valuable information and positive mindset provided by the hosts. They encourage listeners to leave reviews and share the podcast with others to build a community of like-minded entrepreneurs.

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