Starting a dropshipping business is an excellent way to dip your toes into the world of entrepreneurship. You can sell products directly to customers, set your own pricing, and even market under your own brand. You don’t even need to pay for inventory until a product has been sold to an actual customer. With dedication and hard work, you have the potential to build a successful brand.
If you’re hesitant about launching your online venture, consider this: In 2023, an estimated 218.8 million US consumers will shop online, and ecommerce sales are expected to make up 20.8% of retail sales globally. Given these statistics, launching an online store appears to be an increasingly lucrative option.
In this article, we’ll cover everything you need to know about starting a dropshipping business, from understanding what it is to finding the right dropshipping suppliers and more.
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What is a dropshipping business?
Dropshipping is a business structure that allows you to operate your store without holding any inventory. Once you’ve made a sale, your supplier will ship the products from their warehouse directly to your customer’s doorstep. This eliminates the hassle of storing, packaging, and shipping products yourself.
How does the dropshipping business model work?
There are three key players in dropshipping: the manufacturer, the retailer (you), and the customer.
The manufacturer’s role includes creating products, maintaining inventory, shipping products to customers on behalf of the retailer, replacing defective items, and restocking. They sell products to the retailer at wholesale prices, thereby assuming the risk of any unsold inventory.
As the retailer, you sell the manufacturer’s products on your own website under your brand name. You are responsible for selecting and marketing the products. Additionally, you handle the shipping costs and set prices that yield a profit.
Finally, in this model, the customer purchases goods directly from you. If any questions or issues arise, they will turn to you, the retailer with whom they’ve done business.
How profitable is the dropshipping business model?
“How profitable is dropshipping is a question we hear often. Dropshipping can be highly profitable because you’re not saddled with the costs of shipping and manufacturing. Profits can accumulate quickly, especially when you’ve partnered with the right dropshipping suppliers. To keep tabs on your earnings and ensure you’re on the path to success, consider using our dedicated profit margin tool.
What are the advantages of dropshipping?
A dropshipping business is a profitable business model where you only pay for the products that you sell. This means you’re not burdened with the cost of creating products or carrying inventory. As such, the startup costs of running a dropshipping store are quite low compared to those that come with operating a standard ecommerce business.
In this business model, you also avoid the costs of maintaining unsold inventory and employing staff for packaging and shipping products. While it will require daily work when it comes to processing orders, most of the order processing steps are automated and only require the click of a button. The dropshipping business opportunities are endless—you just need to take the first step.
How to start a dropshipping business: The 6-step dropshipping business plan
Step 1: Choose a niche
The right niche is crucial for a dropshipping business’s success. While having a passion for a chosen market helps, profitability remains the primary goal. Evergreen niches like fitness, fashion, jewelry, beauty, tech, purses, and backpacks continually draw successful online stores. For instance, entrepreneur Tim Kock found success with a watch business. He generated nearly $7,000 in only eight weeks, highlighting the importance of choosing a profitable niche.
There are a few tools and tactics you can use to find niches for your own dropshipping business:
Google Trends can show if a niche is gaining or losing popularity. However, it can’t confirm a niche’s viability on its own, as some trending niches may lack sufficient search volume.
This tool reveals the search volume and competitiveness of keywords. Using this data, you can assess the potential of dropshipping business ideas and gain future direction.
Additionally, you can visit popular websites within your target niche to gather information. Fashion retailers, for example, often categorize their products based on current trends. Use this strategy to determine which products to add to your store. Also, review a store’s bestselling items to identify profitable products to offer.
Pro tip: The most popular dropshipping stores often focus on trends within broader niches. For instance, denim apparel is a trend within the fashion niche, artificial eyelashes are a trend within the beauty niche, and marble phone cases are a trend within the phone case niche. It’s wise to incorporate these trends into your product lineup. However, they shouldn’t be the focus of your entire store if you aim for long-term success.
Step 2: Do competitor research
Once you have decided what to sell, you now need to educate yourself on who your competitors are, what they sell, and how they sell their products. Market research is an essential part of this step, and there are many ways to do it.
- Enter the name of one of the products you want to sell into Google and do a quick search to see who shows up on top. The top 10 results on Google or any other search engine will give you a good indication of your competition in a certain location. If you are selling products in a location different from where you are based, you can use third-party tools like SEM Rush or Ahrefs to gather data on search results in different locations around the world.
- Search through Alexa or SimilarWeb to find niche competitors that might not show up high in general search results. These websites will provide a summary of the websites you’re searching for, including their social media profiles, any advertising they are doing, audience and traffic information for their website, and a list of competitors for that business.
- Hunt around on social media. Browse Facebook ads within a niche and social media pages for top brands. How many followers do they have? How do they market their brand? How much engagement does their brand get? What can I do differently to stand out against them? What are they doing right that I should copy?
- Through the use of BuzzSumo, know your competitors’ content and what performs better for them so you can replicate it. This tool will give you insight into what content gets the most social shares, helping you find inspiration for new blog ideas. Signing up for a competitor’s newsletters can also keep you on top of their content if they share their blog content this way.
Step 3: Find a dropshipping supplier
It can be easy to find a good supplier on AliExpress, one of the most popular platforms for dropshipping companies. Once you’re on the platform, you can search for products and choose from a list of reliable suppliers based on reviews, ratings, and how long each supplier has been on the platform. This information should influence your decision on which supplier to choose in the dropshipping process.
After you’ve compiled a list of five or six potential suppliers, the next step is to contact them. Ask important questions like minimum order quantities and shipping times to better understand your profit margins.
By this point, you’ve probably narrowed down your list of potential suppliers from five to two or three. The best way to make your final decision is to place sample orders with these suppliers. Compare ecommerce shipping times, product quality, and packaging as you make your decision, always keeping your customer in mind. Consider what they will expect from you when placing an order.
Step 4: Set up your dropshipping store
There are a few components to building a dropshipping business store the right way:
Your domain name is especially important if you’re building a long-term brand. You can use a free business name generator to simplify the process. Always opt for a .com domain, regardless of your niche. If you want your niche to be a keyword in your new domain, make sure it’s broad—like “beauty,” “jewelry,” or “fashion”—rather than specific. This way, you won’t need to change your domain name down the road. Also, avoid using your own name as the domain for your store. If you ever decide to sell your business, you could legally lose the rights to your own name.
Shopify is the most comprehensive ecommerce platform on the market. With new features, tools, resources, and apps being added regularly, you’ll find it easy to run a business on the platform. Plus, if you get stuck, you can reach out to a Shopify expert who will personally walk you through any steps, free of charge.
Since we’re using Shopify, you can explore free themes. Minimal Motion is one such option. It’s clean and easy to navigate, making it an excellent choice for those new to store design. As you start generating some revenue, you can invest in a new theme. This will give your store a more polished design.
To manage your inventory and place orders efficiently, you’ll need a reliable dropshipping app. DSers is a solid option that allows you to find products online that you can sell the same day. This app lets you explore products in a variety of popular niches. When starting out, it’s advisable to focus on 10 to 25 products, as writing descriptions for a larger inventory can become overwhelming. If you have questions or need guidance, you can turn to the DSers blog, its social media pages, or Shopify’s own support line.
Need a step-by-step guide? Check out this article to learn how Tomas Slimas launched an online store in only 30 minutes.
Step 5: Market your dropshipping business
At this stage, you’ve selected your product and set up your store. The next step is to aggressively market your dropshipping business.
This is a crucial component of any dropshipping business plan. For those just starting out and likely on a tight budget, it’s worth noting that effective marketing doesn’t have to be expensive. Here are some suggestions::
Resist the temptation to pour $500 into Facebook ads right away. Many new entrepreneurs think big returns will happen quickly, but they usually don’t. Start with a modest $20 ad spend to gauge effectiveness. If the first ad doesn’t yield conversions, don’t get discouraged. A low initial budget allows for valuable experimentation, especially when the bestselling product isn’t clear yet.
Create multiple ads to identify which product sells best. When setting up targeting options, craft a worldwide ad but exclude Canada, Australia, the United States, and the UK. This strategy keeps ad costs low. As the business scales or the budget expands, create targeted ads for these four countries individually.
If your budget is small, retargeting ads are a good option. These ads work well if your store has high traffic. You may already have high traffic from free marketing on Pinterest. Or maybe a blog post on your site is bringing in visitors. Retargeting ads can take this free traffic and turn it into sales. Compared to standard Facebook ads, they usually do a better job. Plus, they’re a lot cheaper.
In the early stages of a dropshipping business, budget constraints are common. If paying influencers isn’t an option, consider offering an affiliate commission instead. This reduces financial risks for your business and shifts the onus of sales conversion to the influencer. It also adds value by generating images or reviews that elevate your brand’s social proof. With an affiliate commission model, influencers can often earn more than they would with a flat fee, especially if they have an engaged audience.
To boost exposure for your ecommerce website, consider using HARO. This tool connects reporters with potential sources. By subscribing to their thrice-daily emails, you get a chance to be featured in articles. Some reporters look for expert opinions, while others seek product recommendations. Use this media attention to drive targeted traffic to your ecommerce website. For better results, link directly to specific product pages instead of the homepage. Pair this approach with retargeting ads to maximize potential sales.
Step 6: Optimize
Once you’ve spent time building your website, brand, and marketing, you can start to analyze the results of your hard work. You may find that certain marketing activities are hugely successful, while others not as much. You can also compare your prices to that of your competition and see if you could make things more competitive.
You can use tools like Google Search Console or Google Analytics to evaluate your online traffic and make sure it’s increasing, not decreasing. If you’re using third-party tools for email marketing or social media reporting, set up weekly or monthly automatic reports to remind you to analyze this information regularly. Even a quick snapshot of data from a tool can be enough to decide if a campaign is working or not.
Overall, the most important part of a successful online ecommerce store is to test and optimize. This ensures that your website will not fall behind best practices and keeps you ahead of your competitors.
Do you need to incorporate a dropshipping business?
Incorporating a dropshipping business has clear benefits. It separates your personal and business finances, protecting your money if the business runs into debt. Additionally, incorporating gets you an employer identification number (EIN), which makes it easier to file and pay sales tax. So if you’re planning for long-term success, think about incorporating. It’s a good way to manage your finances and taxes.
Where to find dropshipping businesses for sale?
Flippa is a marketplace of websites for both people looking to invest in a fully functioning business and those who want to skip the building phase and start directly with marketing. Flippa has a great collection of online stores, including dropshipping ecommerce businesses, of varying price ranges and niches that you can choose from depending on your budget and interests.
So, if you’re looking for a dropshipping business for sale, Flippa has got you covered.
Factors to consider when buying a dropshipping store
When choosing to buy a store, take into account the cost, the design, the age of the website, how much money it has made, the popularity of the niche, penalizations, and the type of business.
Type of business
If you plan on buying a dropshipping business, you need to select the ecommerce filter on Flippa. Other options may require you to buy and hold inventory, which can cost more money over the long term, especially in unsold inventory.
Do you have a budget that covers not just the cost of a premade store but also allows for its growth? If so, you need to work out what your budget looks like. What price are you willing to pay for a business? Is there room to negotiate a better deal?
Does the store look like it was designed by a professional or by a new entrepreneur who’s looking to make a quick sale? If the store design looks professional, clean, and easy to navigate, it may be worth pursuing.
Age of website
On Flippa, you can choose an ecommerce business based on its age. An older website will typically have a better chance of ranking online than a newer one.
Sometimes you’ll see that a store made a lot of money. However, a question you need to ask is, “How much money was it making at its peak, and how much is it making now?” This will help you understand if the dropshipping business is growing or dying.
You probably don’t want to be selling fidget spinners anymore, or any trending product. However, if a store is within an evergreen niche and sells trending products, it could work out well. Broad topics (beauty) tend to perform better than stores focused on a specific type of product (makeup brushes).
Before buying a dropshipping business you need to double check that the website hasn’t been penalized (removed from Google’s search index).. You can use a tool like Is My Website Penalized to determine if a website has been penalized by Google. If a store has been penalized it may be harder for you to rank in search engines. You also want to ask, “Were any of the business’s Facebook ads banned?”
Is dropshipping worth it?
The value of dropshipping depends on the time and money you invest in it. If you dedicate time to growing your online business, you are more likely to reap the rewards. Setting up a dropshipping business involves multiple steps: You need to set up a store, import products, decide on your pricing strategy, and start selling. All of this require effort and commitment for your business to be successful.
Begin your dropshipping journey today
There you have it—everything you need to know about starting a dropshipping business. By applying the advice from this article to your own online store, you can work toward building your own online empire.
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