As with any other business, dropshipping has its own modalities and technicalities that can be learned through experience and with proper guidance. This post is a complete beginner’s guide to starting a dropshipping business.
Essentially, starting an eCommerce business requires you to sort out the source of your inventory and where you will store them.
Dropshipping helps you avoid some of these complexities, and it has become a widely accepted eCommerce business model. It’s been said that about 27% of online retailers use dropshipping as their order fulfillment method.
In this post, we will give a comprehensive breakdown of the steps involved in starting a dropshipping business. First, let’s take a closer look at what dropshipping is.
What is Dropshipping?
Dropshipping is an eCommerce order fulfillment method where a business doesn’t have to manage its own inventory and shipping. The seller relies instead on a third-party supplier to fulfill orders, either a wholesaler or a manufacturer.
Experts predict that the dropshipping industry will hit $500 billion in valuation by 2027, which is almost four times bigger than it was in 2020. The impressive growth of this industry is a result of both the overall growth of the eCommerce retail industry and the numerous advantages associated with dropshipping.
One of these advantages is the low overhead cost. Even if you use a third-party logistics company, you still incur massive logistics overhead. However, the use of dropshipping as an order fulfillment method can save you the cost of getting your own warehouse or purchasing inventory.
With dropshipping, an eCommerce business is saved the cost of potentially amassing dead stock. Dropshipping is a money-saving business model that allows companies to avoid the high costs associated with warehousing and inventory management.
How Does the Dropshipping Business Model Work?
There are three key components in dropshipping: the supplier (manufacturer or wholesaler), the retailer (dropshipping business), and the customer.
In general, when a customer places an order with the dropshipper, the supplier is responsible for packaging and shipping the item. Retail prices are set by you, the dropshipper, and wholesale prices are determined by your supplier, and the rest of the profit is yours.
With dropshipping, you don’t need to get involved in the handling of inventory or warehouse management. You simply have to register with a trusted supplier.
The supplier could either be a manufacturer or a wholesaler. The responsibilities of the supplier include holding inventory, shipping products to customers, replacing items, and restocking inventory. Some of the common dropshipping suppliers include AliExpress, Banggood, Megagoods, and Printify, which is a print-on-demand dropshipping supplier.
While the supplier handles the order fulfillment, the retailer is responsible for marketing the items. While the supplier is responsible for shipping, the retailer is responsible for the cost of shipping.
A dropshipper basically sells products under their brand name and on their website. Since they are fully responsible for the quality and reputation of the products they sell, they need a trusted supplier. Dropshippers are the first point of contact for customers with questions or issues.
Dropshipping has the advantage that the retailer (you) does not need to worry about unsold inventory or product returns since the supplier will replace any defective items.
Is Dropshipping Worth It?
Yes! Dropshipping is worth it because it is a profitable business model.
It does not require you to incur large overhead costs, as you are neither responsible for the creation nor delivery of products. It is a low-risk business model that can produce a good profit margin when you work it right.
Some of the benefits of a dropshipping business include
- Product Variety
As a dropshipper, you can offer your customers a variety of products as you don’t need to have an inventory of these products. When you advertise products on your website, even if those products don’t sell, you don’t incur any losses.
- Order Fulfillment is not Your Responsibility
As a dropshipper, the burden of fulfilling orders is taken off you. The management of inventory, order processing, and supply chain is not your responsibility. But you will be responsible for customer support and any other issues that directly involve the customers.
All in all, dropshipping is an ideal business model for eCommerce businesses.
Is It Hard To Start A Dropshipping Business?
It is not hard to start a dropshipping business. However, it takes grit and knowledge to make it a successful dropshipping store.
Running a dropshipping store can be highly competitive. Starting a dropshipping business is free, low-risk, and can result in quite a good profit margin—and it’s no surprise that the number of people doing so has spiked in recent years.
Combined with the fact that most dropshipping stores sell almost the same items from almost the same suppliers and at almost the same prices. There’s a real hustle for customers.
Extraordinary people, they say, are ordinary people doing extraordinary things. To run a successful dropshipping store, you need to go the extra mile in marketing your items.
How To Start A Dropshipping Business: 7-Step Guide
Step 1: Find a Profitable Product to Sell
The first step in running a dropshipping store is choosing what to sell.
People make the mistake of thinking they should sell only items that relate to their passion. For example, some musically inclined individuals think it’s musical items they should dropship. While this is good, it goes beyond passion.
Your dropshipping business ideas should be channeled toward selling profitable products. You should find out about products with a passionate customer base. For example, fitness items, fashion and beauty items, and electronic devices are some of the best-selling items for dropshippers because new trends are constantly emerging, and customers are interested in purchasing these items.
You can make use of Google Trends to help you understand the search interest of people at a particular point in time. After collecting keyword research data with tools such as Semrush, you can use it to determine a product’s popularity.
Step 2: Research your Competitors
After finding a product to sell, the next step is to find out who your competitors are. Carry out competitors’ analysis where you research what they sell and how they sell.
You can find out who your competitors are through a simple Google Search. Take note of the top ten results either in the non-organic or organic search results. The result gives a fairly good idea of who you are up against.
If you are in a different location from your targeted audience, you can use SEO software such as SERPStat or Ahrefs to gather search information results from different parts of the world.
Apart from Google, you can use also analyze the search results from social media. You can search for Facebook ads in your chosen niche and look at the brands with the best result. Examine how they interact with their customers, how many followers they have, and how engaged their posts are. This information can provide insight to help you develop your social media strategy.
Another way is by subscribing to the email list of your top competitor. You can get sufficient information about them from their emails, including their writing style and the way they attract buyers. And the emails can help you guide when you want to start your email campaign.
Above all, meticulously arrange the information gathered about each competitor. Their website, their prices, the frequency of their emails, etc. Keep the information organized, as it can help you guide your decision-making.
Researching your competitors will help you see the bigger picture and learn which tactics work best.
Step 3: Choose a Dropshipping Supplier
Your dropshipping business is as good as your supplier. Dropshipping suppliers are very critical to the success of dropshipping stores.
Your dropshipping supplier is responsible for the quality assurance of your product and the entire shipping process to your customer.
AliExpress is a source for many dropshipping suppliers from China. However, you need to check their ratings and reviews to ensure they have a reliable track record.
Apart from AliExpress, there are other dropshipping suppliers such as SaleHoo, Doba, Wholesale Central, Banggood, etc.
Amazon FBA (Fulfillment by Amazon) is another dropshipping supplier, especially for sellers on Amazon.
By ordering samples, you can compare the suppliers’ delivery times, packaging, and product quality. It helps you manage your expectation when you finally choose a supplier.
Step 4: Build Your Dropshipping Store
After selecting your supplier, building your online store is the next step in starting your dropshipping business.
The first step in building a website is choosing your domain name. Your domain name is very important if the business is long-term. Ensure to use a domain name that is simple enough to remember.
Some of the guidelines for choosing a domain name include not using your name for the domain name. Also, if you will specify your niche in the domain name, make it as generic as possible. For example, instead of using uniquestilletos.com, use uniquefashion.com, or uniqueshoes.com.
To build your online store, you need a website builder. While there are many website builders, the website builder, which is also an eCommerce platform, is Shopify.
Shopify is a drag-and-drop website builder that does not require any technical coding ability to use. It is an eCommerce platform that provides plugins for domain names, marketing, social media integrations, and payment. Shopify allows sellers to receive payment in multiple currencies.
You can choose from the 81 themes available on Shopify (10 free and 71 paid themes) to edit and customize the store to your liking.
Apart from Shopify, another website builder that is user-friendly for dropshipping businesses is WordPress when integrated with Woocommerce. Woocommerce allows websites built with WordPress to be integrated with payment options and other marketing tools.
Step 5: Choose a Business Structure
To set up a serious dropshipping business, you need to set up a business structure. You need to establish the business as a legal entity.
The two common types of business structures include Sole Proprietorship and LLC.
If you set up your business as a sole proprietorship, it is a simple business structure. However, there is no personal liability protection. Hence, when you file taxes, the report is simply on your personal earnings. Also, if the business is in a legal dispute, it essentially means you are the one in a legal dispute.
Limited Liability Company (LLC)
Setting up your business as an LLC offers you personal liability protection as your business is established as a different legal entity.
An LLC offers more protection than a sole proprietorship to you, however, it means more taxes. In a sole proprietorship, you will not file state or federal business taxes, however, as an LLC, you will have to. You will also have to pay incorporation and ongoing fees.
Do you Need an LLC to Dropship?
You don’t necessarily need an LLC to run your dropshipping business. However, if you want protection for your personal assets and your business, it is advisable to set up your dropshipping store as an LLC.
Step 6: Market your Dropshipping Business
After setting up your store and setting up your business structure, your business has effectively been set up.
The next step is to market your business. A successful dropshipping store is only as good as its marketing, hence this is the make-or-break phase for your business.
If you use Shopify, you can integrate apps and plugins such as OptinMonster to help you with lead generation and lead retargeting. Shopify also allows integrations with social media channels such as Instagram, Facebook, and Pinterest so that you can promote your products on those social media channels.
Apart from the tools on Shopify, you can also use digital marketing tools for marketing your business.
You can try social media ads such as Facebook Ads, and Instagram Promotions. You can also use Google Ads to promote your website.
Apart from digital marketing tools, you can also use influencer marketing to get the word out there about your business. Influencer marketing is quite an effective marketing strategy, as it is a form of word-of-mouth marketing.
You can also market your business through free media coverage or through online communities such as Facebook Groups. If you are a college community, you can get your business featured on the popular notice boards around campus.
Step 7: Optimize
The last and continuous stage of your business is to optimize your store.
At this stage, you already know what works and what doesn’t. You have tracked the successes of your marketing campaigns to know which of them were successful.
At this stage, you have to analyze your results and work on producing better outputs in your business. You can also shake up things a bit by announcing discounts, trying to make your prices even more competitive, and pushing for more business growth.
In optimizing your business, you can adopt content marketing strategies such as using tools like Google Search Console to improve your store’s performance on Google Search. You can also use the analytics features on the different third-party tools you are using for email marketing and social media marketing.
This is the most important stage in the long-term sustainability of the business.
Finally, the first step in starting a dropshipping business is deciding to do it. We know, we know—it’s not an easy decision. But once you make up your mind, it’s not as hard as you think!
The ease of starting a dropshipping business is enabled by the presence of many marketing automation tools—some of which we’ve touched on in this article.
Hopefully, this article has shown you how to use dropshipping as a way to build your own business and achieve financial success.