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How to Start a Dropshipping Business (Step by Step)

dropshipping text on the computer keyboard

How to Start a Dropshipping Business (Step by Step)

Launching a dropshipping business is an excellent first step into entrepreneurship. This business allows you to set your product prices, market your brand, and sell your product to clients.

You’ll only pay for inventory once a customer buys the product. You can establish a successful brand if you’re dedicated.

This post will take you through the steps to start a dropshipping business and other things you need to know to have a successful business.

What is Dropshipping?

Dropshipping is a retail business that involves selling products without keeping stocks. Entrepreneurs purchase products from wholesale agents such as AliExpress and sell them for a profit without handling the products, returns, or shipping.

In simpler terms, you get products from a wholesale site and feature the products in your dropshipping store at a retail price. A site like AliExpress doesn’t charge entrepreneurs for featuring these products in their stores.

When a client purchases a product from your dropshipping store, you process the order via AliExpress, which manages the logistics for you by handling the inventory and shipping the goods to the clients.

Dropshipping Business Model

The three main components of the dropshipping business model include the manufacturer, retailer, and consumer.

The manufacturer creates products, manages inventory, ships products to consumers on the retailer’s behalf, replaces defective goods, and restocks them. They sell goods to retailers at wholesale rates assuming unsold inventory risk.

The retailers sell the manufacturer’s goods on their sites under their brands. Retailers are in charge of selecting products, setting profitable prices, promoting the products, and handling the shipping cost.

The consumer purchases the goods directly from the retailer and contacts them if any issue arises concerning the product they bought.

Steps to Establish a Successful Dropshipping Business

The steps below will guide you on how to start a dropshipping business:

  1. Select a lucrative dropshipping niche.
  2. Find a dependable dropship supplier.
  3. Get a sales tax ID.
  4. Pick the appropriate selling platform for your business.
  5. Implement a client acquisition strategy.
  6. Scale your business.

Step 1: Pick a Lucrative Dropshipping Niche

When learning how to start a dropshipping business, the first step is to choose your niche—a specialized segment of the market for a specific type of service or product. For instance, subwoofers are a well-known niche in the home audio equipment market. The sealed cabinet and ported subwoofers are a sub-niche.

Finding an unsaturated niche is becoming more challenging, with many entrepreneurs dipping their toes into the dropshipping business. However, new niches and products emerge each week, so endless opportunities exist.

You should pick a niche with evergreen products that appeal to you. The common misconception in the dropshipping business is that every niche is lucrative. If you select a saturated niche dominated by big brands, selling your product won’t be easy.

Below are some tips to help you pick a lucrative niche for your dropshipping business:

1. Begin with Your Hobbies and Interests

Tapping into your interests and hobbies makes so much sense since you’ll sell products you’re familiar with. For example, if you’re into swimming or traveling, you’ll know the trends and products in those markets and easily pick a profitable niche.

2. Solve a Problem

Tackling a problem is a great strategy when choosing a niche. If you’re experiencing a specific problem, it’s likely that other individuals are also facing a similar challenge. You can then pick a product that resolves the issue.

3. Analyze the Competition

Find out if the niche is saturated or not. If many people are selling the product, determine if you can easily beat the competition and realize high returns. If you decide to join an over-saturated niche, get ready to face stiff competition. Next, you must weigh if the competition is worth beating.

A highly-competitive niche denotes that a product is in demand. Use tools such as Google Trends to find out a product’s demand. These trends will give you a rough idea of how profitable the product will be.

4. Make Sure the Niche is Lucrative

You should analyze every niche’s profitability and determine if you’ll make enough money from selling your products. You need at least a 40% profit margin after taxes, seller fees, and shipping costs, but you should target a 100% margin.

You can use Amazon’s online calculator to determine a niche’s profitability. This calculator subtracts Amazon charges from the retail price and approximates the number of products sold every month—a demand indicator.

Dropshipping Goods that Work Well on eBay and Amazon

The features of an excellent dropshipping product are:

  • Non-seasonal: Avoid selling only marketable products in one season, as this will restrict your selling power. So,o for products that are in demand throughout the year.
  • Not dominated by big brands: Companies like Samsung and Apple dominate the smartphone market and are usually most buyers’ first choice. Products dominated by major brands are hard to sell. So, if you want to increase your chances of attracting many customers, you must pick a niche that big brands don’t dominate.
  • Sells for $15 to $200 (retail price): This price range is the e-commerce “sweet spot”; you won’t be able to sell products above $200 en masse, and products below $15 won’t bring in a high-profit margin. Although there are many exceptions to this rule, choosing a product that falls within the sweet spot will help you start your dropshipping business on a good note.
  • Lightweight and small: A good product should weigh below 4.4lb or 2kg (ePacket weight limit) and be able to fit into a shoebox. This will save you from paying additional shipping costs.

Looking out for the above features will help you pick a viable niche for your dropshipping business. After figuring out a suitable product, you can proceed to the next step.

Step 2: Find a Reliable Dropship Supplier

Finding a dependable supplier is the most challenging task for most aspiring dropshipping entrepreneurs. Suppliers play a big role in the dropshipping business as they keep the product in stock, verify product quality, and ensure the punctual shipping of orders to your clients. A supplier is your most important partner as a dropshipper.

Things to Look for in a Supplier

A great supplier should:

  • Be experienced: Get a supplier with years of experience in the dropshipping business. Since suppliers play a big part in dropshipping, you should be sure that the one you choose is reliable—a good indicator is if the supplier is helpful and well-informed.
  • Be a dropshipper: Not every supplier provides dropshipping as a service. Others are simply manufacturers or wholesalers; ensure the supplier is a dropshipper before you reach out.
  • Offer fast shipping: Many dropshipping suppliers are from China, so overnight shipping isn’t practical. Ensure clients receive their orders immediately. Confirm supplier’s shipping schedule to target countries. One to two weeks is ideal for dropshipping; any more extended period can lead to negative feedback.
  • Not impose massive order fees: Most dropshipping suppliers charge only a small amount for their services, including packaging, keeping an inventory, and shipping orders to clients. The order fees should be between $2 to $5; don’t partner with a supplier who charges more.
  • Have standard products and images: You should ask for product samples to confirm their quality before entering into a partnership with a supplier. The supplier should have high-quality photos that you can place in the product listings.
  • Provide a solid return policy: Ensure the supplier isn’t imposing unnecessary charges. Also, ensure your time limit on returning goods matches the supplier.
  • Provide referees on request: The supplier should readily link you with enterprises that can confirm their services. Word-of-mouth referrals are preferable, but you can also use customer reviews to verify the supplier’s service. Just keep in mind that the supplier can manipulate the online reviews.

Where to Find Dependable Suppliers

There are two main ways to find a reliable dropshipping supplier. You can search online or use wholesale directories such as SaleHoo.

  • Use wholesale directories: This saves you time and helps you steer clear of e-commerce fraud. A wholesale directory like SaleHoo has over 8,000 verified dropshipping suppliers you can contact in a few clicks and evaluate their ability to offer excellent services.
  • Search for dropshipping suppliers online: Simply enter your product and “supplier” into the Google Search bar and wait for the results. Alternatively, you can search for the product on sites like AliExpress or Alibaba—many suppliers from China use these sites to sell their merchandise.

Step 3: Acquire a Tax ID

Suppose you plan to set up your dropshipping business in Canada or the United States. You’ll likely require a sales tax ID, a resale number, vendor’s license, resale certificate, reseller’s, or retail license.

Sales tax is a tax imposed on all sales of products to buyers and is usually approximately 6% to 9% of the selling cost. Several states require entrepreneurs to have a retail license. However, this is not a requirement in states like New Hampshire, Oregon, Montana, Delaware, and Alaska.

Businesses usually include this charge in the retail price, passing the expense on to consumers.

It’s easy and cheap to apply for a retail license. Simply access the local county clerk’s office by visiting the office or googling “your state” plus “tax ID.”

To acquire a tax ID, you must be a company, a business entity, or a sole proprietor (this applies to many home-based online businesses) and possess a Federal Tax ID number.

Even though collecting the required sales tax amount (if you don’t, you’ll be held accountable for the difference), not every eBay seller requires a sales tax ID. Some wholesale suppliers require entrepreneurs to have a tax ID before partnering with them.

Step 4: Pick a Selling Platform

After choosing a product and getting a reliable supplier, the next step in learning how to start a dropshipping business is to look for a platform to sell your goods and generate income. Since your business success relies on the selling platform you choose, you should take your time and compare available platforms before picking a suitable one.

You can either launch an independent online store or sell on an established platform.

Many people use established online selling platforms like eBay and Amazon, particularly when starting a dropshipping business because:

  • You can easily set up an account and begin selling on these platforms.
  • Buyers trust these online marketplaces.
  • You can generate high income on these platforms.
  • These online marketplaces attract high traffic (prospective buyers).

Nevertheless, these online marketplaces have some disadvantages:

  • They charge fees for each sale you make.
  • Entrepreneurs using these platforms have restricted control on customer service, product photography, and branding).
  • Buyers have a ton of choices in a single place.
  • You’ll be in direct competition with vendors in the same marketplace.

Below are some of the well-known selling platforms for dropshipping businesses:

  • eBay: This online marketplace has 171 million active users, with approximately one billion products listed in over 190 markets. The platform’s sales fees are less than 10%, and it also imposes listing fees. However, it offers a limited number of free listings. eBay functions as a standard online retail platform and has an auction option.
  • Amazon: With three million active users, this is the most popular online marketplace. In 2016 alone, over one hundred thousand vendors made above $100,000 on this platform. Amazon offers extra services like Amazon Prime and fulfillment by Amazon.

Amazon fees vary, but most vendors pay approximately 15% of the selling price on average. This platform is a popular choice for dropshippers since it offers many free shipping offers.

  • Shopify: By 2020, around 1,749,000 merchants were using this online store platform. On Shopify, it’s easy to build a custom store and integrate it with several useful third-party apps to enhance operations like subscription billing and email marketing.
  • Walmart: This superstore currently has an online marketplace perfect for dropshippers. Besides providing the conventional dropshipping model for product listings, Walmart also dropships its products on other marketplaces. Being a newer alternative, Walmart gives you a chance to beat a number of the competitors on eBay and Amazon.
  • WooCommerce: This is a free plugin made by WordPress, a widely used site builder. It enables users to transform a website into an online store. WooCommerce has been downloaded more than thirteen million times. The plugin enables users to make highly-personalized online storefronts with several capabilities which make it as good as Shopify.
  • Facebook Marketplace: Over 250 million users interact with the Facebook storefront every month. Following this, building a Facebook business page and vending on this platform can generate high returns.
  • Wix: This is a website builder with e-commerce abilities. Although its market share is smaller than giants like WooCommerce and Shopify, Wix is an extremely customizable website builder with several third-party app integrations, making it an excellent alternative for dropshippers.

It’s also the cheapest alternative with regular premium subscriptions discount.

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As you can see, every platform has its advantages and disadvantages. However, the best platform to use is Shopify because it offers a wide range of blogs, tutorials, and information.

Understanding and utilizing the platform is much easier than the other platforms, where it’s challenging to get answers to any questions you may have. On Shopify, dropshipping is popular among individuals looking to build their brand and create a strong brand presence.

Setting Up Your eCommerce Platform

Many dropshippers prefer creating their e-commerce platforms. Setting up your store is a big-budget project; however, it is the ultimate means of generating long-term income from an online store. Various online tools make it easy to set up.

Advantages

  • You have total control over layout, design, and branding.
  • You’ll be setting up a business independently.
  • No charges and higher returns.
  • There’ll be no direct competition from sellers on the same site.

Disadvantages

  • Setting up and designing your store is costly.
  • You won’t have guaranteed traffic from well-established sites.
  • Ranking on Google takes time; thus, you’ll have to invest in digital marketing and SEO.

Established e-commerce platforms get more and more saturated each year. So, if you have the funds and time to invest in a long-term dropshipping business, building your online store is the best option.

How to Set Up Your E-Commerce Store

  • Step 1: Select an eCommerce site. Factor in the platform’s cost, features, payment options, design, and the number of products you’ll be selling. Some excellent choices include BigCommerce, WooCommerce, Squarespace, and Shopify.
  • Step 2: Set up your online store. This includes setting up modes of payments, designing, shipping, and checkout settings, adding policies, purchasing a domain name, adding products to the store, and ultimately opening the store for business.
  • Step 3:This stage involves getting people to your platform. There are various ways to do this, including SEO, influencer marketing, social media ads, and Google Adwords.

 Dropshipping Types

  • Print on Demand: This involves designing graphics for products like mugs and T-shirts and then looking for a supplier who can print the designs and dropship them to customers on your behalf. This is an excellent choice for individuals who don’t want to keep inventory.
  • Private Labeling involves looking for suppliers who will brand their products with your logo and then drop ship them. The significant advantage of this kind of dropshipping is that you can sell products distinct from your brand.
  • Reverse Dropshipping: Using this model, a dropshipper sources top-quality products from countries that typically import and sell them to countries that normally export them. For instance, you can source a top-quality product from a US supplier and sell it to the Chinese market.
  • Product Reselling: This is the most popular form of dropshipping that involves finding existing products to list and sell for a profit. However, the supplier does the dropshipping on your behalf. This means that you never have the products on hand.

Step 5: Establish a Client Acquisition Strategy

After setting up your e-commerce site, you have to attract clients to it. This is where the client acquisition strategy comes in.

Client acquisition involves persuading customers to purchase your products. You can use two approaches to get new clients. These are paid (fast results) and free (slow results).

Free (Slow Results)

1. Social Media Marketing

Getting organic reach on digital platforms is becoming increasingly difficult. However, it’s still possible. Some platforms to consider are TikTok, Instagram, and Facebook. Most organizations and businesses have at least an account on one of these platforms. Select one platform and be consistent, and eventually, you’ll have a following which you can transform into loyal customers.

2. Forum Marketing or Blogs

This entails finding forums or blogs related to your niche/product and actively participating in discussions. Establishing yourself as an authority in your sector and including links to your site can boost traffic and attract new clients.

3. Content Marketing

This usually involves blogging on your store site, posting trendy Instagram posts, clever Twitter posts, or starting a Youtube channel. Content marketing entails creating valuable content that aids in building an audience you can transform into clients. It’s not as direct as advertising and should always focus on your audience instead of your brand.

Many successful e-commerce platforms have a blog segment on their websites. An example is Good As Gold, a clothing store in New Zealand. Their website has a simple yet effective blog segment highlighting particular products, announcements, and updates.

4. Email Marketing

Creating an email list is still one of the most efficient ways of getting clients. Find a way to capture the email addresses of your prospects or customers. You can do this by requesting a sign-up at checkout or hosting an event requiring email addresses. Once you have built a decent list of email addresses, you have a way of contacting many people regularly, free of charge.

Paid (Fast Results)

1. Google Ads

Google is the most popular search engine in the world. If you have an e-commerce platform, you want it to appear on the first page of Google Search results. You can achieve this naturally or purchase ads for your platform to rank highly on Google SERP. Google ads are an excellent choice because:

  • You can get great exposure.
  • Google is the largest marketing platform in the world.
  • You can target a particular demographic, e.g., device, location, language.
  • You can make the most of your ads using high-volume keywords relevant to your niche.

2. Social Channels Influencer Marketing

In recent years, influencer advertising has become a big part of client acquisition for retailers. It is especially effective if you’re in a hot-selling niche.

For example, if you deal in handbags, you can contact an Instagram model and ask them to upload a post of them flaunting one of your bags and tag your business. Just one post can bring in many new fans and clients.

The cost of influencer marketing depends on how popular the influencer is. For instance, a post from Kim Kardashian can cost $250,000, while a post from an influencer with 10,000 followers can only cost a few hundred dollars.

3. Facebook Ads

Facebook is the world’s largest social networking platform, making it a great advertising medium. Facebook predominantly makes money through ads. Facebook ads are an excellent option because:

  • It is easy to start.
  • You have control over the amount of money you spend daily.
  • You can target a particular demographic (relationship status, interests, location, etc.)
  • It delivers fast results.
  • It assists in boosting brand awareness.
  • A good ad can go viral.

Step 6: Expand Your Dropshipping Business

Once the dropshipping business is up and running and you’ve implemented some of the approaches mentioned in Step 5, you should start making sales.

As the business grows, think about a few future-proof processes you can establish to make it less stressful.

In recent years, technology has advanced, leading to massive improvements in the way businesses operate. Advancement in technology has significantly reduced manual work. For most dropshippers, time is the most precious resource.

You might want to consider the following to help you save time and expand your business.

1. Dropshipping Tools

After you’ve set up your e-commerce platform, it may be worth looking into using tools to help you find quality suppliers and products easily, import items into your store, and fulfill orders without much effort.

Having a tool that makes all these processes as smooth as possible is a sure way of cutting down on the time and effort you put into sourcing new products to expand your store or managing higher-order counts.

One of these tools is the SaleHoo Dropship, which supports all the procedures mentioned above to simplify your job as a dropshipper. They list over one million products from certified suppliers, 600 of which can be imported into your e-commerce platform.

SaleHoo Dropship also has a dedicated team to assist you on your dropshipping journey. They can offer advice, source products that aren’t listed on their site, and suggest resources to help you expand your business.

2. Automating Dropshipping

It can be frightening to be in control of advertising, customer support, accounting, and more in your business. Fortunately, automated dropshipping can help to simplify these processes.

Automation can assist you with pricing, order tracking, and fulfillment; email campaigns; promotions; getting client feedback; generating reports on client activity; posting on digital platforms; and product importation.

The biggest advantage of dropshipping automation is that it gives you more time flexibility—you can devote a significant amount of time to sensitive tasks like responding to client inquiries.

Successful dropshippers employ some form of automation to give them time to focus on other high-value aspects such as new product releases, creating brand awareness, and strategy.

3. Automating Facebook Ads

Many services offer tools to automate Facebook ads. This will assist you in doing away with manual tasks and harnessing data to make better marketing decisions.

  • Facebook: The platform has its ad automation capabilities which make recommendations depending on your business objectives and the performance of your previous ads. With the massive amount of data available to the platform, Facebook can eliminate guesswork from Facebook marketing by making insightful suggestions.
  • Smartly: This software assists users in personalizing their ads for specific audiences. It can produce multiple ad sets and monitor how well each performs. You’ll identify which information and visuals to place on your ads to generate more traffic.
  • Bidalgo: This platform is similar to Smartly in that it provides data-driven insights to assist you in making better advertising decisions. It makes ad analytics as seamless as possible in a user-friendly manner so that it’s simpler to compare ad performance and identify the ones that need snipping or editing.
  • Hootsuite: This integrated site monitors and automates various marketing processes across multiple digital platforms.

There are plenty of automation tools available in the market; therefore, it’s best to conduct thorough research to find the tool that best satisfies your needs.

4. Outsourcing Tasks

You may need assistance with some tasks at times but not necessarily a permanent employee.

This is where freelancing comes in. Platforms like Fiverr and Upwork have many skilled freelancers who can complete various e-commerce jobs to meet your needs and budgets.

You can hire freelancers when necessary to perform particular tasks when you need them done. For instance, writing may not be your strong point, but you’re aware of the importance of written content in website traffic generation and a higher conversion rate. In this case, you will have to hire a freelance writer to create SEO-friendly content for your website. You can also hire a copywriter for your product descriptions.

Having expert freelancers can assist in expanding your business beyond what your limited time and individual capabilities would allow.

Bottom Line

Setting up a successful dropshipping platform isn’t as difficult as people make it out to be. However, don’t expect instant results. Give it a few months and keep on investing in your store and implementing new advertising strategies.

Frequently Asked Questions

1. Where can I find reliable dropshipping suppliers?

One of the best ways to find a reliable supplier is using a directory. Platforms like SaleHoo have over 9,000 reliable global and local suppliers who have been vetted and verified. Alternatively, you can use other platforms like Google, Alibaba, and AliExpress.

2. How lucrative is the dropshipping business?

Dropshipping is one of the most profitable businesses. You aren’t responsible for shipping and manufacturing costs; thus, you can reap profits once you’ve found the right suppliers. Various profit margin calculating tools can help you calculate your profit to make sure you’re on the right path to success.

3. Is starting a dropshipping business worth it?

The answer to this question depends on the time and effort put into the business. If you don’t invest a lot in the business, you’ll never get high returns. This business requires a lot of patience as it can take a long time to set up a store, import items, determine the pricing strategy, and eventually start selling. Sadly, many have quit dropshipping due to a lack of perseverance and consistency.

4. What skills do I require before setting up a dropshipping business?

First off, you need to believe in yourself. The greatest skills required in this sector are a can-do attitude and a willingness to learn. Other valuable skills include proactivity, planning, and goal setting.

5. Can I earn money through dropshipping?

Yes, you can earn money by investing in dropshipping. Dropshipping lets you find products with high-profit margins potential and start a business. When you’re motivated to sell these products, you’ll invest more time into marketing and promotion, leading to higher returns.

6. How much does it cost to start a dropshipping business?

It’s difficult to determine the exact amount of money you require to set up a dropshipping business. However, it’s cheaper than setting up an online retail business. On average, it costs between $1,500-6,000 based on the store’s size.

7. Is Dropshipping simple to start?

Dropshipping is among the simplest ways to launch an e-commerce store. It has low entry barriers. For a successful dropshipping business, ensure you conduct an extensive market analysis. You only need to pick a lucrative niche, a reliable supplier, and an e-commerce platform.

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