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Frugal Living Podcast: Entrepreneurship

In this episode of Frugal Living, host Jim Markus talks with Sarah St. John, the host of the Frugalpreneur Podcast. You can listen to Frugal Living with Jim Markus here, on Apple Podcasts, on Spotify, on Amazon, on Anchor.fm, or anywhere you go to find podcasts.

In This Episode

Drop Shipping

Sarah St. John got her start in online entrepreneurship with drop shipping. So what is drop shipping? In short, it’s an online retail model in which the store doesn’t buy a product until they’ve already sold it to the customer. Generally, this works because the retailer is able to purchase products at wholesale prices and sell them at retail prices. What makes drop shipping unique from other forms of online sales is that the products might never pass through the retailer’s hands. After receiving an order, the retailer can order it from the wholesaler and have it shipped directly to the customer.

While St. John no longer works in drop shipping, she says that the way to make a drop shipping business succeed is by having a niche. If you try to sell everything, you’re setting yourself up to compete with Amazon and Walmart, which is a lot harder to do than by being the go-to place for a particular type of product.

Entrepreneurship and Being Willing to Try Things

St. John got into drop shipping in 2008. In fact, it was one of six jobs she held that year. She knew she wanted to work for herself but didn’t know exactly what she wanted to do. She explains that being willing to try things out was key to her success and that one of the challenges of running your own business is finding something that holds your interest.

Eventually, she decided to write a book about entrepreneurship, and as a means of promoting it, she started a podcast. That podcast, which was intended as a mini series, has taken on a life of its own as St. John realized it was the thing that was holding her attention. Now, almost two years later the podcast, Frugalpreneur is approaching its 100th episode.

To hear more from Sarah St. John, check out the latest episode of Frugal Living. Frugal Living is a podcast for smart consumers. How do you spend less and get more? The show, sponsored by Brad’s Deals, features interviews, stories, tips, and tricks. Jim Markus hosts season three, out now.

Transcript of This Episode

Jim (00:00):
This is Frugal Living. I shop all day, every day. I’m a connoisseur of online marketplaces, following flash sales and clearance offers with the kind of browsing patterns that confuse bot-wary websites into thinking I’m an automated web crawler. I know how to find the best deals online, and I can tell you a dozen ways online sellers try to scam innocent shoppers. I can also tell you some of the innovative tools people use to make a quick buck. Drop shipping falls into that category. And I’ve been looking for someone to talk to about it for almost a year for this podcast. Everybody who shops online should understand this process, which involves selling a product you don’t already have in stock, and then buying it, and having it shipped directly to your buyer after you’ve already made the sale. This week’s guest has experience with drop shipping. And she was happy to talk to me about it. She’s also a frugal business owner and the host of Frugalpreneur, a show for frugal-minded people who build their own businesses.

Sarah (01:14):
I’m Sarah St John and I’m the host of the Frugalpreneur podcast.

Jim (01:19):
Can you tell me a little bit about what is drop shipping?

Sarah (01:23):
I don’t do drop shipping anymore, but I did it for a while. And what I picked was… Well, OK, I think the first step to drop shipping is to have a niche. You need to niche down, because if you’re selling anything and everything, you know, like Amazon, for example, I mean that’s likely not going to be successful because we already have Amazon. But if you niche down to a particular type of product or whatever, you might have more of a chance. I did baby clothing. And I picked that because I thought it was cute, but also because I could basically set it up to where I offered free shipping, because it would be kind of built in and people like free shipping.

Jim (02:06):
Yes, absolutely.

Sarah (02:07):
Because shipping wouldn’t be very much, like, I think two bucks. Plus, well, first of all, clothing can’t break in transit. I mean, it could be maybe torn up maybe, but it’s not likely to have issues like that. And I don’t think the return rate on, you know, baby clothes would be very high, because usually the clothing sizes aren’t going to vary as much as an adult sizes. So that’s some of the reasons why I decided to go with that. The issue, though, is that, so maybe there’s a piece of clothing that’s $2 and then you charge 20. So even though that’s a pretty good profit margin, still the average cart value wouldn’t… Unless they bought a whole bunch of stuff, it’s not very high, so you’d have to make a whole bunch of sales. And, you know, people finding your website, the whole marketing aspect of it is difficult. People finding you and deciding to buy through your store versus Amazon or whatever store it might be. So those were some of the challenges. Some people might not know what drop shipping is, but basically that’s when you’re the middleman, I guess, sort of between the customer and the wholesaler. Usually, you can work with a wholesaler to get wholesale rates on stuff. You don’t have to keep an inventory or any of that. And so when someone orders something from your store, let’s say they pay $20 for something that actually only costs $2 from the wholesaler. Then you basically make the profit or the difference. So I like the business model or the idea of it. And I know people have done it, you know, made good livings with it. Like, I think I’ve heard about people selling things that cost like a thousand dollars, like grills and things like that, you know, then they can maybe make seven figures a year or something doing that. But when you’re selling, you know, baby clothes, I don’t know. It’s just difficult.

Jim (04:08):
Thank you for breaking that down. To me, it sounds a lot like arbitrage. Like the idea of like, hey, you know, you can buy this Carter’s, you know, onesie anywhere, right? But if you find it at my place and you don’t want to look anywhere else, then you’ll pay what I charge. I happen to charge $20. And I happen to buy for $2. That’s, you know, an $18 profit. That’s drop shipping. This is happening all the time. If you find something that looks great, maybe on like an Instagram post, and you get sent to like a Shopify store, that person that you’re buying from could just, like you said, not have any inventory at all. They just go out and buy it once you buy it. They just buy it for less because they knew where to find it. This happens all the time anyway. Like that’s what merchandising is. That’s what any big box store does. They buy it from whatever manufacturer they work with, be that a warehouse or a third party. They buy it for pennies on the dollar and sell it for the dollar.

Sarah (05:04):
Yeah. There’s, I think kind of what you’re talking about is, like retail arbitrage. Usually it’s like, if you go to Target or something and you buy stuff off their clearance rack, and then sell it on a website or let’s say eBay or something like that. But I’ve never actually tried that route because it requires, you know, you just spend some money up front and you don’t know if you’re going to make it back. Whereas with drop shipping, what I like about that is you actually don’t have spend, aside from just having a website, you don’t have to spend any money. So it’s all pretty much profit.

Jim (05:39):
Like you said, no inventory to hold. You don’t have to have a warehouse or a storefront. You don’t need to ever see that item, which is incredible.

Sarah (05:48):
Right. Exactly. And the one disadvantage, though, is that, OK, so most of the time it’s from China or something like that, so the delivery times… People are used to Amazon, where it only takes two days to get your stuff. But since most of the stuff is actually coming from China, it can take, I don’t know, two, three weeks, at least, for someone to get their stuff. And even if you tell them that it’s going to take that long, people still are kind of wondering, where’s my stuff? I mean, you can do drop shipping from places in the United States and whatnot, but your profit margin won’t be as high.

Jim (06:28):
It sounds like even if you were making $18 an item, that’s a great profit margin. That’s really, really solid. But if you need to work a hundred times harder than someone making, you know, $118 per item, the question is, is it worth it? Is this how you want to be spending your time? That’s not something we hear a lot of people talk about. Like, it sounds like you moved kind of out of the drop shipping world, is that right?

Sarah (06:49):
Yeah, because that’s what I was finding is like, OK, so it might be a good profit margin, but how many of these things are you going to have to sell in order to like live off of it?

Jim (07:01):
What was your first foray into entrepreneurship? Was this your first kind of do-it-yourself job or did you do something else before that?

Sarah (07:08):
My entrepreneurial journey started in 2008. I had had six different jobs that year, not at the same time, but throughout the course of the year, and realized that, you know, I want to work for myself. And so the first thing I did was I started a photography business, but I realized that while I liked taking photos of animals, landscapes, architecture, I didn’t like really taking photos of people, but that’s where the money is. I was doing weddings and portraits, but the bigger issue was just the expense to maintain equipment and software and all that stuff. So I decided to switch to an online business model, but I wasn’t sure what I wanted to do. So I tried a bunch of different things, drop shipping was one of them. And it was in that process that I decided to write a book called Frugalpreneur to kind of talk about the different types of online businesses and how to run them on a budget, because I was discovering all these free and affordable resources, like software programs to run a business online. And so anyway, while I was writing the book, then I decided to launch a podcast, also called Frugalpreneur. But the intention was for it to be kind of another marketing avenue, you know, maybe 10 episodes. I was interviewing the CEOs or someone within the business of some of the software programs I recommended in the book, but I was getting more leverage and traction with the podcast than the book. And I loved the connections I was making and the networking. So I kept the podcast going and am two years into the podcast, almost at a hundred episodes. And now I’m kind of all in on podcasting. Well, I’ve actually written three books, but the latest one is about podcasting. And then I’m working on a course, I’m launching a podcast production agency, so kind of focused on podcasting, but it took 10 years, or actually more than that, of trying this, that, and the other thing to finally find that thing. Because I was kind of jumping around, you know, I think a lot of entrepreneurs have shiny-object syndrome. I know I did. Trying anything and everything that you hear about, but then not sticking with it or being like, “Eh.” Drop shipping was one of those things where I was like, well, I’ll try it. But I was trying different things almost just to try them. But it’s like, if you don’t really enjoy what you’re doing or have a passion for it or are really good at it, you’re not going to stick with it. So podcasting was kind of my thing, I guess.

Jim (09:36):
I look at this a bit like an education. You spend some time trying a bunch of different things. You’re not going to like all of it. It’s about finding out where you can get traction, and more importantly, where you’re enjoying getting that traction. What do you think the biggest challenge is to maintaining an online business?

Sarah (09:54):
I think once you finally find that thing that you’re passionate about or that interests you, or that maybe started as a hobby, then I think it’s easier to, you know, keep that thing going and maintain focus on that thing. Because I think that’s the thing with all the other things I tried. They weren’t really things that interested me really. It was more like I was just kind of throwing darts. And I didn’t know or think that podcasting would interest me, but it did, you know, I found out that it did. When people are trying to figure out what they want to do as an online business, I think if it’s something that you’re already interested in or have as a hobby, then maybe think about, well, how can you monetize that hobby? Could you teach other people how to do that thing? Or could you, if it’s making something, could you sell that thing? You know, could you create courses on that thing or do coaching or whatever it is, maybe find something you’re already interested in doing or something maybe that someone tells you you’re good at. If someone keeps telling you you’re good at something, then maybe, you know, you should think about how can you monetize that thing or that expertise? So I think maybe those are some things to keep in mind when either trying to figure out what to do or like what business model to start and maintaining it, I guess.

Jim (11:25):
Is this a common motivation? Do you think it should be more common for people to take, you know, side hustles and start their own businesses? Or do you think it’s more of a no, like leave it to people who really, really want to do this?

Sarah (11:38):
I think not everyone wants to be a full-time entrepreneur and quit their day job and do entrepreneurship. But I don’t think you have to be that way in order to have like a side hustle or something on the side to make extra income, either to help with bills or for savings or for spending money. Or, you know, like we all saw with 2020, people up and losing their jobs out of nowhere, you know, just having an extra kind of security blanket, I guess. So if there is like, even if you don’t feel entrepreneurial or don’t have a desire to own your own business and run a business full-time and you love your job and you want to stay there, that doesn’t mean you can’t or shouldn’t start a business. I mean, if you don’t want to, then fine, but if you’re even like remotely interested in, you know, having extra sources of income, I guess, but then yeah, I think, might as well try it. And I would definitely start with some sort of online business option versus, you know, a brick and mortar or retail, because the overhead costs on that are… Yeah. That’s why I went with an online.

Jim (12:49):
Smart, yeah. Once you’ve decided, you know, you’re going to start this business, what are the tips to consider for making it a frugal business? Like how do you start without having, you know, a business loan or rich parents?

Sarah (13:03):
Well, yeah, so the first thing I would say is to do it online, because that eliminates rent or whatever overhead. Well, more than just rent, but like utilities and liability insurance, as far as, you know, someone getting hurt on your property or whatever. There’s just so many things. But with online, that eliminates a lot of expenses. And I mean, really, you just need to start with a website. I do recommend having a website, because some people, they just decide to have like a Facebook page for their business. And I think you should have social media, but don’t rely just on social media. Cause you never know, you know, like Myspace kind of disappeared overnight. You never know with different social media platforms, if they’ll disappear or lose popularity. The algorithms are always changing, so people might not even see your posts without you having to pay for them to see it. So yes, you should have a social media presence, but don’t just depend on it. So with a website, if you go with WordPress, all you really have to pay is for hosting, which can be as little as like three bucks a month. And then I recommend starting right away with an email marketing platform so that you have a way to communicate with customers outside of, you know, social media and things. And there are a few free ones or ones that have like free plans. The one I use and recommend is called SendFox, especially for like, if you’re a content creator, a podcaster, blogger, YouTuber, cause you can put in your RSS feed or your YouTube channel, and it’ll automatically generate a weekly newsletter with your latest episodes or blog posts or whatever. So that saves time. You don’t have to remember that you need to send out an email with your latest episode. So those are kind of the two things I recommend, no matter what your business model is, those are the two things you should have.

Jim (15:04):
What are some unexpected costs that go into doing this yourself?

Sarah (15:09):
I think one question people tend to have is like whether or not they should incorporate or like create an LLC. Or there’s different types of, you know, there’s like S corp and C corp. I don’t understand all of it. And of course, you know, I have to do the disclaimer that I’m not a lawyer and all this stuff, so this isn’t advice, more just information. So I personally have an LLC and then I actually have several businesses, but they’re all kind of in the same genre. And so I just set up DBAs for the others under the umbrella of the LLC so that I don’t have to… So DBA is Doing Business As, LLC is Limited Liability Company. So for me, that’s what I picked and so they all fall under the LLC, but it’s just easier to maintain one company versus a bunch of different ones. So that’s one thing to think about really anytime you have a business is, you know, to limit your liability if someone were to, you know, try to sue you for some reason, which is unlikely, but you never know. And that way, like at least with an LLC, the advantage I think is that, you know, they can only go after your business assets versus personal. So anyway, that’s one thing to think about, to maybe look online, or talk to a lawyer about. You know, should you incorporate and what type? Cause it kind of depends on your business and what you want to do and all that, as to what direction to go there. So that’s, I guess, kind of an unexpected expense that people probably aren’t thinking about initially.

Jim (17:10):
Where do I go to find a CPA? Where do I go to find a lawyer?

Sarah (17:14):
Yeah. So basically there are websites you can go to where you can get it done more affordably versus actually hiring a lawyer. I mean, you can do it that way too, but it’ll cost a bit more versus, you know, doing it on these websites. That’s kind of what they do all the time.

Jim (17:35):
I mean we’re all about being frugal and if that means doing extra work to not pay more, that’s fine with me.

Sarah (17:42):
Yeah. And I’m in Texas. And so I think the fee, if I remember, cause it’s been a few years, I think the fee was like 300 to form the LLC. So that’s something to think about, the initial cost and then if there might be an annual cost associated with it. But it’s still minimal, at least for Texas anyway.

Jim (18:16):
BradsDeals.com has the best deals sourced from around the internet. It’s online shopping made safe, it’s online shopping made easy, and more importantly, it’s made especially for you, the frugal-minded person. That’s BradsDeals.com. Special thanks to Sarah St John and H. Borkowski. I’m Jim Markus. Thanks for listening.

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