Like any business venture, starting a dropshipping business isn’t easy. However, it’s a great first step toward becoming an entrepreneur. You don’t need to hold inventory to sell to your customers. No upfront payments are required. Ultimately, if you put your heart and soul into your new venture, you can build a long-term source of income.
In this complete dropshipping tutorial, we outline the steps you should take if you’re considering dropshipping.
There are some that are mandatory from the beginning, and there are others that are just a good idea. By dealing with them upfront, you can save time and headaches in the long run.
How does the dropshipping business model work?
Store owners who use dropshipping can sell directly to consumers without having to stock any inventory. A dropshipping store is an online store where products are sold by third-party suppliers and shipped directly to customers. You set the retail price, the supplier sets the wholesale price, and the rest is profit. No product handling or inventory to worry about.
To sell products, you simply need to register with a supplier.
Dropshipping suppliers can be found in three common ways:
- Through a supplier database, such as Alibaba or AliExpress.
- Integrating a supplier directory into your store’s back-end, such as DSers.
- By using print-on-demand services, such as Printify.
Through DSers, Shopify store owners can dropship easily. DSers’ marketplace can be accessed via AliExpress and imported directly into your online store by clicking a button.
Your store’s DSers fill orders automatically when a customer buys something. The only thing you need to do is double-check that the order details are correct and click the Order button. AliExpress’s dropshipping supplier then ships the product to the customer, regardless of where they are located.
As part of the dropshipping business model, you must create your own website, and brand, and choose the products you wish to sell. As a business owner, you are also responsible for shipping costs and establishing prices that yield a decent profit margin.
Can you buy a dropshipping business?
For those who don’t want to create a dropshipping business from scratch, Exchange, Shopify’s marketplace for buying and selling online stores, will let you find dropshipping businesses for sale, from ready-to-go shops to dropshipping eCommerce businesses. You can quickly start your dropshipping business with over 10,000 online stores for sale that match your interests and budget.
In the listing of a potential dropshipping business for sale on Exchange, you will find information such as traffic and revenue statistics. When you buy a dropshipping store, you will know exactly what to expect since the data is directly from Shopify and cannot be edited.
How to Start a Dropshipping Business: 9 Proven Steps
- Make a firm commitment to dropshipping
- Choose a dropshipping business idea
- Do competitive research
- Choose a dropshipping supplier
- Set up your eCommerce store
- Decide on a business structure
- Get your finances in order
- Market your dropshipping store
- Evaluate and improve your offering
1. Make a firm commitment to dropshipping
Dropshipping is a long-term commitment, just like any other business. I can guarantee you that you will be sadly disappointed if you hope to earn six figures from six weeks of part-time work. You will be far less likely to quit your business if you have realistic expectations of the investment and profit potential of your business.
As a beginner, you’ll have to invest heavily in either time or money if you’re going to start a dropshipping business.
Investing time in your dropshipping business
Our recommendation, especially for first-time dropshipping entrepreneurs, is to bootstrap your business and invest sweat equity to build it. The following are some reasons we prefer this approach to invest a large amount of money:
- In the process of growing and scaling your business, you will learn how the business operates inside and out.
- By knowing your customers and market intimately, you can make better decisions.
- Spending money on vanity projects, which aren’t essential to success, will be less likely.
- Your skills as an entrepreneur will improve as you learn new ones.
In reality, most people won’t be able to quit their job to set up their online store in six months. While it may be more challenging, it is possible to start dropshipping while still working a 9-to-5 job, so long as you set appropriate customer service expectations and fulfillment timeframes. Depending on your cash flow and profitability, you can work full time on your business as you grow.
Dropshipping success can be improved if you work full time on your business when you have the opportunity. In the early stages, it’s especially important to build momentum, so focus entirely on marketing. For a dropshipping business to replace an average full-time income of $50,000, at least 12 months of full-time work with a strong focus on marketing is usually required.
You may think that’s a lot of work for a small profit, but remember these two things:
- Dropshipping businesses are less time-consuming than 40-hour jobs once they are up and running. When you invest in the dropshipping model, you reap the benefits of efficiency and scalability.
- When you start a business, you are building more than just a revenue stream. You are also building an asset that you can sell in the future. Be sure to consider both equity and cash flow when calculating your actual return.
Every business and entrepreneur is unique, but it is possible to build a business that generates $1,000 to $2,000 in monthly income in about 12 months while working 10 to 15 hours a week.
Investing money in your dropshipping business
Investing a lot of money isn’t the best way to create and grow a dropshipping business. Both methods of building a business (bootstrapping it ourselves versus outsourcing it) have worked well for us, but we’ve had the most success when we’ve done the bulk of the work ourselves.
Building a business from the ground up requires someone devoted to its success from the beginning. Your profits will be swiftly eaten up by expensive programmers, developers, and marketers if you don’t fully understand how your business works. Even though you don’t need to do everything yourself, it’s best if you are the driving force from the beginning.
To get your business launched and up and running, however, you’ll require a small cash buffer of approximately $1,000. This will cover minor operating costs (such as web hosting and dropshipping suppliers) as well as any incorporation fees (discussed below).
2. Choose a dropshipping business idea
The second step in starting a dropshipping business is to conduct market research. You want to investigate a niche you’re interested in and make decisions based on how profitable it can be, just like you would if you were opening up a retail store and researching locations, competitors, and trends. However, coming up with new product ideas for sale is a challenging task.
You can help get shoppers’ attention and gain traction by focusing on more niche and trending products rather than competing with larger, established businesses.
It is often easier to sell to specific crowds with niche products because they are marketed to more passionate customers. You can start dropshipping without money by selling fitness, fashion, beauty, electronics, phone accessories, and yoga-related items.
The following are examples of niche dropshipping stores:
- Yoga mats for yogis
- Pushup boards for fitness folks
- Seat cushions for office workers
- 3D moon lamps for interior decoration
To test your dropshipping business ideas, you can also use the following tools:
Google Trends. Google Trends can help you find out whether a product is trending upwards or downwards, as well as which season it is trending in. Search volume is not included in Google Trends. To determine whether the product is popular in searches, cross-reference your data with a keyword tool like Keywords Everywhere.
Keywords Everywhere. Using this keyword research tool, you can find the monthly search volume and competitiveness of your product. This information can be used to gauge how popular your dropshipping business idea is and inspire new product ideas.
DSers order volume. With DSers, you can search for products based on order volume to figure out the potential of your business idea.
While the growth of eCommerce is good news for those looking to start dropshipping businesses, it also creates a lot of competition. To make your dropshipping business plan successful, you should research your competitors.
Learn more about how to write a business plan.
3. Do competitive research
The next step is to look at your competitors and understand how they operate now that you know what you’re selling. You can learn a lot from your competitors and build a better marketing plan by studying them.
Research about five other dropshipping companies in your market (which is a good thing in dropshipping), including at least one or two big players like Walmart, eBay, and Amazon. Planning ahead will keep you on track.
You can conduct your competitor research in the following ways:
- Do a Google search. That’s the obvious place to start. Look up your five top competitors in Google. Use key search terms in a simple search, such as “iPhone cases.” The top ten results will reveal who your top competitors are and how they promote their products. For keyword data in a specific country, you can use a third-party tool like Ahrefs or SEMRush.
- Use competitor spy tools such as Similarweb and Alexa. Online tools like these make it easy to see what your competitors are doing online (and to monitor it). They provide you with information about competitor websites, such as their social media profiles, top traffic sources, number of visitors, and who their competitors are.
- Visit social media sites. You can check out the top brands in your niche by searching for Facebook ads. Consider how the business communicates with its customers, how its feed is designed, and how much engagement it gets-you can even follow its feed to stay up-to-date. Learn how to improve your social media marketing strategy and stand out by using this information.
- Subscribe to the email lists of your competitors. Want their updates in your inbox? Join their email list to see how they market. They can also tell you more about the promotions and deals they offer.
Study your top competitors’ websites, prices, marketing techniques, product descriptions, reputation, etc. Organize your research into a spreadsheet so you can easily refer to it when making store decisions. In a spreadsheet, you can see if your competitors are already using email marketing to promote their business and what tactics they are using.
4. Choose a dropshipping supplier
Dropshipping suppliers play an important role in the success of your dropshipping business. It wouldn’t be possible to run a dropshipping business if it didn’t have suppliers to ship to customers.
As of now, you’ve vetted the dropshipping products you want to sell and know they’ll be profitable-now you need a dropshipping supplier whose service will help you grow. With e-commerce platforms like Shopify, you can connect DSers to your online store to find potential suppliers.
The DSers marketplace lets you find products to sell online easily. Dropshipping suppliers around the world offer products with excellent profit potential that can be added to your store with just one click, from electronics to fashion to toys. Using the app, your customer orders will be forwarded to the dropshipping supplier, so you do not have to deal with packaging, shipping, or inventory management. Signing up is free.
For finding and adding products to your store, the DSers app uses AliExpress. A DSers product page contains information about product quality, shipping times, and how to vet a supplier.
You can find reviews, top-selling products, and more on AliExpress’s page when you click a supplier’s link.
If your supplier is from China, try to sell products from distributors who provide ePacket shipping. For shipping items from China to countries like the United States, the United Kingdom, and Canada, ePacket is a fast and affordable option. You will only have to pay a few dollars for shipping the parcel to your customer’s address in two weeks.
5. Set up your eCommerce store
Your next step is to choose an eCommerce platform, such as Shopify, to start a dropshipping business. Here you’ll send traffic, sell products, and process payments.
The Shopify platform makes it easy to build and launch eCommerce websites, including registering domain names and adding marketing plug-ins. It’s a complete commerce platform for selling in multiple places (including online), accepting multiple currencies, and managing products easily.
Neither a designer nor developer is required to use Shopify. Store builders and Shopify themes make it easy to customize your store’s appearance.
6. Decide on a business structure
To maximize your revenue and protect yourself from lawsuits, it may be beneficial to run your business with a corporation. You have several options. You can register your business as either a sole proprietorship, a limited liability company (LLC), or a C corporation.
These are the three most common business structures. It is important that you are aware of the differences between these business forms – their advantages and disadvantages, so to speak. When deciding whether it’s better to register your new business as a sole proprietorship or as one of the other business forms, you need to consider a number of factors.
These factors include your business plan, your business model, the potential tax benefits, the level of structure and formality, your business goals, your sources of investment, and where you want to operate your business.
Most experienced dropshippers will tell you that your best choice is between a sole proprietorship and a limited liability company (LLC). However, a C Corporation is also a good choice depending on the type of business you plan to run. Below is a brief overview of these three business structures:
Sole Proprietorship – This business structure is the easiest to implement, but you must always remember that it does not give you much protection from personal liability. You run the risk of losing your personal assets if your business is sued. Many dropshippers opt for sole proprietorship because it has very few filing requirements. When it comes to reporting your income from the business, all you have to do is report it under your personal taxes. That’s it. You do not have to file any other federal or state business documents.
Limited Liability Company (LLC) – With this business structure, your business is set up as a separate legal entity from you. This means that it offers better protection for all of your personal assets. Simply put, it offers much better protection than a sole proprietorship. However, you should note that this protection is neither foolproof nor absolute. Also, in most cases, you will need to submit additional documentation. You will also have to pay for incorporation fees and ongoing charges.
C Corporation – When it comes to liability protection, the corporate structure of a C Corporation offers the most comprehensive protection. But this increased protection comes at a price. First of all, it is much more expensive to form a company with this structure. Also, the corporation is likely to be subject to double taxation. This is because the income from the company does not go directly to the shareholders. Instead, they can be accessed through dividends, which are taxed separately under corporate income tax.
What if you are located outside the United States but still want to form a limited liability company or C corporation under U.S. laws and jurisdiction? Here is how you should proceed. It’s not as difficult as you might think. These are the main steps you should follow:
- Choose your business structure.
- Choose a state to incorporate or file your LLC in.
- Get a registered agent.
- Get an employer identification number (EIN).
- Open a U.S. business bank account (e.g. via Payoneer)
- Get the advice of a business consultant or any knowledgeable professional.
- Stay compliant with the rules and regulations.
Request an EIN number
The Internal Revenue Service, or IRS, requires all types of businesses operating in the United States or U.S. territories to apply for an EIN (Employer Identification Number). The EIN serves as the social security number for your dropshipping business.
You will use this number when filing taxes, opening a bank account, applying for wholesale dropshipping accounts, and pretty much anything related to running your business. Keep in mind that most reputable dropshipping suppliers will require you to have an EIN number if you want to do business with them. If you do not have an EIN number, it will be difficult for you to find good dropship suppliers.
To apply for an EIN number, you will need a copy of the application form, which is IRS form SS -4. You can download this form from the official website IRS. Simply print a copy of the application form and answer all the questions it contains. If you need help filling out the application form, you should contact a lawyer or a business consultant.
7. Get your finances in order
How much money you need to invest in your business depends on several factors. These factors include the size of your proposed business, the total price of the products you sell, the location of your supplier or manufacturer, the software and programs you use on your dropshipping website, and the anticipated overhead costs.
Take all of these factors into consideration to ensure that you are making a realistic estimate for your finances. You need to make sure that you have enough funds to get started. You also need to project your costs and expenses for a period of at least one year.
It is important that you learn how to separate your personal spending from your business spending. You can do this by opening new accounts under your business name. Your business should always be a separate entity from your personal life.
Especially in the early stages of your business, there should be a clear boundary between the two. It is important to separate business expenses from personal expenses to make it easier to work.
- Record expenses and costs that are related to your business.
- Keep track of where your funds are going.
- Allow IRS to review your records.
Finally, it protects you from liability for business debts. If there is no clear separation between your personal and business finances, your creditors will be in a better position if they access your personal assets to pay the debt.
Your business should have separate accounts for the following:
Business Checking Account – When you set up a checking account for your business, you should ultimately use it for all of your business finances. All you really need is one main checking account. All of your expenses should be withdrawn from this account. It also follows that all of your profits will be deposited back into this account. One obvious advantage of this setup is that it makes bookkeeping for your business much easier. The tracks of your expenses and income are much clearer and therefore easier to follow.
PayPal Account – When you sign up with PayPal, you can choose from three account types. These are personal, premier and business. If you want to use PayPal for deposits and withdrawals in your dropshipping business, you should sign up with a business account. Do not worry, you can always set up a personal account that is completely independent from your business account. Just make sure you do not mix your finances with the two accounts.
Business Debit/Credit Card – It’s never a good idea to use your personal debit/credit card for business expenses and to buy supplies from a vendor. So set up a business credit card or debit card to be used exclusively for your business expenses. If you want to know which credit cards are best for dropshipping businesses, I recommend Capital One, American Express and Fidelity Visa.
Collect Sales Taxes
Because of the business model, paying taxes on goods sold through dropshipping is more complicated than you might expect. The process is complicated by the location of the dropshipper, the location of the customer, product sourcing, and the sales tax nexus.
Nexus is a legal term that refers to the fact that companies doing business in one state must collect and remit taxes on sales from that same state. For example, if you sell goods in Houston, you must also collect and remit taxes in Texas. It’s not hard to understand why dropshipping is a business model that carries a very high risk for sales tax errors.
Here is a brief overview of what you need to know about collecting and remitting sales taxes in a dropshipping business:
- You must collect sales from the customer if you have nexus in the state where the sale takes place. (Please see our definition of “nexus” above.) You must collect sales tax unless the transaction qualifies as tax-exempt.
- If you and your supplier do not have nexus in the state where the transaction occurred, then you are not required to collect sales tax. It is the customer who is required to remit the tax unless the sale qualifies as tax exempt.
- If you do not have nexus in the state where the sale occurs, but your supplier does, then it is possible that your supplier is responsible for collecting the sales tax. However, this is not an absolute rule, as many states have different views on this issue. In states like Hawaii, Florida, Connecticut, and California, the supplier is responsible for collecting sales tax in this case. But many other states do not take the same position. Therefore, it is important to find out what the tax laws are in your state. Not all states consider drop shipping to be a nexus activity.
Local business licenses
Business licenses need to be renewed regularly in most cities and towns. Dropshipping businesses, many of which operate from home offices, may have different requirements. To determine if anything is required, you should check your local laws and regulations.
8. Market your dropshipping store
It’s time to talk about marketing your new store now that you know how to start a dropshipping business. As you build your dropshipping business plan, you may want to put extra effort into your marketing and advertising efforts.
Dropshipping automates so much that you can spend your time focusing on marketing and promoting your business.
1. Paid ads (Facebook and Google)
The average cost per click for a Facebook ad is about 97 cents, which isn’t bad for someone who is new to advertising on Facebook. In addition to being scalable, Facebook ads can perform well and play to people’s desire to impulse buy. Shoppers are more likely to make purchases when you target long-tail keywords with Google Shopping Ads.
It’s typically more expensive to run Google ads, but it may be worth it to test it out. In addition, you can consider TikTok ads. Globally, TikTok has over 1 billion monthly active users.
It is a great social media site for dropshippers and marketers to establish credibility and increase conversions with their target market.
2. Influencer marketing
Dropshippers often have limited marketing budgets. The benefits of influencer marketing are cost-effective because people trust them more than traditional advertising because they tend to trust influencers. Negotiate an affiliate fee rather than a flat rate with the influencer if you choose this route. Since they will be making money off of each sale, and you will be saving money, it’s a win-win situation.
3. Content marketing
Create a content marketing plan for your dropshipping business if you want to build a long-term stream of traffic for your store. You can start a blog around your dropshipping niche and create content that entertains and educates your target audience. To get the word out about your brand, you could also start a YouTube channel, make infographics, or create a podcast.
Join groups of passionate people in your niche. On Reddit, Facebook groups, or online forums, you can start conversations with potential customers. Just don’t be too salesy. Build relationships with potential customers so they trust you and want to buy from you.
5. Mobile marketing
In mobile marketing, companies connect with their customers through their mobile devices. For example, you can set up a VIP text club and visitors to your site can sign up to receive exclusive offers. Shoppers can get customer support through Messenger Live Chat. With a mobile marketing platform like ManyChat, you can create automated lead generation, retention, and abandonment campaigns to increase sales for your dropshipping business.
Keeping an eye on which channels are working and which are not is key to running a successful online business, especially if you are investing money in those channels. You can always adjust your marketing strategy as your business grows and improves, so you can reduce costs and maximize sales.
9. Evaluate and improve your offering
After some time, you can see the results of your hard work after you’ve been marketing and running your dropshipping business. Using Shopify analytics, you can answer some important questions about your store, such as:
- Sales. Which channels perform best? Where should I put more advertising budget? What are my top-selling products? Are there any returning customers?
- Shopper behavior. Are people buying more on mobile or desktop? Which device has the highest conversion rate?
- Profit margins. Which products or SKUs have the highest profit margin? Are monthly sales and gross profit rising or falling?
Google Analytics and Search Console are tools you can use to measure search traffic over time and improve your search engine optimization (SEO). You should also check the reports monthly if you use a third-party app to manage your social media or messenger marketing.
Create a data-driven analytics system if you are opening a dropshipping e-commerce store. Make sure you measure your store’s performance over time using clear KPIs and stay consistent with your analytics. This will help you make smarter business decisions and take your small business to the next level.
Launch your dropshipping business today
It’s time to incorporate your business and make it official. The great thing about starting an online business is that you do not have to spend a lot of money or make a big fuss about it.
It’s just like any other day before starting a business. All you need to do is log in to your business account and it’s ready to go. There is no need to cut ribbons, invite guests, etc. As a new business owner, you need to be prepared for the vagaries of the online world.
For this reason, you need to be very vigilant in the first few days. Anything can go wrong with your website. It can crash due to an overwhelming amount of traffic. It can be inaccessible for hours. Customers may find that some of the features are not working properly. Customers may not be able to complete their orders. These are just some of the potential problems you may encounter in the first few days of your operation.
Do not worry, such problems are quite normal for new online entrepreneurs. Just be prepared for them. Keep your technical team and customer support on alert.