How Can You Start a Dropshipping Business?

We all know the magic of online retail. With just a few taps on a keyboard, you can have nearly any item delivered to your doorstep within days. Of course, all that shopping can quickly drain your bank account. But what if you were on the other side of the transaction?

Many of those oh-so-convenient online stores are actually dropshipping retailers. They make money by connecting buyers to wholesalers, which can be very profitable with little effort.

Now you can get in on the action too! This article lays out the basics of setting up a dropshipping operation of your own. You’ll learn everything needed to get started, from choosing a product and finding a wholesaler to navigating all the small details in between.

Dropshipping is an easy way to make money with online retail

Let’s say you’re buying something online. Maybe it’s a funny T-shirt, a small appliance, or a fancy new cat toy – it could be anything, really. With a few clicks, you make a payment, get a confirmation email, and begin eagerly awaiting your package.

Now, chances are you’re not buying those items directly from the manufacturer. Instead, you’re paying an intermediary to handle your order. This whole process is called dropshipping, and it lets online retailers make money without stocking any items of their own.

If that sounds like a nice little business, you’re in luck! With a bit of initiative and know-how, you too can set up a profitable dropshipping business of your own.

So, how exactly does dropshipping work? Well, it’s about connecting people to products without a brick-and-mortar storefront. You see, in traditional retail, a merchant buys items in bulk and then sells that inventory to customers bit-by-bit. In dropshipping, the merchant doesn’t buy the inventory until after collecting orders. They buy the requested items on the customers’ behalf at a lower price – and collect the difference as profit.

Here’s a concrete example. You set up an online shop selling cat toys for $20. A customer places an order for one toy and pays you $20. Then, you send that customer’s order to a manufacturer or wholesaler who sells each toy for $15. You pay $15, they ship the order to the customer, and you pocket the $5 difference. The customer gets their toy, you get your profit, and everyone is happy – especially the cat.

Setting up a dropshipping business is great because it doesn’t take a lot of overhead to get started. You don’t have to buy huge inventories beforehand, store unsold products in your home, or even physically handle the shipping process. In fact, most of your work is processing orders, marketing your online shop, and managing any customer service problems as needed.

Of course, like with any business, there are downsides as well. In the world of online retail, the options are endless and competition is fierce. And since most dropshipping stores have to keep prices low to attract customers, you may start with very low profit margins. Plus, you’ll have to handle any customer complaints, from delivery snafus to the products themselves. That’s why it’s essential to partner with the right wholesaler, which we’ll cover in the next section.

Start your business right by finding the best dropshippers available

Imagine you’re in a grocery store. Each aisle is stocked with dozens of products, from cereals and canned vegetables to sugary sweets and frozen meals. What a selection! Of course, your local market doesn’t make these goods. It merely collects them from suppliers and presents them to you, the customer.

The same concept applies when setting up your own dropshipping store. You’ve got to find manufacturers, wholesalers, and suppliers to stock the digital shelves of your online shop – these companies are the actual dropshippers.

This process usually starts with a few basic Google searches, browsing an online business directory, or asking for referrals on social media. You’ll quickly find many options. But choosing the right one usually takes some more investigation.

For your dropshipping business to succeed, you must find the right dropshipper to provide the products you need on favorable terms. After all, would you keep shopping at your local grocery store if its stock were inconsistent and low quality? Probably not. That’s why it’s crucial to sort through the vast array of potential dropshippers to find the most reliable ones.

The best way to identify the promising dropshippers is to evaluate each business’s cost and service. First, look at their rates. This includes obvious details, like the prices of their products. It could also include not-so-obvious ones, like membership fees, restocking charges, or minimum order prices. While some rates will be advertised, others might be hidden. So, always directly ask for an itemized list of costs.

Evaluating the quality of each dropshipper’s service is a little trickier and requires some sleuthing. For example, being registered with a regulatory agency, like the Better Business Bureau, could vouch for a supplier’s legitimacy. You can also check how long they’ve been operating using a Domain Age Checker – the longer they’ve been around, the more reliable they’re likely to be. Beware of businesses that seem too new, don’t list their addresses, or only accept strange payment methods like direct bank transfers.

A good way to judge a dropshipper’s service is to experience it yourself. Give any potential partner a call and talk through your questions and concerns. The best companies will have helpful sales staff prepared to provide detailed information. You can also assess a company’s products and service quality with a small test order. If everything goes smoothly and you like their goods, chances are your future customers will be satisfied as well.

Build your business by offering the most popular products

Back in the 1980s, a man was arrested for acting strangely in a local department store. Despite being a well-dressed and otherwise average-looking businessman, the suspect raised eyebrows. He was spending way too many hours scrutinizing the shelves and taking scrupulous notes.

Who was this oddball? Sam Walton, the founder of Walmart. While his retail empire was already making millions, he wasn’t satisfied. He continued to push for more profits by keeping up with the competition – a tenacious and detail-oriented approach that’s worth learning from before establishing your own dropshipping operation.

A company like Walmart has the scale and manpower to offer nearly every product imaginable. Now, your dropshipping store wouldn’t be able to handle that approach – at least, not right away. When you’re starting out, it’s best to go smaller and find your niche. Instead of offering a million products, select a few closely related, specialized items. The more specific the better – think cat-themed sweaters or eco-friendly candles.

But how do you choose what niche products to sell? Well, you can start by examining your own life. What types of unique products would you like to find in stores? What about your friends and family? What are their niche interests? You can also explore the internet for inspiration. Check out retail hotspots like the Amazon Best Sellers list and eBay’s Daily Deals. These, along with social media shopping pages like Instagram and Pinterest, can give an idea of what customers are buying.

Once you’ve chosen your products and identified quality suppliers, it’s time to sell your items. An easy way to get started is to put them on big websites like Amazon and eBay. Not only do these popular emporiums make it easy to create listings, but they’re also visited by millions of shoppers every day. That’s an advantage. On the flip side, these sites are huge, which makes it difficult to stand out. Moreover, customers have so many options that you’re unlikely to build any loyalty or repeat shoppers.

An alternative is to set up your own, independent website, which gives you a little more control over how you present your products. You’ll be able to build a more coherent, memorable brand that sparks a stronger following. The downside is, you’ll likely have low traffic at first. This puts a crucial emphasis on marketing, which we’ll cover in the next section.

All sales start with a strong advertising campaign

Here’s a statistic that might give you pause: the average e-commerce store has a conversion rate of just 1 to 2 percent. That means for every one hundred visitors to your online shop, only one or two are likely to buy anything.

So, if you want to have adequate sales, you’ll want lots and lots of people stopping by. The obvious question is, how do you generate the traffic? In the old days, retail shops would advertise in newspapers, buy flashy billboards, or even splurge on a local radio or TV commercial.

Unfortunately, in the era of online retail, these traditional tactics are a little out of date. Luckily, there are a whole host of new tools you can use to your advantage.

Just like in traditional retail, customers won’t buy online products without seeing them first. So, a dropshipping business succeeds or fails based on its marketing operation. Finding the correct approach to generating traffic takes some trial and error, and the exact tactics depend on your choice of product and selling platform. But there are some basic strategies that are proven to work.

First, if you’re listing your items on a major website like Amazon or eBay, your main challenge is to stand out from the crowd – you’ll need your product listings to be accurate and attractive. To do this, use eye-catching, descriptive titles that highlight your product’s best qualities, like its brand name or key features. Also, provide multiple clear and well-shot photos that showcase the products. And though it’s not necessary, consider spending some extra cash on upgrades, like bold fonts or larger images.

If you’ve chosen to use your own website, there are other ways to generate traffic. The best approach is to spend a little on social media marketing and pay-per-click advertising. Choose two or three platforms – like Facebook, Twitter, and Pinterest – and buy some targeted ads. This allows you to use the platform’s demographic tools to target users most likely to buy. So, if you’re selling high-performance sports gear, you’ll target young, active people. If you’re selling stamp collecting supplies, aim for an older audience.

In either case, the best way to drive sales is by showing off your shop’s sterling reputation. Always remember to solicit positive reviews from your customers. These will provide your business with much-needed legitimacy and help close future sales.

Before you begin, smooth out all the small details

Rise and grind. Hustle. Work hard to play hard. These aren’t just flashy catchphrases. They’re actually a pretty accurate description of the mindset needed to succeed in dropshipping. While an online retail operation eventually pays off, it requires some upfront costs in terms of time, money, and effort.

How much, exactly? Well, that depends. If you invest 10 to 15 hours a week for a year, you’ll likely begin pulling in about $1,000 to $2,000 a month. If you put in a full 40-hour work week, you could possibly generate an annual salary of about $50,000.

Not bad! But before you start counting your coin, you’ll need to deal with some final details.

Eventually, your dropshipping business will generate income with very little work. Before you get to that point, you’ll need to take care of all the upfront planning. At the outset, decide how much time and money you’re willing to invest each month, and try to stick to that plan. About $1,000 should be enough to get things started. It should cover any startup expenses like web hosting and advertising, as well as any administrative fees you may encounter.

Speaking of administration, starting a business can require a little legal documentation. The exact details depend on where you live. If you’re in the United States, you’ll need to contact the IRS to obtain an Employer Identification Number, or EIN. You also might want to incorporate your company as either a Sole Proprietorship, a Limited Liability Company, or a C Corporation. Each of these designations offers different tax and legal obligations, so check which one works for you.

Before you begin taking orders, though, you should get your finances sorted out. For simplicity’s sake, it’s smart to establish a separate bank account for your business to avoid mixing your dropshipping budget with your everyday finances. And having a business checking account connected to a commercial PayPal account helps facilitate moving money around as you buy and sell.

There are a few other things you can do to start your operation off on the right foot. For example, you can purchase a permanent domain name for your website. This, coupled with an official business email, makes your communications look more legitimate. Some entrepreneurs even buy a toll-free 1-800 number. It’s a small touch – but one that can make your online business appear more substantial to customers.

Make more money and save time by automating your workflow

OK! You’ve selected your products and found your suppliers. You’ve even set up your business bank accounts, pay-per-click advertisements, and a fancy toll-free number. Congratulations! It’s finally time to start dropshipping.

We’ve already covered the basics of how this all works. First, you receive an order from a customer. Next, you pass that order along to your supplier. And last, you follow up with your customer to ensure they receive their package.

It’s all pretty straightforward, but, like most things, there are always options to make it even simpler.

For the first few weeks, you’ll want to be very hands-on in running your new dropshipping business. It’s a good practice to personally relay the details to the supplier each time you receive an order. Then, once you’re sure the product has shipped, send the buyer a custom-made confirmation email, complete with a tracking number. This process is a little time-consuming, but it will help you truly understand the flow of the business.

Once you’ve got a firm grip on the rhythm and routine, you can begin automating more of the dropshipping workflow. The easiest way is to automatically forward your customers’ orders to your preferred supplier. When doing this, double-check that your email template has all the necessary information, like product title, purchase order, and shipping address. Most online webshops already provide these details on the original order, so it shouldn’t be too difficult.

After setting up your automatic email-forwarding, you can take a breather. You’ll only have to check in every day or so to ensure each order is being processed. Of course, there are bound to be some mistakes or hiccups. Products will be out of stock, packages will get lost, and items will arrive damaged or defective. In these cases, it’s usually easiest to replace or refund the product at no additional charge. This practice takes less time than collecting reimbursement – and leaves your customers much happier.

If you find that your operation is running smoothly, it might be time to scale up your business. You can start by amping up advertising or going after a larger market share with an expanded product range. As you become more confident, you can start experimenting with more expensive products with higher margins. If everything goes as planned, you’ll be on your way to building an e-commerce empire and achieving financial independence.

Conclusion

Dropshipping is a special type of e-commerce where you connect customers to suppliers while taking a cut of the transaction. Anyone can set up a dropshipping operation by selecting a niche product, spending a little time and money on advertising and marketing, and carefully optimizing their workflow. 

Over time, you can scale up your business and begin making real profits with very little risk or overhead.

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