November 29, 2021
Dropshipping has become very popular over the last few years, and if you want to get in on the action, you may be wondering how to start a dropshipping business. You’ve come to the right place! Read on to discover exactly what dropshipping is, the pros and cons, and all you need to know to start your very own dropshipping business.
Dropshipping is a retail model in which the seller does not maintain any inventory. Instead, when a customer places an order the dropshipper then purchases the item directly from a manufacturer, wholesaler or other supplier who ships it straight to the customer. Essentially, dropshipping is being a middleman between a manufacturer and end user and never actually handles the product.
If you run a dropshipping business, you are what’s known as a dropshipper. Your main task is to market your storefront to attract customers. Once they make a purchase, you send the order over to your supplier (more on that below) who will then ship the product directly to the customer. The upside for you is that you don’t have to keep any inventory in stock or deal with the logistics of shipping.
You can think of dropshipping as supply chain management, with 3 players making up the supply chain:
If you are a dropshipper, you are, in effect, the retailer in this supply chain, and the process works as follows:
Your profit is the difference between what you need to pay the supplier and what you charge the customer. To be a successful dropshipper, you must work out how much you can mark-up the price to earn a nice profit while still being competitive. As with any supply chain, the shorter the chain, the greater the profits because there are fewer parties sharing the total. In practice, this means that if you deal directly with a manufacturer, as opposed to a wholesaler, your profits may be higher. The trade-off is that many manufacturers will have a minimum order requirement, meaning you might have to commit to a larger investment up front.
Now that we’ve answered the question of what is dropshipping, let’s get into more detail of what exactly you need to do to begin. Following is a list of action steps you need to take to get your dropshipping business up and running:
Step One - Research: You may already have an idea of a product you want to sell, but do you have any clue whether there is a market for it? You should start with some initial research and develop a strategy in terms of what you want to sell and who you want to target.
Step Two - Competition: Check out how other dropshippers (or regular retailers) are selling the product and then think how you can do better, either in terms of price or service (but usually price is a big driver of sales!)
Step Three- Supplier: You’ll need to line up a supplier who will drop ship your product when the time comes.
Step Four - Process: Work with your supplier to create a process that you will both follow when a customer places an order. The more detailed and clear this process is, the smoother your dropshipping business will run. This can, and likely will, evolve and change over time.
Step Five - Launch: Here’s where the fun begins! Build and launch your online store and start promoting your product. Watch the orders roll in!
One of the keys to a successful dropshipping business is choosing the right niche or type of product to sell and where to sell it. It will take a bit of research, but it’s worth the effort to put in the time and make sure you sell a product for which there is significant demand, but not too much competition. Once you’ve selected the product, there are a number of different online platforms like Shopify or Ebay that you can use to create your dropshipping store.
If you don’t yet have any idea in mind, here are some principles to keep in mind when trying to choose the perfect niche for your dropshipping endeavor:
The sky's the limit when it comes to potential items to sell, but luckily for you there are tools you can use to make it easier to determine whether there is a good market for your product. Here’s a rundown of a few of those tools:
As part of your research, you should consider which dropshipping platform to use to create your online store. Here’s a brief description of some of the main options:
Ebay is a very popular platform used for dropshipping. It’s a well-known and well-used website, giving you access to a huge audience. All you need to do is set up a seller account, choose your product and connect with a supplier, and then list your item on the site. When listing the product, make sure you don’t just copy and paste the supplier’s descriptions, but rather add your own flair to start to develop your own brand. Once you make a sale, you just let the supplier know and they will take care of the shipping.
Amazon is another dropshipping option, but they have specific policies that you must be aware of. As a dropshipper, you still must identify yourself as the seller of record of your products and your contact information must be on all packing slips and invoices. As the vendor, you - and not the supplier - would be responsible for processing any returns.
Shopify is an extremely easy platform to use for dropshipping and one of the most popular. You simply create a free account and then follow of the steps that will be clearly laid out for you. There are also a number of Shopify-related apps that can help connect you to suppliers or upgrade your shop in different ways.
AliExpress is well-known for its wide variety of inexpensive products. Many of the existing merchants on the site are aware that many of their customers are actually resellers and are very familiar with the concept of dropshipping. Using AliExpress for dropshipping means creating your own website and once a sale is made, purchasing the item from AliExpress, putting in your customer’s address for shipping.
The above are some of the most common options that many people use for dropshipping. Of course, they are not the only options and as dropshipping continues to grow in popularity, other companies are likely to crop up. As with any business, it’s important to keep up with the trends and keep an eye out for new platforms that may be of help to you.
If you are still drawing a blank on what product you should sell in your dropshipping store, here’s a list of some of the more popular niches that will hopefully spark some ideas for you:
Even within these categories you could probably narrow it down and focus on just one or two products and you should always do the market research first.
As with any business, dropshipping has its risks and its benefits. You always need to do your own risk-reward calculation before embarking on any business endeavor, and dropshipping is no exception. Done right, it should be a pretty safe bet, but it is important to be aware of the potential pros and cons.
There are many potential benefits to starting a dropshipping business. The biggest one is the complete mitigation of inventory risk - you don’t have to invest any capital up front and you aren’t holding any stock, so you haven’t lost anything should no one buy from you. Here’s a quick look at some of the other key benefits:
When it comes to dropshipping, although there are tons of benefits, there are also some downsides to keep in mind. Here’s a glimpse at some of the cons:
You can run your dropshipping business in any way that works best for you, based on your market research, the type of product you are selling, and how simple or complex you want it to be. There are four main models to consider:
Product reselling is the classic dropshipping model. As we’ve been describing throughout this article, this type of dropshipping means developing a relationship with a supplier who ships the product straight to the consumer once that person has purchased it from your store.
In some cases, there are retail brick and mortar stores that do not have any online presence. This could be a good opportunity for dropshipping. You, as the dropshipper, could partner with the store and create a website or ecommerce store. If a customer places an order online, you would then contact the retail location who would handle the shipping.
This model is slightly more complex than the classic product reselling because you must develop a relationship with the store. And, working with a retail store is not the same as a wholesaler - there are more likely to be inventory issues, for example, and the store owners may not be as familiar with the concept of dropshipping as a wholesaler might be.
Another dropshipping model involves bundling together a number of separate items and selling them as one via dropshipping. This is a good model if you are interested in selling gift baskets, for example such as for a new baby or a housewarming gift. The main issue to keep in mind is that if you dropship items in the gift basket that come from different suppliers, they could arrive to the customer in separate shipments. Should you choose to open a product creation dropshipping business, you should strongly consider working with one supplier who can provide all of the items and would be willing to package them all together before shipping.
The final dropshipping method that we will describe is print on demand. If you want to provide personalized items, this is the dropshipping model for you. Customers would choose the product and how they want it personalized (based on options you provide) and then your supplier prints and ships.
The success of your dropshipping business rests heavily on the supplier you choose. An unreliable supplier can ruin your reputation and cause you to lose customers. So, you will want to thoroughly investigate and carefully screen the suppliers that you choose.
Some of the questions you will want to ask as part of your vetting process include:
You can also get into more detail and ask about length of time for shipping, customer support processes, insurance, and fraud protection. You should also always ask for references and look at reviews online.
In addition to the potential challenges inherent in starting a dropshipping business, there are also a couple of significant risks that you should consider, specifically as related to fraudulent payments and illegitimate suppliers.
Dropshipping is a completely legal business model. Just like any other retailer, you are selling products that someone else manufactured. Just because you are not holding the inventory, but are relying on someone else to fulfill the order does not make it illegal (or even sketchy in any way). Of course, you need to make sure that you cover all bases involved in setting up a legal business wherever you are located and you should check with a lawyer to be sure.
The amount of capital to invest in your dropshipping business up front should be minimal. The main items you can’t live without include an online store (appx. $30 per month) and a domain name (appx. $5-20 per year). You’ll also need to invest in advertising in order to draw people to your store. This will depend on your budget - you can start with $500 in Facebook ads for example and then go from there.
Like any business, dropshipping can be extremely profitable or not at all...or anything in between. It depends on the product you choose, the market forces, and your supplier. Because you do not hold any inventory, if selling one product is not as profitable as you would like, you can easily switch to another.
The numbers vary, but you’re likely to earn up to $10k a month within the first couple of months and that number will only increase as you become more experienced and are able to better target your marketing and/or improve your negotiation with suppliers.
You will have to pay taxes according to the laws in the location where you live and/or where your business is registered. You should consult with an accountant to make sure you follow all relevant laws.
Yes, you will need to register your dropshipping initiative as a business. You may not need to do this immediately, but don’t wait too long because most payment providers will require proof of registration in order to set you up.
The supplier will charge you for shipping. It’s your choice to absorb that cost yourself or pass it on to your customers. As with any other online store, sometimes shipping is “free” and included in the price of the product and other times there is a separate shipping cost. You can try different methods and determine which works best for your customers and your profits.