Dropshipping is a great way for independent retailers to add items to their stores without taking on any additional expenses for storage and handling. The product manufacturer creates, packages, and ships the product out to your customer for you, making this a low maintenance business model.
What is Dropshipping?
When a retail customer orders an item, the dropshipping company blind ships the item to the customer. The dropshipping company is paid for the merchandise, and retailers collect payment from the shopper, adding a healthy profit margin.
In the current web-based world of retail and wholesale, dropshipping makes a lot of sense. Retailers add items to their online store and make more money without spending additional dollars up front.
Why You Should Drop Ship
Dropshipping is a great business model for new entrepreneurs. It’s low risk, low cost, easy to start up, and can be automated.
- Low risk business: You only pay for goods sold to customers. There’s no need to buy bulk inventory to get wholesale prices, as dropshipping prices are already pretty low.
- Low cost: Since most goods come from China, the cost of goods is generally rather low. Since product costs are low, you can price your merchandise at market value and run a profitable business.
- Easy to start: You’ll be able to start selling the same day you sign up. Products can be imported quickly and since you won’t carry inventory, you can start promoting them right away.
- Automated business: Products can be imported to your store in only a couple clicks. Orders can be processed in a few clicks, too.
Basic Dropshipping Principles
If you have never run a dropshipping business before, the process can be quite daunting. There are two basic principles to keep in mind in order to make a dropshipping business work more efficiently:
1. Accept that things can get messy
The convenience of dropshipping comes at a price, and having an invisible third party involved in each sale often complicates things. From botched orders to out-of-stock items, fulfillment problems will be something you’ll have to deal with. If you accept this ahead of time, you’re less likely to throw in the towel due to frustration.
2. Adopt a KISS mentality
Having a KISS (Keep It Simple, Stupid!) mentality will serve you well with the dropshipping model. Given the inherent complexity of dropshipping, including multiple suppliers and shipments from various locations, you may think you need to perfectly track your costs and inventory at all times. But if you try to do this, you’ll likely go crazy, spend thousands on custom development, and never launch a store. Focusing on the easiest-to-implement solutions, even if they’re not “perfect,” is usually the better option, especially when you’re starting out.
How Much Can You Make as a Dropshipper?
There are many dropshippers who make up to $100,000 per year with a successful dropshipping store. So, if your idea of being a successful dropshipper is to make $100,000 per year, you’ll need to choose the right suppliers and build a brand.
How to Start a Dropshipping Business
Now that you have all of the basics down, let’s get into how to start your dropshipping business.
- Determine Your Dropshipping Niche
- Define Your Target Audience
- Choose Your Dropshipping Supplier
- Build an Ecommerce Store
- Choose a Business Structure
- Begin Marketing Your Dropshipping Business
- Provide Great Customer Service
1. Determine Your Dropshipping Niche
Unless you are dropshipping private-label goods or using a print-on-demand business model, there is a good chance your products will be available from other merchants. In order to differentiate yourself in a crowded marketplace, you need to find a lucrative niche.
Conduct research to find what other dropshipping businesses are selling and which categories are the most popular. Find a profitable niche that you are also passionate about. This way, you can make a profit while still enjoying the actual products you sell.
Here are some questions to ask yourself when discovering your dropshipping niche:
- Which online retailers have been skyrocketing in popularity lately? What products do they sell?
- Which products are the most popular right now?
- Which products have the highest profit margin?
- Which niches have the biggest audiences?
2. Define Your Target Audience
Once you figure out your desired dropshipping niche, it is now time to define your target audience. Understanding your target market can help better inform the choices you make about which sales channels to focus on, what new products to sell, how to market your brand, and a lot more.
When defining your target audience, it helps to ask yourself a few questions:
- Who benefits the most from my product?
- What makes my product different from my competitors’ products?
- Who is discovering my products, and how are they discovering them?
Researching your target market doesn’t need to be complex, but you should have a good idea of the type of person you’re selling to.
3. Choose Your Dropshipping Supplier
There are so many dropshipping companies for you to choose from, but just as you would pick a manufacturer, you must ensure the supplier you go with can meet all of your needs. Wholesale Central is the perfect platform to help retailers find the right dropshipper.
This online wholesale directory features hundreds of companies who sell in a variety of different categories, including dropshipping. Simply click on the ‘Dropshipping’ category and scroll down the list to find a supplier that suits your needs.
4. Build an Ecommerce Store
Now that you know the types of products you want to sell and have one or two dropshipping suppliers on hand, it is time to set up an online storefront to start posting your items. First, you’ll want to think about your domain name.
Your domain name should at least closely match your business name. You also need to choose an ecommerce platform. Whether an all-in-one software, like Shopify, or an open-source platform, like Magento, your ecommerce platform will be the base you use to build and develop your online dropshipping store. A few options for you to consider include Shopify, WooCommerce, Squarespace, or Magento.
5. Choose a Business Structure
You also want to make sure you set up a business entity for your dropshipping business. While it is always smart to consult with a lawyer, here are three basic business structures you can choose from:
This is the simplest business structure to implement, but also offers no personal liability protection. So if your business is sued, your personal assets also may be in jeopardy. Filing requirements are minimal and you simply report your business’s earnings on your personal taxes. No other state or federal business filings are required.
Limited Liability Company (LLC)
An LLC offers increased protection of your personal assets by establishing your business as a separate legal entity. While the liability protection isn’t foolproof, it does offer more protection than a sole proprietorship. You may need to comply with additional filing requirements and will need to pay both incorporation and ongoing fees.
Most major corporations are set up as C corporations, which, when done properly, offer the most liability protection. They are likely to be more expensive to incorporate and are subject to double taxation, as income doesn’t pass directly to the shareholders.
6. Begin Marketing Your Dropshipping Business
With so many aspects of a dropshipping business being automated, you’ll have more time to focus on marketing and branding. This means spending time learning how to master ads, grow your traffic, and converting your store’s visitors.
Here are some factors to keep in mind when marketing your dropshipping business:
Search engine optimization can help drive more traffic to your site. Most ecommerce stores convert at a rate of 1-2%, which means if you have less than 100 visitors on your site, you probably won’t get any sales. Creating blog content and optimizing product pages can help to build an audience with minimal ad spend.
Aside from SEO, social media is one of your best options to market your dropshipping business. You can post all of your products on there, give your followers some personal background information on who you are, and conduct live shopping videos. Be sure to post something at least once a day and engage with your followers.
Google Ads lets you advertise directly to your ideal customer on the two largest search engines: Google and YouTube. Google Ads has features like most other ad platforms, which let you set both a budget and max daily spend, as well as pay-per-click ads, so you’re only charged when someone visits your site. These features make it a great entry-level ads platform.
7. Provide Great Customer Service
The most important advice we can leave you with is to offer excellent customer service. Without this, your dropshipping business will suffer. Be sure to establish good communication between you and your supplier so if any customer complaints do come up, the issue can be resolved quickly and efficiently.
It is also important to have either you or an employee managing company emails, social media comments and messages, and phone calls to ensure you do not miss any customer support requests. Not answering an inquiry on time can result in a negative view of your dropshipping business and increasing numbers of angry comments.
Getting a successful dropshipping business up and running takes a lot of work, but it can also be very rewarding. Follow our tips and see how dropshipping can help boost or start your company today!