Starting a dropshipping business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful business.
Importantly, a critical step in starting a dropshipping business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
- Choose the Name for Your Dropshipping Business
- Determine Your Niche Market
- Develop Your Dropshipping Business Plan
- Choose the Business Structure for Your Dropshipping Business
- Secure Startup Funding for Your Dropshipping Business (If Needed)
- Identify Reliable Dropshipping Suppliers
- Register Your Dropshipping Business with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Dropshipping Business
- Choose an Ecommerce Platform & Dropshipping Marketplace
- Promote Your Dropshipping Store
- Establish Your Pricing Strategy
- Purchase and Setup the Software Needed to Run Your Dropshipping Store
- Launch Your Dropshipping Business Store
Below, we’ve provided more information for each step to help you learn how to start a dropshipping business of your own.
1. Choose the Name for Your Dropshipping Business
The first step to starting a dropshipping business is to choose your business name.
This is a very important choice since your company name is your own brand and will last for the lifetime of your business. Ideally, you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your own dropshipping business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also, check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your dropshipping business.
2. Determine Your Niche Market
The next step is to research and determine your niche market. You will want to focus on a niche that you are knowledgeable about or passionate about in order for your dropshipping business to be successful.
When researching possible niches, consider the following factors:
- Is there an existing customer base?
- What products should you offer?
- How competitive is the market?
- What are the potential profits and margins on each product?
Use tools like Google Trends and search engines like Google and Bing to get an idea of what products are popular.
3. Develop Your Dropshipping Business Plan
One of the most important steps in starting a dropshipping business is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – This section should summarize your entire business plan so readers can quickly understand the key details of your dropshipping business.
- Company Overview – This section tells the reader about the history of your dropshipping business and what type of dropshipping business you operate. For example, are you selling products to retail customers or wholesale buyers?
- Industry Analysis – here you will document key information about the dropshipping industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build a competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions, and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your dropshipping business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
4. Choose the Business Structure for Your Dropshipping Business
Next, you need to choose a business structure for your dropshipping business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a dropshipping business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited personal liability protection to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a dropshipping business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include a lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a dropshipping business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your dropshipping business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
5. Secure Startup Funding for Your Dropshipping Business (If Needed)
In developing your dropshipping business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a dropshipping business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding, and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a dropshipping business that they believe has a high potential for growth.
6. Identify Reliable Dropshipping Suppliers
One of the most important steps in setting up a dropshipping ecommerce store is to identify reliable suppliers. Dropshipping relies on demand being met with quality products, usually sourced from third-party wholesale suppliers. When choosing a dropshipping supplier, consider factors such as price, customer support, and shipping times. You can also research online reviews of potential dropshipping suppliers before deciding.
7. Register Your Dropshipping Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN to open an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
8. Open a Business Bank Account
It is important to establish a bank account in your dropshipping business name in order to keep your personal and business finances separate. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
9. Get a Business Credit Card
You should get a business credit card for your dropshipping business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
10. Get the Required Business Licenses and Permits
Every state, county and city has different business license and permit requirements.
Nearly all states, counties and/or cities have license requirements including:
- General Business License: This will establish you as a legitimate business entity as discussed above
- Sales Tax ID or Seller’s Permit: This will allow you to collect sales tax from your customers and then pay sales tax to the state on a monthly or quarterly basis depending on your annual revenue
Depending on the type of dropshipping business you launch, you will have to obtain the necessary state, county and/or city licenses.
11. Get Business Insurance for Your Dropshipping Business
Other business insurance policies that you should consider for your dropshipping business include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
12. Choose an Ecommerce Platform & Dropshipping Marketplace
When you’re starting your ecommerce business you’ll need to choose an online marketplace to use for your ecommerce store. Some of the most common ecommerce platforms include:
- Shopify – Shopify is one of the most popular ecommerce platforms for dropshipping ecommerce businesses. It offers features such as product management, payment processing, shipping and fulfillment tools, and more.
- WooCommerce – WooCommerce is an open-source ecommerce platform that allows you to customize your store in any way you want. It’s easy to use and has powerful features that can help you create a successful ecommerce store.
- Magento – Magento is a feature-rich ecommerce platform with powerful tools and features to help you build an effective online store. It also has an extensive library of extensions and plugins to extend its functionality.
- BigCommerce – BigCommerce is another popular ecommerce platform for dropshippers, offering features such as customer management, payment processing, analytics and reporting tools.
Once you’ve chosen your dropshipping platform, you’ll be able to customize it to suit your needs and start adding products to your store. Include comprehensive product descriptions and photos, clear pricing information and shipping policy details.
There are many dropshipping marketplaces, but the most common include:
- AliExpress – AliExpress is one of the most popular dropshipping marketplaces, offering a wide variety of products and suppliers.
- Oberlo – Oberlo is an online marketplace that allows you to find and manage products from AliExpress. It also offers fulfillment services and automated order processing.
- Amazon FBA – Amazon FBA (Fulfillment by Amazon) is a dropshipping platform that allows you to source products from the world’s largest online retailer.
Once you’ve chosen your dropshipping marketplace, you’ll be able to easily find and manage products for sale in your ecommerce store.
13. Establish Your Pricing Strategy
Before you begin to sell products, you’ll need to establish a pricing strategy. This will help you determine the best price for your products and ensure that you remain competitive in the marketplace.
Consider things like the cost of goods sold (COGS), shipping costs, taxes and fees, and other overhead expenses when calculating your product prices. You’ll also want to factor in how much profit margin you’d like to make from each item. Once you’ve determined your pricing strategy, you can start setting prices that are attractive to customers while still allowing you to make a profit.
14. Promote Your Dropshipping Store
Marketing is an essential part of any successful business. Without a strong marketing plan, it will be difficult to reach potential customers and grow your dropshipping store.
When developing your marketing plan, here are some key marketing strategies to consider:
- Social media marketing – Utilize popular social media platforms such as Facebook, Instagram, Twitter, YouTube, Pinterest and others to reach potential customers.
- Content marketing – Create content such as blog posts, videos, or webinars to educate and attract new customers.
- Search engine optimization (SEO) – Utilize SEO tactics to help your online store rank higher in search results for relevant keywords.
- Email marketing – Create email campaigns that target specific customer segments with personalized messages.
- Paid advertising – Invest in paid ads to quickly reach new audiences and drive sales for your business.
With the right combination of marketing tactics, you can effectively reach your target market and increase customer purchases.
15. Purchase and Setup the Software Needed to Run Your Dropshipping Store
When setting up your dropshipping store, you’ll need to purchase and set up the necessary software tools. This includes ecommerce platforms such as Shopify or WooCommerce, payment processors like PayPal or Stripe, shipping carriers such as USPS or FedEx, and more.
You’ll also need to set up analytics software to track customer data and other metrics to help you understand your business better. This includes tools like Google Analytics, Kissmetrics and Mixpanel.
You’ll want to invest in marketing automation software like Mailchimp or ActiveCampaign that can help automate your marketing campaigns and reach potential customers more effectively.
Finally, you will need to invest in accounting software such as QuickBooks or Xero to manage your finances and keep track of your business expenses.
With the right setup, these online tools will enable you to run your dropshipping store more efficiently and maximize profits.
16. Launch Your Dropshipping Business Store
Once you have everything in place, it’s time to start running your dropshipping store. This means monitoring your business performance regularly and making adjustments to improve efficiency and increase sales.
Monitoring metrics such as customer acquisition costs, customer lifetime value, and conversion rates will help you understand how your business is performing and make informed decisions about how to improve it.
By tracking all the data related to your online store, you can stay up-to-date on what works best for your customers and optimize your dropshipping store for success.
With consistent effort and attention, you’ll be able to create a profitable business model for your dropshipping business.
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How to Start a Dropshipping Business FAQs
What is a Dropshipping Business?
A dropshipping business is an ecommerce or online business where you can establish a virtual storefront to sell products without ever actually owning the inventory. The supplier handles all of the product fulfillment and delivery, allowing you to focus on marketing your store and building relationships with customers.
How Does The Dropshipping Business Model Work?
In the dropshipping business model, the retailer lists products for sale on their website or other sales channels. When an order is placed, the dropshipping supplier ships it directly to the customer and charges the retailer a wholesale price for the product. The retailer then keeps any profits from the sale after subtracting fees associated with running an online business.
What Are Some Popular Dropshipping Business Ideas?
Dropshipping is an increasingly popular way for entrepreneurs to start a business without the overhead of stocking and shipping inventory. With a dropshipping store, you can leverage digital technology to quickly launch an ecommerce website that offers customers access to products from all over the world. Here are 11 popular dropshipping business ideas to get you started:
- Clothing: You can offer clothing items such as t-shirts, dresses, blouses, jeans and more from your online store. Find quality suppliers with competitive prices in order to attract customers. .
- Shoes: Shoes come in many different styles and sizes so there’s plenty of room for variety when it comes to offering them on your dropship website. Focus on finding fashionable yet affordable shoes that will appeal to a wide range of shoppers.
- Accessories: Accessories such as jewelry, hats, scarves and handbags make great additions to any wardrobe – and they also make great products for your online store. Look for unique pieces from reliable suppliers that won’t break the bank but still look stylish enough for customers who want something special for their wardrobe or home décor collection.
- Home Décor: This dropshipping business idea widely ranges from wall art and candles to furniture and kitchenware, home décor is a popular category for online stores. Find suppliers with unique items that your customers won’t be able to find in stores or on other websites.
- Electronics: Electronics such as tablet computers, phones, cameras and even drones can be bought from manufacturers at wholesale prices and sold online for a profit. Make sure to investigate any potential laws and regulations that may apply in your area before selling electronic items.
- Beauty Products: Makeup, skincare, hair care and other beauty products are always in demand. Focus on stocking high-quality items from trusted suppliers so you can offer customers exactly what they’re looking for.
- Food: You can offer food items such as gourmet coffee, tea, spices and other specialty items from your online store. Look for suppliers that are able to provide you with the best prices on these products so you can remain competitive.
- Pet Supplies: Pet owners will always need supplies for their furry friends, making pet supplies a great choice for a dropshipping store. Look for items such as toys, beds, treats and grooming supplies to offer customers.
- Outdoor Gear: Outdoor gear such as camping equipment, hiking apparel and even kayaks can be found from reliable suppliers at prices you can afford. Focus on offering items that are popular with outdoor enthusiasts in order to attract customers to your store.
- Vintage Items: Vintage items such as clothing, jewelry and furniture have always been popular with collectors. Look for suppliers that specialize in these types of products so you can offer your customers rare finds from years gone by.
- Gift Kits: Offering premade gift kits is an easy way to create value for your customers. Look for suppliers with quality items that will fit into different types of gift baskets, such as spa sets, gardening kits and more.
By leveraging digital technology to create an online store and offering products from all over the world, you can quickly launch a successful dropshipping business without investing in inventory.
Is it hard to start a dropshipping business?
Starting a dropshipping store isn’t difficult, but it does require planning and effort. You need to research potential dropshipping suppliers, set up your own online store, determine pricing strategies, engage in marketing and advertising efforts, and more.
How can I start a dropshipping business with no experience?
You can start a dropshipping business with no experience, but it will take dedication and hard work. You'll need to do research on the best suppliers, find ways to promote your online store and make sure you have an understanding of the required taxes and other financial considerations.
What type of dropshipping store is most profitable?
The type of dropshipping store that is most profitable will depend on your target market, the products you choose to sell, and the strategies you use to promote your business. It's important to research potential markets and identify products with high demand in order to maximize profits.
How much does it cost to start dropshipping?
The cost of starting a dropshipping business varies depending on the type of products you sell, the suppliers you use, and the tools and software you need to run your business. Generally speaking, it's possible to start a dropshipping business for as little as $500-1000.
What are the ongoing expenses for a dropshipping business?
Ongoing expenses for a dropshipping business typically include hosting fees, payment processing fees, shipping costs, marketing and advertising costs, taxes, and more. It's important to track these expenses on a regular basis to ensure the success of your business.
The cost of starting and running a dropshipping business can vary greatly depending on the type of products you sell, the suppliers you choose to use, and the strategies you employ. With the right tools and strategies, it is possible to create a profitable dropshipping business that can generate significant income for years to come.
How does a dropshipping business make money?
The dropshipping business model is based on buying products from suppliers and selling them at a markup. When customers make orders, you purchase the products from your dropshipping supplier and have them shipped directly to the customer. You keep the difference between the cost of goods sold (COGS) and your selling price as profit.
The key to the dropshipping model is to find products that have a high markup and to effectively promote them. By focusing on customer acquisition, marketing, and customer retention strategies you can increase sales and maximize profit margins.
Is owning a dropshipping business profitable?
Yes, owning a dropshipping business can be profitable if you are able to find the right products, target the right market, and use the most effective marketing strategy. With careful planning and dedication, it is possible to create a successful dropshipping business that generates significant income.
Why do dropshipping businesses fail?
Dropshipping companies typically fail due to poor planning, inadequate marketing efforts, and lack of customer acquisition. It's important to create a business plan that outlines your goals and objectives, conduct market research to determine the best products to sell, and find effective ways to promote your business in order to maximize success.
How do I determine the profit margins for my different dropshipping products?
To determine the profit margins for your different dropshipping products, you'll need to calculate the cost of goods sold (COGS) and subtract that from the selling price. The resulting number is the amount of money you make in profit on each product sold. This calculation will help you determine which products have higher profit margins so that you can focus on selling those items. Additionally, you'll want to factor in any additional expenses such as hosting fees, payment processing fees, shipping costs, marketing and advertising costs, and the required taxes and other financial considerations. This will help ensure that your profit margins stay profitable over time.