The Three Step Process
At the end of the day drop shipping is consider arbitrage. If you do not know what arbitrage is, in short, arbitrage is the process of purchasing something from one market, and selling it in another market for a mark upon the price. For example, if one troy ounce of gold is worth $1000 dollar in London, England, and In the United States it is worth $1500, one can buy the gold in London, sell it in the United States, and keep all of the profit. It is the exact same concept with dropshipping, one buys the products from the Chinese online wholesaler and sells it for a markup price to the consumer. However, in the words of Monash Pabrai, a famous value investor, “Arbitrage spreads are great because you cannot lose, but eventually, all arbitrage speeds dwindle down to zero.”
In March in 2018, I realized that drop shipping would eventually go to zero. Due to the oversaturated market, and customers wising up to the quality of the product they are receiving. It may take a few years for dropshipping to go to zero, but no matter what; eventually, dropshipping will go to zero. I see dropshipping as, tens-of-thousands of people fighting over dollar bills, while there are 100’s sophisticated internet marketers fighting over $100 bills. Obviously, I want to be one of the people who is fighting over $100 bills.
Becuase I am so present in the world of online business. I have encountered many of these savvy internet marketers either on Youtube, a podcast, a email, or in person at a marketing conference. The funny thing about these savvy marketers is that they all sell information products. Instead of selling a product where a significant percentage of the top-line revenue is cost, they sell a product where 100% of the top line revenue is profit because there is no hard cost to information. To add to that, not only can one sell information products and have a 100% profit margin, but one can charge way more than an average physical product. (Many of these savvy internet marketers sell products as expensive at $5000).
You may be wondering, why on earth would anyone pay so much money for information? Becuase the information solves a grand problem in the consumer’s life. People will pay anything if you can solve their biggest problems. Here’s the thing, the information product is not even the part of the business that is supposed to generate the profit. The profits come after the information product. The goal of an information product is to solve their biggest problem, as a business, once you solve one’s biggest problem, they will trust you. Then the goal is to get those customers onto a recurring product of some sort and make money off of them while the supplying value for the rest of their lives.