Starting an online dropshipping business is one of the most accessible ways to become an entrepreneur in today’s digital age. Dropshipping allows you to sell products to customers without holding any inventory or requiring significant upfront investments. This makes it an attractive option for aspiring business owners.
However, while dropshipping offers low barriers to entry, it still requires careful planning and hard work to be successful. This comprehensive guide will walk you through every step of starting a profitable dropshipping business.
Introduction
Dropshipping is an ecommerce business model where you set up an online store but don’t keep products in stock yourself. Instead, when a customer places an order, you purchase the item from a third-party supplier and have it shipped directly to the customer.
Before jumping in, it’s crucial to understand that running a dropshipping store is still very much operating a business. It requires an entrepreneurial mindset and a strategic approach.
Simply signing up for a Shopify store and randomly adding products won’t lead to success on its own. Like any business, dropshipping requires a well-thought-out business plan from the start.
Why Have a Dropshipping Business Plan
A business plan is essential because it forces you to really think through key questions on your business before you even begin. This helps set you up for success later on.
Key reasons you need a plan include:
- Sets goals & objectives: Outlining your goals keeps your business focused and helps you measure success later.
- Predicts revenue & expenses: Building financial projections forces you to really understand margins and cash flow.
- Minimizes risk: Assessing risks upfront enables you to prepare mitigation strategies.
- Attracts funding: If seeking loans or investors, a plan is usually a prerequisite.
So before doing anything else, it’s wise to invest the time upfront to craft a comprehensive dropshipping business plan.
Steps to Starting a Dropshipping Business
While every dropshipping business is unique, these are the typical milestones you can expect as you get started:
Step 1: Get Committed
As with any business venture, the very first step is making sure you are mentally and emotionally committed to the process and have the resolve to power through obstacles.
Dropshipping store owners can expect long hours, at least in the startup phase. You must find the right mindset and organizational skills to operate on a lean budget while handling all the vendor/supplier relationships yourself.
Being realistic about the commitment required is important right off the bat.
Step 2: Choose a Dropshipping Niche
One of the most common dropshipping mistakes is trying to be everything to everyone right away. Instead of stocking a generic store with hundreds of random products, it is smarter to focus your online shop around a specific niche.
Some examples of proven ecommerce niches include:
- Outdoors/camping gear
- Baby products
- Pet supplies
- Health/beauty products
- Toys and hobbies
Building your dropshipping business around a niche allows you to really tailor your marketing and focus on specializing in one area you are most passionate about.
Step 3: Research Competitors
Before really diving in, you need to perform in-depth market and competitor research around the niche you selected.
Key questions to ask:
- Who are the main online competitors?
- What products are hottest sellers right now?
- What price points dominate?
- Where is there an unmet consumer need?
Thoroughly exploring the competitive landscape will provide key insights you use later when sourcing products and differentiating your offering.
Step 4: Choose Your Supplier
One huge benefit of dropshipping is that you do not need to manufacture or warehouse all the items yourself. Instead, you utilize third-party suppliers that stock massive product catalogs you can access.
However, selecting the right supplier is hugely important, as they essentially act as your sourcing and fulfillment partner.
Some key factors in picking suppliers:
- Reliability – Timely fulfillment and good communication
- Shipping rates – Affordable domestic/international rates
- Order processing – Integration with sales channels
- Product range – Variety of latest niche products
Popular suppliers used by dropshippers include Spocket, Oberlo, Modalyst, and AliExpress.
Do in-depth research to find one that best fits your product niche and business needs.
Step 5: Build Your Ecommerce Website
At its core, dropshipping is still an ecommerce play – so you need an online storefront and transaction processing in order to make sales.
The most popular platform used by dropshippers is Shopify. Shopify makes it simple for you to choose a theme, customize your branding, and add products.
The backend includes an intuitive dashboard to manage orders and sync product/payment details with your suppliers.
They also offer a range of powerful apps to help automate and scale your processes.
Other options like WooCommerce, Magento and BigCommerce also work. General criteria in assessing platforms:
| Criteria | Importance |
| Cost | * |
| Scalability | |
| Design customization | |
| Ease of use | * |
| App ecosystem |
The goal is settling on a platform that enables you to get your ecommerce store online quickly while providing all the necessary shopping and fulfillment functionality.
Step 6: Decide on a Business Structure
An important but often overlooked step is deciding how to formally structure and register your dropshipping business.
Will you operate as a:
- Sole proprietorship
- Partnership
- Limited liability company (LLC)
- Corporation
Issues like legal liability protection, business taxes, accounting rules, and ownership flexibility need to be assessed to choose the best structure for your situation.
Most small dropshipping businesses operate as sole proprietors or LLCs. The legal and tax treatment is different across entities, so consult an advisor to make the best decision.
Step 7: Get Your Finances Straight
Like any business, you need to get your finances squared away in the very beginning:
- Open a business bank account – Keep separate from personal finances
- Set up accounting software – Manage invoices, pay bills
- Gain access to capital – Savings or business credit line
Also be sure to understand tax obligations and maintain orderly financial records from day one.
Having clean books and access to capital gives you maximum flexibility to handle unpredictable cash flow, which is common in the variable world of ecommerce.
Step 8: Market Your Dropshipping Store
Alright…your Shopify store is now live, loaded up with hot-selling products in your niche, and directly integrated with your supplier’s catalog.
Awesome!
But hold on…how will anyone actually find your store and products in order to start buying?
Marketing is the lifeline of any business, including dropshipping.
To attract customers and drive conversions, leverage a mix of channels like:
- Facebook/Instagram ads
- Influencers and content marketing
- SEO to get found on Google searches
- Promotions and email marketing
Start small while testing different tactics and measuring conversion rates.
Then double down on the highest ROI channels driving the most sales.
Marketing effectively takes time to master…but is non-negotiable to succeed!
Step 9: Analyze and Improve
As you gain customers and make your first sales online, don’t just kick back!
To build long-term profits you need to continually:
- Evaluate metrics – Conversion rates, average order value, etc
- Optimize funnel – Improve website pages
- Diversify inventory – Add or remove products
- Refine techniques – Strengthen marketing channels
Relentlessly analyzing data and testing changes allows you to better meet buyer needs and maximize operational efficiency.
The great thing about dropshipping is that you have an incredibly flexible business model that allows quick pivots – take advantage of it!
Benefits of Dropshipping
Let’s recap why dropshipping represents such an accessible and attractive business model:
Low Startup Costs
With dropshipping, you avoid having to invest upfront in product inventory or manufacturing capabilities – which requires substantial capital.
Instead, you can start a dropshipping store for only a few hundred dollars in startup costs:
- Domain registration/hosting – less than $100
- Shopify basic plan – $29 per month
- Business entity registration fees – $50+
Marketing, web hosting, and transaction fees eat up budget over time. But the beauty is you scale those variable expenses as revenue comes in, keeping initial costs extremely low.
Minimal Supply Chain Management
Procuring, storing and shipping products can be an absolute logistical headache…eating into your margins and profits.
With dropshipping, you entirely offload inventory responsibility and logistics workload onto third parties:
- Suppliers handle stocking products
- 3PLs place customer orders
- Shipping carriers deliver orders
Less workload around managing supply chain operations means more time to focus on sales and marketing – the lifeblood for any business.
No Inventory Headaches
Similar to supply chain advantages, outsourcing fulfillment means you avoid getting stuck with extra product stock eating up working capital.
If certain product SKUs end up duds that don’t sell well online, just remove them from your store instead of being buried under slowing moving inventory.
Let your supplier take that excess item risk instead!
Flexibility
The hands-off product sourcing and fulfillment model lends itself to incredible flexibility to test and optimize your profit engine.
Identify hot-selling items quickly then double down on what converts.
Switch up suppliers if order processing lags or quality issues arise.
Tweak your product catalog constantly to find the optimal mix that sells.
Dropshipping enables you to remain super nimble in an industry where following trends and adapting quickly is everything.
Frequently Asked Questions
How much money can you make as a beginner dropshipper?
Like any business, results vary widely across new dropshipping entrepreneurs based on work ethic and capabilities.
However most successful online store owners highlight a few key profitability benchmarks to aim for:
- Year 1: $30,000+ in net profit
- Year 2: $60,000+ in net profit
- Year 3: $150,000+ in net profit
The nice thing about ecommerce is you can start small while testing and validating your business.
Then scale up aggressively once momentum kicks in by reinvesting revenue into marketing and automation.
But just like any traditional business, dropshipping stores rely heavily on elbow grease and hustle – especially at the start.
What exactly is dropshipping?
Dropshipping is an ecommerce fulfillment method that does not require handling any inventory.
Instead, you set up an online storefront to market products, and work with suppliers that hold inventory and ship orders out directly to customers on your behalf after purchase.
This supply chain methodology lets entrepreneurs start an online retail business without huge upfront investments in warehousing or logistics operations.
What are the advantages of running a dropshipping business?
The benefits of operating a dropshipping ecommerce model include:
- Extremely low startup costs
- Avoid overhead of storing inventory
- Outsource logistics workload to suppliers and shipping carriers
- Easy to scale and test new product lines
- Focus time on sales and marketing vs. supply chain
Conclusion
Starting a dropshipping business represents one of the quickest and most affordable ways to get into ecommerce retail today.
By leveraging suppliers that hold inventory and fulfill orders, online entrepreneurs can market products directly to customers without huge investments upfront.
However, you cannot just sign up for a Shopify store today and expect sales to automatically happen overnight. Dropshipping still requires the same solid business planning and strategic approach as any retail operation.
The information in this guide should provide a roadmap of the step-by-step process to give your dropshipping venture the best chances of turning profits within the first year.
But ultimately success comes down to a willingness to out-hustle the competition while relentlessly testing and optimizing your store.
If you maintain the right mindset, leverage the advice outlined above, and power through the inevitable obstacles all entrepreneurs face, you will be well on your way to building a thriving dropshipping business!
FAQs
What should I sell through my dropshipping store?
Focus your store around a specific product niche or category that you’re passionate about. Some popular options are fashion & clothing, gadgets & tech products, jewelry, outdoor gear, pet supplies, or hobby/craft items. Make sure there is sufficient customer demand.
How do I find reliable suppliers?
Vet potential suppliers carefully based on product selection, fulfillment reliability, shipping rates & locations, payment terms, and communication responsiveness. Larger marketplaces like AliExpress often have more vendors to choose from. Or use dropshipping aggregators like Spocket that curate suppliers.
How much money do I need to start a dropshipping business?
You can launch a barebones dropshipping store for less than $100 if you DIY and use free themes. Budget about $250-500 to cover first year expenses like web hosting, payment processing fees, and initial ad spend. Have some extra working capital to order product samples and optimize marketing.
Am I responsible for defective products or returns?
One risk of dropshipping is that the customer experience with receiving and returning defective items is out of your control. Be sure to have clear return/refund policies stated upfront. Require suppliers to handle returns and reimburse accordingly per your agreement.
How do I drive traffic and sales to my new store?
Focus on low-cost marketing channels when starting. Leverage social media platforms like Instagram and Facebook by running promotions and ads. Build interest through blogging/SEO. Engage influencers with free products to build word-of-mouth referrals. Email marketing to previous customers.