How to Start a Dropshipping Business | Growthink

How to Start a Dropshipping Business

how to start dropshipping business

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Dropshipping is a form of ecommerce business that allows entrepreneurs to market and sell products without having to buy or store inventory. Dropshipping is a viable business model for new entrepreneurs, but with some ground rules in place, it can be a successful path for even the most seasoned entrepreneur. 

In this guide, we will explore what dropshipping is, how to make the dropshipping business model work, the steps to get started with dropshipping, and identifying the best dropshipping business idea that you can apply for your business. Let’s jump into it!

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.

What is Dropshipping?

Dropshipping is the process of taking orders on your ecommerce website and simply passing those orders straight to a wholesaler who will then ship them directly to your customers. Dropshipping an order consists of:

  1. Taking an order from a customer (e.g via email or on your own online store).
  2. Asking the dropshipper’s warehouse for that product and giving them the customer’s address so they can send it out immediately, without you having any inventory costs.
  3. Paying the dropshipping supplier and reimbursing them for delivery and shipping costs.

 

How to Start a Dropshipping Business

There are many ways of starting a dropshipping business. Dropshipping is different from traditional e-commerce in that dropshipping online stores do not keep any inventory of products. All dropshipping stores will use a dropshipping app like Shopify or other e-commerce platforms. These apps will handle the order fulfillment process for them. Dropshippers will list items for sale on their dropshipping store, and when a sale is made, they simply purchase the item from a wholesaler and have it shipped directly to the customer’s door.

Here are some general steps required for starting a dropshipping business:

Step 1: Find a Dropship Supplier

A dropshipping supplier is a company that sells wholesale goods directly to dropshipping business owners. Dropshipping suppliers are responsible for the storage, picking, packing, and shipping of products sold by drop shipping businesses. There are many dropship companies you can research online via Google search to find one that best fits your budget and needs.

Step 2: Set up an Online Store

A dropshipping store is an online store where orders are processed, products are displayed and orders are fulfilled. This could either be done through an e-commerce platform or by building your custom e-commerce site using HTML, CSS, JavaScript code, etc., so you must do some research first on which dropshipping platform would suit your needs best.

The two most popular platforms today are Shopify and Teikametrics. Shopify is said to be the easiest dropshipping platform to use because of its drag-and-drop interface, although it’s difficult to configure, unlike Teikametrics where you can just turn on or off certain features. Another thing that makes Teikametrics unique among dropshipping platforms is that it allows drop shippers to directly access their suppliers’ inventory via API thus eliminating the need for middlemen dropship companies.

Step 3: Create Your Dropshipping Store

Once you have chosen your dropshipping store platform, start creating your store by adding products from your dropship supplier. Choose a relevant name for your business that has not been taken already. Also, a dropshipping business is required to have a payment processor if you will accept credit card payments, so start by researching the best one for you.

Step 4: Improve Your Dropshipping Store

Once your dropshipping store has been created, it’s time to promote it! Make sure you optimize your ecommerce website for mobile devices first. This can be done by making use of mobile-friendly themes or improving the theme’s responsiveness through custom coding using CSS3 media queries. The next step is driving traffic to your dropshipping website by promoting it on social networks like Facebook and Twitter as well as forums about dropshipping, which are easy to find online via Google search. Another way to improve your own online store is by creating a blog to build trust and create authority in your dropshipping niche.

Step 5: Start Dropshipping

Once you start making sales, it’s time to celebrate and expand your dropshipping business! Make sure you always keep an eye on returns and shop cancellations as well as shipping and sales tax. Also, make sure your dropshipping supplier is reliable with timely deliveries and quick customer service if needed. Last but not least, make sure you pay attention to trends in the market so that you’ll know what products are likely to sell.

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your business plan and financial model in hours.

The Pros and Cons of Dropshipping

If you’re considering starting a dropshipping business, there are some important pros and cons to consider. Dropshipping is very popular, which means there are many drop-ship companies out there, but dropshipping isn’t the right fit for everyone.

Before you jump in head-first, let’s take a quick look at some of the pros and cons that will help you determine whether dropshipping is right for your business.

Dropshipping Pros

  • Low overhead costs: Dropshipping businesses have very low overhead costs. Dropshipping allows you to avoid the high cost of maintaining a physical storefront. Dropshipping business owners don’t have to pay for commercial real estate, hire employees, or stock inventory. There is no need to invest in inventory, and you don’t have to worry about shipping products yourself. This means you can focus on marketing and building your business.
  • Easy to start: Dropshipping is a very straightforward way to start your own online business. Dropshipping is one of the easiest businesses to start. You don’t need a lot of money or experience to get started. And you can run your business from anywhere with an internet connection.
  • Scalable: Dropshipping businesses are scalable, which means you can start with a small inventory and grow your business as it becomes more successful. You can also add new products to your inventory as you find ecommerce success with certain items.

Dropshipping Cons

  • Competition: With so many drop shipping companies out there, it can be tough to compete. You’ll need to find a way to differentiate your business and offer value that others can’t provide. If you have a well-thought-out business plan and can offer customers a unique value proposition, you can be successful.
  • Limited control: Dropshipping business owners have very little control over the products they sell. If a supplier fails to deliver or sends out an inferior product, dropshipping business owners lose potential customers and damage their online reputations. If you’re selling a product that’s unpopular or in high demand, you may not be able to find a supplier. This can impact your bottom line.
  • No brand recognition: When you’re dropshipping, you don’t own the brand. You’re selling someone else’s product, which means you can’t control the quality or the messaging. If something goes wrong with the product or if there’s a PR crisis, you have no way to address it. This also means you’ll need to do all the marketing efforts yourself, which can be time-consuming and expensive.

 

Common Mistakes People Make When Starting a Drop Shipping Business and How to Avoid Them

Dropshipping has become a great way to generate income. Dropshipping is an excellent business for entrepreneurs who like freedom and flexibility in their work.

With this type of business, you can be your own boss and work from anywhere in the world with an Internet connection. Starting a dropshipping business does not require any specific knowledge, skills, or experience. All you need to do is find a profitable niche market and then source products that match that market’s demand as well as list those products on your online store and wait for the money to start rolling in!

The most common mistakes people make when they set out to start their dropshipping business are:

Not optimizing revenue streams

You should always try to maximize all different kinds of revenue streams. Dropshipping is a great business, but it’s not immune to the laws of economics. While some entrepreneurs make a great income from dropshipping, others find that they are unable to cover their costs or generate a profit.

One of the main reasons for this discrepancy is that many entrepreneurs do not optimize all of their revenue streams. Dropshipping can be profitable in several ways, including product sales, membership fees, and advertising revenue.

Not choosing the right products

Another reason why some entrepreneurs struggle with dropshipping is that they do not choose the right products to sell. It’s important to remember that you are going to be judged by the quality of your products, so you need to do thorough research and buy the best quality products. Dropshipping is a risky business, so you should always choose to work with tried-and-tested products that are profitable over a sustained period.

Not using marketing techniques correctly

If your online store is not doing well after a certain length of time, it could be because you did not use marketing techniques correctly or at all. Dropshipping does not require large marketing budgets, but they still need to spend some cash on advertising. Dropshipping entrepreneurs who fail to invest in their growth usually end up going out of business because they cannot compete with other online retailers who are spending money on advertising.

If you avoid these mistakes when you start a dropshipping business, then you will significantly increase your chances of success.

 

How Big is the Dropshipping Industry?

The dropshipping industry is a multi-billion dollar industry. The market is growing rapidly and is estimated to be worth $128.6 billion, and it’s growing rapidly. There are many reasons for this growth, including the fact that it’s an easy business to start, there are no major up-front costs, and it can be done from home. There are opportunities for entrepreneurs to start their own dropshipping ecommerce businesses.

Dropshipping Business Growth in 2021 Infographic

 

What are the Key Segments of the Dropshipping Industry?

The dropshipping industry can be divided into several key segments. These segments can be based on the type of products being sold, the way the products are sourced, or the target market for the products.

Some of the key segments in the dropshipping industry include:

Niche Dropshipping

Niche dropshipping is a type of dropshipping business that focuses on products in a specific niche market. This could be a niche based on the type of product, the target market, or the origin of the products. For example, you could sell handmade soaps and candles, pet supplies, or vintage clothing.

One advantage of niche dropshipping is that it can be easier to find dropship suppliers who are willing to work with you. That’s because they may have more experience selling products in your niche and they may have a better understanding of your target market.

Another advantage of niche dropshipping is that it can be easier to attract customers to your store. This is because people who are interested in a specific type of product are more likely to be interested in buying from a store that specializes in that type of product.

Oversupplied Dropshipping

Oversupplied dropshipping is a type of dropshipping business that focuses on selling products that are sourced from multiple suppliers. These could be products that are sourced from Alibaba, DHgate, and other online marketplaces.

One advantage of oversupplied dropshipping is that it can be easier to find products to sell. That’s because you have access to a larger selection of products and you don’t have to worry about sourcing products yourself.

Another advantage of oversupplied dropshipping is that it can be more cost-effective to start selling online through your store. That’s because you don’t have to invest in inventory yourself and you can piggyback off the sales of other suppliers.

Wholesale Dropshipping

Wholesale dropshipping is a type of dropshipping model that focuses on selling products to retailers. These could be products that are sourced from manufacturers, distributors, or other wholesalers.

One advantage of wholesale dropshipping is that it can be more cost-effective to start your store. That’s because you don’t have to invest in inventory yourself and you can piggyback off the sales of other wholesale suppliers.

Another advantage of wholesale dropshipping is that it can be easier to find products to sell. That’s because you have access to a larger selection of products and you don’t have to worry about sourcing products yourself.

 

What External Factors Affect the Dropshipping Industry?

A dropshipping business is affected by several external factors, which can include the following:

Seasonal trends

The popularity of certain products can vary depending on the season. Dropshipping companies generally do not suffer from seasonal changes because their products’ sales rates remain steady throughout the year. However, it is important to note that some products may only sell at certain times of the year (e.g., clothing in summer).

Competition

Dropshipping companies are not immune to competition. A dropshipping business that focuses on niche products may have less competition, but they are still competing with large drop shipping companies. Dropshipping businesses can face competition from several different areas, including other dropship retailers. Since the dropshipping business model is relatively new, stores that specialize in dropshipping may enjoy a period of informational advantage over new drop shippers.

Technological developments

With the advent of online marketplaces, mobile applications, and ecommerce websites, drop shippers have been able to connect with their customers easier than ever before. However, drop shippers must also be aware that technological developments require them to constantly improve on their dropshipping strategies to remain competitive.

Social and cultural changes

Like technological developments, social and cultural changes have affected the dropshipping industry because consumers’ preferences are constantly changing. Dropshippers must be able to adapt to the changing tastes of their customers to stay profitable.

Political conditions

Dropshippers must also keep up with political conditions as they can affect their customers and suppliers. Dropshippers that rely on imports from overseas countries, especially those that are in politically sensitive regions may suffer from censorship or be impacted by trade embargoes. Political events can harm dropshipping sales because consumers’ spending abilities are altered as different limits or sanctions are put into place.

Legal factors

Dropshipping is an unregulated business that is generally not held accountable for certain responsibilities regarding product returns, exchanges, and shipping costs. However, this does not mean that dropship retailers are completely unaccountable for their actions. Some drop shippers have been brought to court due to fraud or negligence-related issues.

Environmental concerns

Since dropshipping offers consumers a way to purchase products at lower prices, Dropship businesses may not be concerned about how their actions can negatively affect the environment. Dropshipping retailers who use environmentally-friendly packaging and transports will be able to remain competitive in the dropshipping market.

These factors can either help or harm the dropshipping industry, depending on each specific situation. Dropshipping store owners should therefore be sensitive to all these external factors and react accordingly by making any necessary changes to their business strategies. Dropshipping should never come across as just another `get rich quick scheme’. Instead, dropshipping needs to ensure that they invest their time and money wisely in an attempt to avoid any potential pitfalls. As always, common sense is the key here. Dropships also need to make sure that they remain flexible enough to handle different kinds of situations when it comes to dropshipping business execution.

 

Who are the Key Competitors in the Dropshipping Market?

Direct competitors in the dropshipping market are stores that sell products in a similar category to the ones you are selling. So, if you’re selling clothes, your direct competitors would be other clothing stores and online stores that sell similar clothing products.

Indirect competitors are stores that don’t sell the same products as you but do offer a similar shopping experience or target the same customer base. So, for example, if you sell clothes your indirect competitors would be sites like Amazon or eBay.

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your business plan and financial model in hours.

What are the Key Customer Segments in the Dropshipping Market?

The dropshipping industry is vast and caters to a myriad of customer segments. 

The key customer segment for the dropshipping market is online buyers. Dropshipping suppliers can sell to this market through websites like Amazon, eBay, and Shopify. Dropshippers who want to target this customer segment should make sure their products are available on high-traffic websites, which will provide them with the opportunity to reach a broad audience.

However, this customer segment can be further divided based on the niche in which buyers are interested. For example, there are online buyers who are interested in fashion and those who are only interested in technology products. Dropshippers should do their research to identify the specific needs of their target market and then design their business around supplying these products.

 

What are the Typical Startup Costs for a New Dropshipping Business?

Dropshipping is one of the easiest ways to start an online business. The initial startup costs are very low, making it a popular choice for first-time entrepreneurs. The startup costs for dropshipping vary greatly depending on the product, but an average drop shipping company will require between $200 and $2,000 to set up.

The dropshipping model is perfect if you’re just starting because you can get started at a very low cost with minimal risk. Dropshipping also allows an entrepreneur to run a company without any initial investment.

 

What are the Key Costs to Launching a Dropshipping Business?

Dropshipping can be a very cost-effective way to start a business, but there are some key costs that you should plan for.

Here are the main costs to consider when starting a dropshipping business:

Product inventory

You will need to invest in some initial product inventory to get your business up and running. This can be a major cost, so it’s important to choose products that you know will sell well. You can do some research to determine what products are in demand and then order a small inventory to test the waters.

Shipping and fulfillment

You will also need to factor in the cost of shipping and fulfilling customer orders. This can vary depending on the size and weight of your products, and the shipping carrier you choose. When setting up your shipping rates, you will need to consider the cost of shipping products to your customers, as well as the cost of packaging and handling. You can then add a markup to these costs to cover your shipping and fulfillment expenses.

Website development

If you don’t already have a website, you will need to invest in some professional dropshipping web design. This is a key aspect of your business, so it’s important to invest in something that looks professional and well-designed. You can get it made cheaply and easily, or hire a professional web developer to create something for you. The website must make a good impression of your store and brand so don’t go for anything unprofessional looking.

Dropshipping advertising

Once your website is up and running, you will need to factor in the cost of dropshipping advertising including email marketing efforts, and influencer marketing. Effective dropshipping advertising can be very expensive if you don’t already have a large audience, so it may be worth building out an email list before you start your dropshipping campaign.

Facebook Ads and Google Ads are two of the most popular paid advertising platforms. You can use these platforms to target potential customers based on their interests, demographics, and even past purchase behavior. For example, you could use Facebook Ads to target people who live in a certain area and have recently expressed an interest in hiking or camping.

Business insurance

You will also want to consider purchasing business insurance, as this can help protect your new dropshipping business from potential losses due to theft or natural disaster. It’s also state-dependent, but most require you to have business coverage if you are using a vehicle to transport goods. Dropshipping requires you to be actively involved in the shipping and fulfillment process, so this is something that dropshipping entrepreneurs should factor into their dropshipping budgets.

Other important costs

It’s also worth considering any other important upfront dropshipping costs, such as dropshipping software, drop shippers license fees, etc. The best way to determine your dropshipping startup costs is by looking at your existing budget for similar products or services in the offline world. If you’re not sure how much it would cost to buy these items wholesale in an offline environment, then you can check out sites like Alibaba for more dropshipping information on specific products.

 

How Much Do Dropshipping Business Owners Make?

Dropshipping owners can make $1,000 – $10,000 in net profit each month.  However, dropshipping requires a lot of focus, determination, and hard work to grow. Don’t expect to get rich overnight or even in your first year.

Dropshipping is not easy, but it does have the potential for high returns. Dropshippers should be able to adapt according to market demands and trends as drop shippers wouldn’t want their dropshipping business to fail.

 

What are the Keys to Launching a New Dropshipping Business?

Dropshipping can be a great way to start a new successful business, but there are a few keys to launching a successful dropshipping business store.

Here are the most important ones:

1. Conduct market research.

Conduct thorough market research to determine if your target market will buy the products that you plan on offering. Dropshipping can be a highly profitable business, but there needs to be a clear demand for the products and services that you offer.

You can use online tools like Google Trends to help you determine if a particular product is in demand.

2. Make a dropshipping business plan.

Before you start your business, you need to have a clear plan for how you will succeed. Without a plan, it will be difficult to make any business successful.  Your dropshipping business plan should include the description of your business, your target market, the products that you will offer, your marketing plan, goals and objectives, and even the financial overview for your business.

3. Choose the right products.

When choosing products to sell, it’s important to pick items that are in demand but that also fits your niche. Researching what products are selling well on other ecommerce platforms can give you an idea of what to sell, but it’s also important to think about what you’re good at and what you’re passionate about.

4. Create a great branding strategy.

Your branding is one of the most important aspects of your business, and it’s essential to create a strategy that will set you apart from the competition. You can do this by either creating a unique logo or customizing the colors of your dropshipping business to match your style.

5. Develop an efficient dropshipping process.

It’s important to develop an efficient dropshipping process so you don’t get overwhelmed with orders and other tasks while you run your dropshipping business. You want to avoid relying on friends, family, and yourself to take care of everything all at once because that could result in errors and delays that hurt your dropshipping business’ reputation.

6. Be patient.

Dropshipping is not a get-rich-quick scheme; it’s going to take time for your dropshipping to grow into its own. Dropshipping is a business, and it will require effort and planning. Dropshipping business owners often take on other side hustles to help pay the bills as they grow their drop shipping business over time.

7. Keep your dropshipping expenses low.

When you’re starting with dropshipping, especially if you don’t have much capital available to spend on inventory, try not to go overboard on dropshipping expenses such as investing in expensive advertising campaigns or promotions that might pull in temporary revenue but don’t contribute to the growth of your dropshipping business long-term. Keeping your dropshipping costs low will allow you to work within your means as you build up your dropshipped business, which is an important dropshipping best practice.

8. Be accountable to your dropship business and its customers.

It is essential to be as responsive as possible when you’re running a dropshipping business. Whether it’s answering customer questions, processing orders, or resolving issues that come up with suppliers, don’t put anything off or delegate tasks that you should take care of yourself. Customers rely on you and your dropshipping brand to take good care of them, and if they feel like you’re not doing everything in your power to meet their needs, they could easily turn away from your dropshipping business for another one instead.

It’s also worth noting that the more personal relationships you build with your dropship customers, the better connected you will be to your dropshipped business as a whole, which will help you keep track of important dropshipping metrics you need to monitor for growing and developing your dropship business.

9. Build a dropshipping team.

As your business grows, it’s going to take more than one person to handle the demands that come with running a dropshipping business effectively. That’s why it’s important to build a drop shipper team composed of dedicated employees who share your vision for what you’re hoping to achieve through dropshipping. It might not seem like you need help at first, but once drop shipper orders start coming in faster than you can keep up with them yourself, it’s essential to have people on hand who can help you process dropshipped orders, answer customer questions, and take care of other dropship tasks so you don’t get overwhelmed.

A successful dropshipping business owner knows that dropshipping is one dropshipping business that allows them to focus on what they’re passionate about while also making money in the process.

When all is said and done, dropshipping is a lot like any other business except that it takes advantage of technology more than most other models do. If you want proof of how valuable the dropshipping industry has been over the years, just look at some of the biggest retailers out there today as well as internet giants such as Amazon. Some started as simple drop shippers. Dropshipping is arguably the most low-risk business model of all time.

 

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How to Start a Dropshipping Business FAQs

To start a drop shipping business, you'll need some basic entrepreneurial skills, including the ability to spot opportunities, make decisions, and take risks. You need to have the ability to manage and organize time and resources and to sell and market yourself and your business.

Additionally, you must have basic computer literacy.  Drop shipping is a tech-driven industry, and the ability to use the internet and other computer software as part of your Dropship business is an absolute must.

Lastly, you'll need some specific skills related to the drop shipping industry, such as the ability to use Shopify or other ecommerce platforms, strong research and analytical skills, the ability to find profitable products to sell, and knowledge of search engine optimization (SEO) techniques.

One of the main differences between dropshipping and a traditional ecommerce store is that drop shipping companies do not carry inventory, which means that they don't have to spend time or money storing, managing, or shipping products.

In addition, drop shippers also save on overhead costs because their stores are virtual and only exist as websites. Dropshippers may even be able to reduce their total costs further by hiring overseas workers. They can do this because they don't need to hire warehouse workers for each store location.

Yes, it is possible to sell the same product on eBay if it is already drop shipped by someone else. Dropshipping allows you to have a greater level of control over your inventory, as you will not have to worry about storing or shipping any products yourself. You can simply list the products that you are selling on eBay and then drop ship them directly to your customers from the third-party supplier's warehouse.


 

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