February 7, 2019
Jake spoke with Patrick about his dropshipping business created in September 2017 in the arts & crafts niche. The Shopify site features sewing and quilting supplies and accessories, which range from sewing machine parts to handy tools and fabrics. Patrick drives traffic to the site primarily via Facebook ads and a 40K+ email list.
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Hey listeners, welcome back to the Real Money Real Business podcast. This week I spoke to [Patrick 00:00:39] about his drop shipping business in the arts and crafts niche. Something that’s really cool about this business is that traffic is driven primarily through Facebook ads and from an email list with over 40,000 subscribers. Patrick, thank you for taking the time to meet with me today. How are you doing?
Patrick: I’m very well, [Jake 00:00:00:55], how are you?
Jake: I’m doing quite well myself. Thank you for asking and thank you for taking the time to get on with me today. I’m very excited to chat with you about your business. But before we get to the questions that I have for you, I want to go ahead and run through a little quick summary of the business. It was built in September of 2017, has a monthly revenue of $74,254, expenses of $61,944 to make for a net profit of $12,309, which is generated on a 12 month average. Included in the sale of this business are the primary domain and all site content and files, Shopify account, social media accounts, supplier relationships, and employer relationships. Patrick, can you tell us a little bit about your background in building and running online businesses?
Patrick: Sure. Well, my background is in web design and development really, but in terms of … So I’ve doing that for a good few years and just building websites for other people. In terms of building e-commerce stores, this is really the first proper venture. Basically what happened was, I was looking at other avenues of generating revenue. I came across a few online courses that taught the kind of, the ins and outs of Facebook advertising, the drop shipping model, things like that. So I did a bit of research and I went and started my own drop shipping store. Not this one, a different one. Not much longer than a year, not much longer before this one started. So last summer, pretty much last, maybe June, July. And it didn’t have a huge amount of success. It was very limited. But overall it wasn’t successful. And I only let it run for maybe a two or three months.
That was in the kind of travel and outdoor accessory niche. And I think it seems to be a bit of a, possibly a saturated market, I’m not sure. Also I was very new to the game, so I didn’t really know what I was doing. But I learned a lot along the way and I let that go. I actually ended up selling that website and managed to claw back any losses I made. So it pretty much broke even. And then I started … Yeah, so then I started into the current store that I have now. So that’s my background in terms of kind of what’s brought me up to the start of this store.
Jake: And then when you were looking to start this store, why did you settle upon the drop shipping model with your own website rather than go the route of, say, Amazon FBA?
Patrick: The research I had done was in around the drop shipping model and it looked like a very easy way to start off. I mean, you don’t have to order a lot of inventory, you don’t have to think about where you’re going to store it, how are you going to fulfill it? So yeah, that was it. When the initial store didn’t do so well, I started looking around at different niches and the one that this store is based around is much further removed from the one that I started with. And I’d done a bit of research and there was a few other websites doing something, a few other stores doing similar, but they looked like they were doing pretty well. So I decided to have a look at this niche and go into it and it kind of took off from the start. But yeah, to answer your question, why drop shipping? Probably because it was an easy way to start. It was an easy … It didn’t require any startup capital, but it’s proven quite successful.
Jake: Yeah. And it’s definitely been successful. You’ve been running this business, you started in September 2017 now it’s September 2018. So in only a year you’ve grown to be making $12,000 every single month on average since you started it. So what would you attribute your success to?
Patrick: Months after Christmas, so January, February, the first four months of this year, were incredibly good. They were really, really good. It’s taken a little bit of a dip, but it’s doing okay over the last few months. But it took a huge ramp up in success in, so I started … September, October, kind of, it was building up slowly, November and December, I guess they’re prime shopping months, but they ramped up considerably. And then into the first four months of the year it kept going.
And most of the traffic is driven by a Facebook advertising and yeah, I just managed to get good audiences and good creative. Most of the ads that I run are video ads, so they’ve proven to be quite successful. And it started, there weren’t that many products on it initially, but I’ve grown it over the months and think the customers have liked the fact that there’s more products to choose from now. And yeah, the success is kind of built on that. But yeah, in terms of the main reason why it’s been successful, I guess just the success of the advertising has driven a lot of traffic in and the traffic has been quite successful. And it’s converted quite well as well. The conversion rate on the store itself is … or what I consider myself would probably be pretty good. I think it’s in or around 5%.
Jake: And you’re sitting here now with this business that is doing very, very well. Last month in July you made … or no, August, sorry, you made $11,000 in profit. So why have you decided to sell the business today?
Patrick: Well, it’s not my only project that I’m working on. I have another project which myself and my business partner, my business partners aren’t involved in this store, but we have another project where we have created our own brand and we design … It’s a sock brand and we design and manufacture our own range of socks. And we do everything, we get a manufacturer and we ship them in, we fulfill the orders at the moment, and it’s a business that’s very, very close to my heart.
Which goes to then this is, even though this is quite successful, it’s in a niche that I wouldn’t necessarily be quite passionate about. And in order to develop the energy that I think is required to grow in the new business with the new brand, which is our own brand, I have to let something go. And I think that this website, this store, doesn’t require a whole lot of time, of my own personal time, to keep it going. I think in order to grow it, I would probably have to put some time into it and I think I’d be spreading myself too thin if I was trying to do everything. So that’s the main reason for letting it go, so I can devote more time to the new venture.
Jake: You mentioned it would take a lot of time to grow, but speaking to just maintaining it at its current level, how much time do you need to invest in the business?
Patrick: Personally? I mean it’s less than 10 hours a week. I probably do about an hour a day on it and that’s really just checking over the ads. Maybe one or two emails to deal with that had been forwarded on from the VAs, but that’s about it. As I say, but in terms of growing it, if I was to create more ad creative or … not even add new products, but start researching for new products and things like that, then obviously there would be a few more hours involved. But to keep it going as it is, it’s very little time, about an hour a day to be honest.
Jake: And you also have employees set up to help you run the business, correct?
Patrick: Yeah, that’s correct. So I have two VAs who are based in the Philippines and they are a husband and wife team. So I initially had one VA and he brought his wife on board, actually, when the business started to grow. So between them they take care of all the fulfillment, all the customer support. If there’s anything that warrants my attention, they forward it on. But that doesn’t happen very often. They take care of most of … They’re well-versed at this point in the running of the business and very knowledgeable now about the products and any questions that come in from customers about the specific products. And they’re also, if I find new products, they will add them for me to the website. So they take care of the, by far, most of the work.
Jake: You kind of touched on this a little bit earlier, but can you detail exactly where the traffic for the business comes from?
Patrick: Sure. Yeah. So as I said, it is mainly Facebook driven. We do a little bit of retargeting, web retargeting, but again, most of the retargeting is Facebook. Most of the cold traffic is … At the moment all of the cold traffic is Facebook. We did have a look at Instagram ads, tried them a while back, didn’t have a huge amount of success. A little bit of success, but it didn’t push it much further. So just concentrate on the Facebook advertising side of things. And yeah, we built up an email list as well, so we’re doing a lot of kind of email campaigns through that. So that brings in a lot of businesses as well from the email list.
But in terms of, if where this can go in the future, I think from an advertising perspective, I’d like to think that there’s definite potential with YouTube advertising if down the line that if somebody could start. Whoever takes on this website, there’s definitely potential to team up with somebody to blog on the website or even guest bloggers and tie that in with YouTube advertising. I think that’s a definite potential avenue, but it’s not one that I’ve explored yet. I have no knowledge of YouTube advertising. I mean, I came into this a year ago with absolutely no knowledge of Facebook advertising. Absolutely no knowledge of really any digital advertising, Google, Facebook or YouTube or Instagram. So anybody who comes into this with more than a year’s knowledge is going to have a distinct advantage over me in taking this further on.
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In terms of opportunities for growth, you mentioned a lot in marketing. But do you feel like there are any opportunities for growth that lie outside of marketing?
Patrick: Outside of marketing, I mean, the … One thing I didn’t mention is, so the suppliers, 95% of the products, about 95% of the products on the store come from two suppliers. And I have good relationships with both of those suppliers. One in particular I communicate with quite a bit and they are willing to go and either manufacture products or even get products by labels if I want it to do that. I haven’t gone down that road but … And they give us better discounts on all the products as well. So it is a drop shipping model. So it’s drop shipping by AliExpress, but we get specific listings. The suppliers create specific listings on AliExpress, which other users of AliExpress don’t recognize or don’t see. So we get … And they put discounts on those listings. So we actually get the products from the supplier at a cheaper rate than anybody else who’s buying from them. Because we’re such good customers are theirs they do that for us.
But they’re willing to look at other products and anytime they discover new products or have new products in, they let me know about it straight away to see if I want to put it on the store. So there’s definite room for expansion in terms of new products and there’s new products … They’re showing us new products all the time and we put them on the store when we think they’re going to be a good fit. But yeah, so I think there’s definitely room for expansion there. And I think I mentioned the, potentially growing it from a content point of view. At the moment on the store it’s just purely product-based. There’s no real content or a blog. And I think that is definitely an avenue that could be explored to grow and drive more traffic and drive organic traffic into the website as well.
Jake: On the flip side of opportunities you have risks. Do you feel like there are any major potential risks associated with this business?
Patrick: Well the natural answer is to say no, I don’t. But honestly off top of my head, I can’t see in the short term any immediate risks. The business is trundling along nicely. Obviously if somebody came in who … As I say, most of the traffic is driven through Facebook advertising, so if somebody came in with no knowledge of Facebook advertising, it could affect the traffic and it could affect the type of traffic that’s coming in. But obviously I’m wanting to give as much advice as I can on that to any prospective buyer. But yeah, in terms of, to be honest, I can’t see any immediate risks. I can’t see any … Or long-term risks, for that matter. And yeah, that’s my honest opinion.
Jake: You mentioned earlier that over the course of running this business, you’ve learned a lot about this particular business and drop shipping in general. So what do you feel have been some of the major places that you’ve learned from?
Patrick: Major … The sources of where it’s from?
Jake: Yeah, the sources of where you’ve learned. If someone were to look at this … Sorry, I didn’t phrase the question well. But if someone were looking at this business and wanted to learn about drop shipping, where’s a good place to start?
Patrick: Where’s a good place to start about drop shipping without … this store aside?
Jake: This store aside, where did you learn everything?
Patrick: Okay, okay, okay. Well, I mean, there’s YouTube videos out there with people telling you how to drop ship. And there’s a few paid courses. I took one paid course and went through that. And there’s plenty out there. I’d say a lot of them are as good as the next one. But there isn’t a huge amount to it. Once you sit down and have a look and once somebody explains how it works, you’re just going to go, “Okay, yeah, that makes sense.”
And for me, a lot of … As I say, I started out with the initial site. I think the niche that I selected wasn’t great and … probably because I was brand new to it. But by doing that and it not working, I learned a lot along the way on that as well. And that gave me a lot of knowledge and experience in starting this current store. But yeah, but to answer your question, I mean, there’s a wealth of knowledge out there online about drop shipping models and different types of e-commerce models. And most of it … A lot of the good knowledge is free. You don’t necessarily have to pay for it.
Jake: So now talking about this business again, is there anything that you wish you had known when you were getting started with it? What advice do you wish you could go back and tell yourself?
Patrick: To be honest, I mean, when I started I never thought it was going to take off like it did. So it’s been a lot more successful than I thought from … If I was to go back to the start and tell myself the figures that I’ve seen over the last 12 months were going to occur, I probably wouldn’t have believed it. Only because I hadn’t seen it before. I hadn’t seen it. It was, as I say, essentially my first venture into it. So yeah, I mean, what would I say? I probably would have learned a little bit more about Facebook advertising and the ins and outs of it before I started because that would have probably helped me a little bit. But yeah, apart from that, no. As I say, because it has been so successful and is more successful than I would have thought at the start, there’s not a huge amount I could have told myself back then. But potentially about Facebook advertising. But yeah, that’d be about it.
Jake: Would you commit to a non-compete?
Patrick: Yes, I would. Yeah. Absolutely.
Jake: And how much support are you to offer a new owner during the transition period?
Patrick: Yeah, I think in the [inaudible 00:14:55] it’s 60 days, so about two months. But if an owner was … I’m quite open to going beyond that. If an owner still had questions beyond the 60 day period. But within a 60 day period, I’d be very open to being as contactable as possible with any questions that the new owner would have.
Jake: Are you willing to negotiate on something like an earn-out?
Patrick: Yeah. Yeah. I mean, absolutely. I understand that there’s not going to be many people out there who would just sort of throw this amount of money on a table in cash to buy a website. So yeah, I’m very open to that possibility as well.
Jake: Awesome, Patrick. Thank you so much for the time. I do have one final question for you, but before we get to that, I want to go ahead and run through that quick summary of the business again. The business was built in September of 2017, has a monthly revenue of $74,254, expenses of $61,944, to make for a net profit of $12,309, which is generated on a 12 month average. Included in the sale of this business are the primary domain and all site content and files, Shopify account, social media accounts, supplier relationships, and employee relationships. Patrick, looking at this business as a whole then, why do you feel like it is a business worth buying?
Patrick: Well, I think it’s a very profitable business. It’s got a large customer base. It’s got a loyal customer base, a good percentage of repeat customers, and I think it’s got huge potential for growth, especially in the advertising channels that I haven’t explored. And I think there’s definitely growth potential there. So yeah, that will be my … why I think this is a good business.
Jake: Patrick, thank you so much for taking the time today. I’ve really enjoyed having you on here.
Patrick: No problem. Thank you very much for your time, Jake.
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