Dropshipping is a business concept that is very easy to understand and requires very little startup funding compared to other business models.
However, profit margins are significantly lower and it can take a lot more time to get established. So, it does take a little experience to really be able to profit from this type of business.
Dropshipping is not a new business model. In fact, it has been around for a while now with many successful businesses using it as their main strategy.
Over the last few years, we have witnessed some advancements in technology that made dropshipping easier and more convenient than ever before.
In this guide, we’ll cover how to start a dropshipping business, as well as how to enhance your current business with the addition of dropshipping.
What is a Dropshipping Business?
Dropshipping is a retail business model where a company doesn’t keep the products they are selling in stock. Instead, they source products from a third party and charge their customers shipping and other charges.
With this type of business model, there’s no need to pay for inventory or warehousing, which can be huge expenses for businesses just getting started.
How Does Dropshipping Work?
Setting up a dropshipping business does take a lot of time and effort in the beginning. However, once you set up your site and automate order placement, you’ll have more time to focus on other areas of business.
With dropshipping, all you need is a storefront with the products you want to sell. A customer places an order through your site, you place an order through your supplier, and the supplier fulfills the order and sends it directly to the customer.
Depending on what type of suppliers you’re working with, you might choose to sell products from a well-known brand. However, many suppliers offer what’s known as “white label” products, where they ship the products using your company’s branding.
Pros and Cons of a Dropshipping Business
There are pros and cons to any business model, and dropshipping is no different. Here are some important considerations before starting a dropshipping business.
The Advantages of Dropshipping
Low cost of entry – With a dropshipping model, you only need an e-commerce site that’s built on a platform like Shopify or Bigcommerce. There is no need to purchase inventory upfront or pay for warehouse space.
However, if you do want to purchase inventory for your dropshipping business, you can still do that but it will come at a higher cost.
Easy to get started – Since all you need to start a dropshipping business is an e-commerce website, there’s no need to hire and train staff or purchase any inventory upfront. This makes it easier for anyone with an interest in starting a business online or those who are just getting started.
Low-risk – Dropshipping is a relatively low-risk business model. Since you don’t have to purchase inventory, there is no risk in holding onto products and hoping they will sell. Since you don’t have to pay for inventory upfront, your startup costs are also relatively low.
The Disadvantages of Dropshipping
Low profit margins – In a dropshipping business, you don’t keep any inventory. While this saves you the upfront cost, it also means the cost per item is going to be higher, since you’re not buying in bulk.
If you’re buying mass-manufactured items from overseas, a lot of your profits get eaten by shipping on already-cheap items. If you want higher profit margins, it’s better to seek out higher quality items manufactured in your country, which will save on shipping.
Little control over shipping – Since you’re at the mercy of your supplier’s shipping times and order volume, there are no guarantees when an order will ship out. While there are ways to automate this process, it comes with a cost.
Your return policies also have to be in line with your suppliers, otherwise, you end up eating costs that you may not be able to afford in the beginning.
High customer acquisition cost – When you’re starting, you’ll need to do some marketing to bring in new customers. This will be especially true if you’re not getting started in a niche that’s already full of demand.
Since dropshipping margins tend to be lower, it can be difficult to budget for advertising and marketing. The cost to acquire customers is high compared to your profit margins, and you have to focus much more on retention and the lifetime value of customers.
How Much Money Do I Need to Start a Dropshipping Business?
If you already have an e-commerce site set up, then dropshipping can be a great way to grow your business. You don’t need to purchase any inventory upfront to get your dropshipping business started.
Dropshipping is basically free to implement into an existing business, which is part of what makes it so attractive to businesses looking to expand their product lines without buying them outright.
Starting a Dropshipping Business for Free
It is possible to start a dropshipping business for free, but that doesn’t mean you should. This section is mostly included to show the possibilities of starting a business on a minimal budget.
Shopify offers a free 14-day trial, followed by about $30/month if you pay monthly. (Annual will save you some money.) You can get cheaper than Shopify with the WordPress-based e-commerce platform WooCommerce, but it takes a bit more work to customize.
Services like Spocket that integrate with your store save you the time of creating individual listings also come with a free trial, ranging from 14 days to a month.
Ideally, you won’t have to purchase any products at all, but for reasons discussed in the next section, you should still buy some inventory.
So, you can get your first month in business for free. However, if you’re doing the things you need to grow a business in a timely manner, like marketing and advertising, you’re going to get slapped with a lot of costs in the second month.
This is part of the reason most dropshipping-only businesses fail. They’re pitched as a low, or even no-cost way to start a business. While that’s possible, it’s incredibly difficult to pull off.
What You Should Budget for a Dropshipping Business
If I had to come up with a “magic number” needed to start this business, I would say about $10,000.
Here are some of the costs you need to plan for in your dropshipping business:
Inventory and Photography
I know I said you don’t need to purchase inventory, but buying at least one of most items you sell should be on your list of priorities.
While some vendors provide excellent photos, those vendors are very few and far between.
Most vendor photos suck.
At best, they’re okay to display on your website. Even then, I’d rather take my own photos to put on the website. Beyond that, they’re practically unusable on social media sites, especially on visual platforms like Pinterest and Instagram.
So, you’ll want to plan to buy one of each of your products for photos, using vendor photos only if absolutely needed.
On top of products, you’ll also want to invest in some portable backdrops, background boards, and other props for your photos. Or, you can work out a deal with a photographer to help you take photos.
You can even find some photographers that are just building their portfolios who are willing to work at a discounted rate in exchange for products. This can be a good way to get some photos at a good rate to use on your website and social media.
Website hosting usually runs about $300 to $800 a year in the beginning, depending on your traffic and the type of hosting you get. For the kind of performance you want for an e-commerce store, $300 is on the low end.
Ideally, you’ll want to leverage a CDN (content delivery network) to take the load off your hosting servers. If you’re not technical, it’s best to look into managed hosting, which tends to be more expensive.
Managed hosting platforms like Shopify and some managed WordPress hosting providers are expensive, but you run into far fewer technical issues. I rarely had to do any troubleshooting with Shopify. I still prefer WordPress due to how customizable it is, but it’s a lot of work!
Website and Theme Design
For the most part, it’s okay to stick with a premade theme in the beginning.
However, if you have the budget, I recommend working with a developer (or at least someone more experienced with Shopify or WordPress) to customize your site and make it stand out from the crowd.
While WordPress has gotten a lot better over the years, there are still a lot of sites that look alike. You can easily tell which sites have been slapped together with a page builder from a commonly used template.
In the beginning, that’s fine! But these templates aren’t always optimized in a way that’s best for your visitors. You’ll want to eventually hire a designer that can tailor your theme to your specific business needs.
Marketing and Advertising
It’s tempting to say you don’t need a lot of marketing or advertising when you’re first getting started. However, unless you plan to go months without sales and build up your traffic organically, you need to invest in marketing and advertising.
For dropshippers, marketing can be quite an expense. The time and money it takes to create and distribute content, run ads to acquire customers, and build brand awareness can be a lot.
These are probably the biggest upfront costs when it comes to building a dropshipping business. (But if you’re comparing this to other business models or implementing dropshipping into an existing business, this is still insanely cheap compared to those.)
Software and Service costs
If you have more time than you do money, you’ll probably find yourself doing a lot of the work on your own.
However, if you have the budget, there are lots of services you can invest in to make your life easier. Take services like Spocket or Oberlo, for example. These are monthly expenses, but they can save you an insane amount of time on managing product listings.
How to Start a Dropshipping Business in 7 Steps
Starting a dropshipping business looks easy on paper, but these types of businesses often fail in the first few months. Many people starting this type of low-cost business don’t go into it with the right mindset or proper planning.
By taking the time out to do your research and properly plan out your business operations and marketing efforts, you’ll greatly increase your chances of success.
1. Choose your niche and product type
If you’re just getting started with dropshipping, start by identifying a niche or product type that interests you. Narrowing your focus can help you decide what products to carry. Narrow your search to products that are rarely sold in stores.
This will make it easier to stand out among the competition, and it’ll also give you more pricing power than selling mainstream products.
If you’re just adding dropshipping to your existing business, this is a little easier. Think about products that would complement your main offerings.
For instance, if you’re a tea supplier, you might start offering teaware, like teapots, cups, and infusers. Focus on things your customers would naturally want to buy alongside your main offerings.
If you need ideas, you can head to Amazon and look for listings of your main products, then find the “related products” section. This can be a great way to get an idea of what other products customers buy with other products in your niche.
You can get some great ideas for products from many of the tools you would use for e-commerce keyword research. This will also help you do competitive research and get a better understanding of your market as well.
2. Find a dropshipping supplier.
Now that you have your products sorted, you need to find suppliers. You can do this on platforms like AliExpress, Oberlo, or Spocket.
Search for vendors who offer competitive shipping rates. Don’t settle for companies whose shipping rates are too high, because most of your profits will be eaten up by shipping fees.
It’s best to start by offering one product from each vendor so you can try out the vendors and see how quickly they ship and respond to requests in the beginning.
Ideally, you’ll want to find a healthy mix of suppliers, focusing mostly on suppliers in your home country. This will help cut back on shipping rates and the time it takes for products to ship.
Sites like Amazon have started to set higher expectations for shipping, with products arriving in a matter of just a couple of days. Through other e-commerce sites, shipping rates range from several days to a little over a week, but typically not much longer.
However, some customers are willing to wait longer for the right price. Sites like AliExpress and other sites that feature insanely cheap products often take a month or longer to ship. The main thing is to make sure you cater to your main audience and set proper expectations about shipping times.
You’ll also want to be transparent about where products are coming from. While I prefer to source my products from the US and Canada, I’ve found that customers don’t mind (and sometimes even favor) products coming from China due to lower prices.
3. Select a selling platform and build your dropshipping website.
We talked about some of the different e-commerce site options, like Shopify and WooCommerce (WordPress). While these are probably the two most common options, you do have other platforms to choose from.
Each option has upsides and downsides, but it mostly comes down to a few factors:
- How much time you want to spend customizing your site
- How much control you want over your content
- How easy you want to integrate with other platforms, like Facebook, Instagram, and Pinterest
- How easily you want to be able to sell on other platforms, like Amazon and eBay
Hands down, WordPress is the most easily customizable platform. However, getting it to function as an e-commerce platform with WooCommerce takes a lot of work. Paid extensions can get expensive. Shipping rates take forever to set up.
If I were to have to choose a platform based purely on how it handles transactional interactions, Shopify would be my first choice. It’s much more hands-off and user-friendly and makes selling on other platforms a breeze.
In a more realistic scenario, I use a combination of platforms. Typically, I use Shopify for the retail side of things and WordPress for content management. While I love Shopify, it leaves a lot to be desired from a content creator’s perspective.
4. Create a customer acquisition plan.
You can’t expect to just plop up a site and automatically start selling. Developing an e-commerce site is not the same as building a blog. Most people don’t want to just be sold to. They want to learn more about a product or feel like they’ve discovered it on their own.
This means you’ll have to make an effort to acquire customers, usually through advertising and marketing.
The first thing to do is to figure out where your ideal customers hang out. Consider the platforms you’re selling on, like Instagram, Twitter, Facebook, Pinterest, etc. Are there any niche groups you can join or forums you can join?
Niche groups are great places to find potential customers. They can also be a great place to generate content ideas. You can find them on Facebook or in niche-specific forums.
You’ll want to develop different kinds of ads. If you’re advertising on niche communities, you’ll have to include clear product photos and make sure your ad copy clearly shows what the product is and how it relates to your niche.
This will make it more likely that they click through instead of just ignoring your ads and scrolling on by.
You should also consider paid advertising options like Facebook Ads and Instagram Ads. These are usually the highest ROI advertising options for e-commerce businesses.
Tip: Consider creating an ad that shows the product without any branding. Let customers naturally draw conclusions about your product, especially if you’re a new brand. Heavily branded ads also tend to be more expensive to run, due to decreased reach and visibility.
If you really want to capture attention on Facebook, create an ad with just the product and a call-to-action.
You’ll need two different ads like this: one for desktop and one for mobile. These will show higher in newsfeeds than branded ads. You’ll also pay significantly less than a branded ad.
Lastly, if you’re a local business with a storefront or service area business that delivers to the surrounding area, you can utilize local SEO to help drive traffic to your website.
By having a Google My Business listing and optimizing for local search terms, you can effectively drive (free!) traffic to your website, without having to spend a lot on ads.
5. Set up your store’s inventory.
You can set up your store’s inventory in a couple of different ways. You can designate the products you want to sell and then monitor how quickly you sell them. If they sell more slowly than you’d like, you can consider swapping them out for something new.
One of the advantages of dropshipping is that you can add and drop products as needed, without having to worry about offloading inventory. This allows for a lot more flexibility, allowing you to better curate products according to customer demand.
6. Promote your dropshipping business.
Once you’ve set up your store, it’s time to start promoting it. The way you do this will vary depending on what kind of site you have.
If you have a niche community, your best bet is to start generating content that appeals to your target audience within the group. If your community doesn’t allow self-promotion, reach out to them first and find a way to give back to the community before asking for anything in return.
If you’re running a Facebook or Instagram page, make sure you have a legitimate presence there, with relevant posts that answer questions and provoke conversation. Share photos of your products in use, and let your audience know what’s available to purchase.
Make sure that once someone clicks through to your site, they’re able to find all the products they saw before. You should also be posting sales and new product updates through other social channels so customers don’t need to go directly to your site to see new products.
7. Keep track of your business performance and improve it.
Track your business’s performance to see how you’re doing. If you’re getting good results, great! But if you’re not, why not? What changes can you make to see better results in the future?
If you want some help setting up a tracking system, consider setting up Google Analytics or a service like Kissmetrics. Shopify and WordPress both have easy ways to integrate Google Analytics and Search Console, as well as their own native analytics for a quick performance overview.
I’ve seen a lot of interest in dropshipping over the past couple of years, and it’s only increasing in popularity with the rise of e-commerce. It’s not too late to get started!
With dropshipping becoming more popular, there are also more businesses offering dropshipping software and services.
These services can be a little pricey in the beginning, but there are many ways to trade your money for time, giving you more freedom to work on your business, rather than in it.
As a general rule of thumb, I like to do things manually until I’m forced to outsource them so I can focus on other tasks. You’ll get a bit of hands-on experience and learn more about how everything works, and you’ll save some money in the beginning.
Ready to get started?
Pick a platform, research reviews, and create a plan to get started using the information in this guide. And if you need any help along the way, we’re here to help you get started and keep things running smoothly.
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