Most entrepreneurs who are just starting out will usually look into low-risk, high-reward business ideas, and dropshipping is as good as it gets. Starting a dropshipping business is straightforward and doesn’t require prohibitive up-front capital investments.
There’s a lot of flexibility in the business model, you can set your own prices, market your very own brand (this may be costly though), and sell directly to customers. Some suppliers even offer white label services so that you could rebrand it as your own.
Now the main reason why dropshipping is so lucrative is that you don’t need inventory. The overhead costs associated with inventory are usually more than what an average beginner can handle at once; these may include warehouse costs, inventory management, and staffing. That is the headache of the manufacturer.
The process of launching a dropshipping business is similar to any other type of sales startup. You need a marketing concept, a source of product, various sales channels, and a well-defined marketing strategy. You could choose from free dropshipping sites like Amazon or AliExpress or paid subscriptions with Wholesale2B and Worldwide Brands.
Here’s how you can get started.
Create a Marketable Dropshipping Business Concept
Most businesses are based on a concept around which you build your brand and product collection. For most solopreneurs, this concept grows out of something they may be deeply passionate about, it could be gardening, video games, movies, or even website design. Others will develop their concept based on sales trends after thorough research and lots of trial and error.
The first step is to come up with an idea for a business. It can be a little daunting because there are unlimited options out there, but don’t let it deter you. Start out with a rough concept of your brand and then build on it.
Specialization and Niche Marketing
When it comes to dropshipping, niche marketing is the name of the game. Most entrepreneurs will tell you to go deep into niche products. This is because it works. Instead of casting a wide net and wasting money, you pinpoint your audience, brand, content, and products to appeal to a qualified group of prospects, like gardeners, keyboard enthusiasts, and video gamers.
A specialized focus also paints a picture of you being an expert in your field. For example, keyboard enthusiasts will be more comfortable to buy a mechanical keyboard from someone who exclusively deals in the niche than someone who sells other computer peripherals.
Pro Tip: The first few weeks (or months) of your dropshipping business are going to be an experiment. Your goal should be to test out new products from different areas to see what sticks. If your business is too hyper-focused on a single product or niche from day one, you could be restricting your growth potential.
Once you have pinpointed the specific group that sells the most, you can start focusing your attention on that product. This way, you won’t have to completely redesign your website and business concept and start over from scratch when a product or niche doesn’t sell as well as you had hoped.
Using this strategy, someone who’s focused on kitchen should test out a broader range of cooking tools, rather than launching a store with a narrow focus on kitchenware from day one. This will not cost you a penny because you’re not in charge of inventory, remember?
Leverage Product Research to Identify Dropshipping Opportunities
Whether you’re casting a wide net or specializing in a single group, it is a good idea to do some product research before you invest too much time and money. Something as simple as a cursory glance on Amazon’s best lists should give you an idea of the bestselling products. The results of your research could be used on other marketplaces like Alibaba and eBay.
Start by checking out Amazon’s Best Sellers lists to see what customers are actively searching for and buying. You unravel all kinds of trends without spending any money on expensive keyword research tools like SEMrush.
More importantly, Amazon is completely free to use. Researching a product or niche on Amazon takes time, but that’s about it. You don’t have to spend money to dig deep into trends, simply jot down the products that are doing well, and start filing up your online store.
You can also utilize keyword research on various search engines to discover profitable niche ideas. For example, you can research product-specific keywords in Google’s free keyword planning tool to get an idea of the current search volume for different optics and products. You can also use this tool to search the trends for just about anything, from mechanical keyboards to throw pillows and gaming chairs.
Keyword research on Google will also give you detailed insights on who you’re actually up against. But don’t let your competition dissuade you from pursuing different opportunities. You can use your competitor sites to fine-tune your own website and landing pages.
One really helpful tool to unravel the latest trends is Google Trends. It’s a free keyword research tool actively reports on the topics and terms that users are searching for and a rough estimate for when they will increase or decrease in popularity.
At the end of the day, the main focus of your dropshipping business is to solve customer pain points. When customers search for a query on Google, they are actually searching for cost-effective ways to solve a problem. This is where your business comes in.
Once you have pinpointed a profitable niche market for dropshipping, it’s time to ask yourself a few important questions;
- What customer pain-points are you solving
- Are your solutions effective
- How do your products address customer needs?
Success in eCommerce hinges upon your ability to build a solutions-driven business concept and customer experience. Just ask Jeff Bezos and he’ll tell you just how important customer experience really is.
Time to Explore Dropshipping Suppliers
Once you have identified a concept for your dropshipping business, it’s time to discover the gigantic world of dropship suppliers and products.
There are many dropship suppliers out there who want to maximize their sales and millions of products available to sell. It can get a tad bit overwhelming if you don’t have a basic concept of the business you want to build.
Here are two things you should keep in mind before you select a potential dropship supplier:
- You can source goods from dropship marketplaces or directly contact suppliers
2. Each option has its own pros and cons
Starting Out With Dropship Marketplaces – Easy
If you want to choose the path of least resistance, dropshipping marketplaces should be your first point of entry. The marketplaces automate the entire dropshipping process and make it easy to launch and operate your business with the click of a few buttons. Dropship marketplaces make this easier by directly integrating with eCommerce platforms.
Here are the main features of choosing a dropshipping marketplace:
- Easily find products to sell and add them to your collection with a simple click
- Easily show the availability of stock to avoid running into customer service issues
- Automatically forward orders to the manufacturer
- Automate the entire shipping process and update the customer appropriately
- You only have to pay the wholesale cost upon successful delivery of the product, after the buyer has paid for it
The margin for marketplace profits runs about 20 to 50 percent of the selling price, which is a pretty good deal for a low risk business model. The biggest disadvantage of this approach is that your competitors have access to the same products.
On the flipside, dropshipping marketplaces add millions for products every day, making it super easy to build a collection based on your unique brand.
When you use dropship suppliers, you pay the product’s wholesale cost when your customer places an order for it. Some dropship suppliers may charge monthly or per-transaction fees to give you access to their platforms. However, most of them are known to offer a free starter plan to help you get started without giving any upfront costs. Below are 5 popular dropshipping marketplaces.
|Dropship Supplier||Basic Plan||Ideal for|
|AliExpress||Free||All sellers who want to import the best products + it works with most eCommerce platforms.|
|Amazon||Free||All sellers who want to sell high-quality products + it works with almost all major eCommerce platforms.|
|Doba||$29/pm||Volusion and Shopify sellers. It contains millions of products from the US and abroad.|
|Sprocket||Free||All types of sellers. Has the best collection of trendy goods from mostly US, Canadian, and European suppliers.|
|Oberlo||Free||Shopify sellers who want to sell products from AliExpress and individual vendors.|
|Modalyst||Free||All sellers. Shipping is fast on goods from European and US suppliers.|
The list above is not exhaustive by any means, you can find a lot more by doing a simple Google search. You’re not stuck with a single marketplace and can list and sell products from multiple marketplaces using plug and play integrations with platforms like WooCommerce and Shopify.
Dropshipping Business by Directly Sourcing Products– Difficult
Most industry experts and seasoned dropshippers agree that dropship marketplaces are good for startups as well as part-time sellers. However, if you truly want to maximize your earning potential, your goal should be to grow your eCommerce business by partnering directly with sellers.
By directly partnering with sellers, you can maximize your profit margins. When you feel your business is ready, you can find potential direct-sourced dropshipping suppliers through the following places:
ThomasNet – This is a database for US manufacturers who will cater to all types of industries
Hubba – This supplier directory caters to small businesses and gives them access to thousands of specialty brands to explore dropshipping options.
Import Genius – This is a database of US importers.
Buyer’s Markets – This place caters to industry-specific manufacturers, especially small manufacturers who want to maximize their sales and need dropshippers. Good options include NY Now, Dallas Market Center, and America’s Mart.
Dropship Marketplaces – Marketplaces like Oberlo and Modalyst also support bulk-purchase and volume seller pricing, so if one supplier’s goods prove to be a hit, you can work out more profitable options.
Private-Label Sellers – Some private companies are open to selling their products through dropshippers and may even offer white label services. You will have to identify and reach out to them yourself. You will have to prove your eCommerce store is popular enough for them to approve you.
It should be noted that most of these manufacturers will not offer technical support to integrate with your online store. To provide support to these suppliers, you’ll have to use management software that can add products to your website and automatically forward orders to the supplier. Depending on your scale of business, the use of such software could increase your overhead costs.
Once you have become familiar with your dropshipping supplier options and explored all the good they offer, it’s time to get your online store up and running.
Time to Build Your Dropshipping Website
Before your dropshipping business model gets started, you will need to build a website. And for that, you’ll need an eCommerce platform. Choosing the right eCommerce platform for your business depends on two variables: the business concept and your dropshipping supplier plan. Once you put these elements together, you’ll know which platform is the best for you.
Here’s how you can select the perfect platform and create a website that fits your unique needs.
What’s Your Business Concept?
Is your business focused on content or product? This is important because it will help you choose the right eCommerce platform. In the case of a store that is product-centric, you’ll need a dedicated eCommerce platform like Shopify to create the ideal product-focused website.
But if you want to focus on creating rich content for your audiences, such as blogs that inform them about the pros and cons of a product, how-tos, and tips and tricks, then you’ll need a content management system like WordPress. WordPress uses WooCommerce, the equivalent of Shopify to help you start selling products.
The Importance of Content Marketing for a Dropshipping Business
By far the most effective way to reach your audience and maximize your sales on your dropshipping website is through content marketing. You will have to create content like blog posts, articles, product reviews, and how-tos to improve your website’s ranking. SEO success will largely depend on keyword research and niche marketing.
If you believe that content will play a major role in your overall business concept, then our recommendations to choose a CMS platform like WordPress. You will need a good hosting provider to host your website, products, and other digital assets.
Make sure to choose a reliable hosting provider that can guarantee at least 99.9% uptime and fast website loading speed. To this end, we believe that Bluehost is a great WordPress hosting provider that also provides native support to WooCommerce, one of the most popular eCommerce plugin.
Bluehost offers a free domain, free email addresses, hosting, and automatic WooCommerce installation for an extremely low cost (less than $10). Click here to check out our review of Bluehost to decide if it’s the right hosting provider for your business.
When to Use Shopify
If your plan is to partner up with marketplaces like Sprocket, Doba, Modalyst, and other mainstream dropship marketplaces, then you should choose Shopify.
Shopify is the top platform right now in terms of creating the best dropshipping websites and integrating with all kinds of suppliers. You can readily experiment with all kinds of dropship marketplaces using plug-and-play, drag-and-drop features on Shopify. Plus, in some cases, you might even get the luxury of experimenting with up and coming suppliers as they emerge.
While it is true that beginners can get their dropshipping business up and running faster on Shopify than on WordPress, these platforms don’t offer fully fleshed out website design options or in-depth blogging tools that WordPress can provide.
Either way, you can’t go wrong choosing between the two.
Decide on the Right Business Structure
There are three main types of entities that you can set up. While we’re not lawyers and can’t offer legal advice, it is strongly recommended to create a business structure that is an independent entity so you’re never at risk of personal liability in case the business gets sued. There’s a pretty big chance of getting sued as a small business, make sure your assets are protected.
Here are the three most common business structures
This is the default business structure that most people will start with. It offers zero personal liability protection. In layman terms, it means your personal assets could be jeopardized if the business gets sued. On the flip side, there isn’t much in the way of filing requirements on a state and federal level. That being said, you will have to report your revenue from the business on your taxes.
A sole proprietorship is simply not the way to go if you want to protect yourself from lawsuits.
Limited Liability Company (LLC)
An LLC offers a lot of protection to your personal assets by separating you from your business. The liability protection is not foolproof but it does provide a lot more protection than a sole proprietorship. You will have to contend with extra filing requirements, pay ongoing fees to a registered agent, pay incorporation fees, and of course taxes. Some businesses hire accountants to handle all these aspects for them, and that will also cost you.
Most big businesses are set up as C corporations, which provide the greatest level of liability protection. For this reason, they’re a little costly and come with confusing taxation laws.
So which business entity should you set up? Should you even incorporate in the US? No one’s stopping you from incorporating in the UK or Australia, just make sure to go with an option that offers the greatest liability protection and is cheap enough for you. Most solo entrepreneurs choose an LLC or a sole proprietorship.
If you were to ask us, we’d go with LLC for all our dropshipping stores because it offers a decent tradeoff between financial costs and liability protection.
Note: The IRS assigns a unique employer identification number (EIN) to all businesses, which is the equivalent to your SSN. This number will be used to file your taxes, apply for dropshipping accounts, open bank accounts, merchant accounts, and just about anything else related to your business.
The good news is that you can easily obtain an EIN number, either with the help of a registered agent or by applying with the IRS online.
Never Mix Personal Finances with Business Finances
Most entrepreneurs make the mistake of mixing their business fiancés with their finances. This creates a ton of confusion that makes accounting extremely confusing and can lead to personal assumptions of business liabilities that could trigger a red flag from the IRS if you’re ever audited.
Make sure your personal finances and business finances are as separate as possible. The only way to do this is by opening up new accounts in the name of your business. Here are a few options:
Your business should have a business credit card that could be used for business-related costs and inventory purchases. In some cases, you will be buying a ton of products from manufacturers, which means you could accumulate a whole lot of rewards if you choose the right credit cards. Find a credit card that offers a good cash-back program.
You can run all your business dealings through a single checking account. All the revenue earned will be deposited and withdrawn from the account. A separate business checking account also makes accounting extremely easy.
Collect Sales Tax Where Applicable
You will have to collect sales tax if the following apply to you:
- The state where your business operates from collects tax
- An order is placed by someone who lives in your state
This does not apply if the orders are placed by residents belonging to different tasks, regardless of whether those states have their own sales tax laws or not. You are not required to collect tax from these buyers. That being said, sales tax laws are always in a state of flux, it’s a good idea to have a professional accountant dealing with all this stuff if you’re new to this.
For more information, reach out to your state’s Department of Commerce and register as a retailer.
Make Your Dropshipping Site a Success
Dropshipping has become insanely difficult in 2020, namely because of the huge flux of ambitious entrepreneurs who want a piece of the piece.
The good news for you, if you are committed, is that the bulk of your competition isn’t very committed to the cause at all. This is because it’s boring to work on something without getting overnight results. There’s no such thing as instant gratification and you’ll have to focus on setting up a foundation before you could get customers to trust you with their money.
The good news is that if you’re consistent and persistent enough, you will eventually see results. Make sure your SEO strategy is always on point.
Focusing on SEO
SEO is a freakishly effective way to establish rapport with your customers.
As a general rule, if your website ranks in the top 10s in the search results page for a particular keyword, your readers will assume you have domain expertise in that niche. This increases your chances of selling the product. You will also generate traffic to your website on a continuous basis – but only if you rank high enough for the target keyword. This is a challenge for new merchants who have no idea how to do SEO and bring clients to their website.
SEO and content marketing is absolutely essential to the success of your dropshipping business. In the first few months, you’ll have to handle the SEO bit entirely yourself. You could outsource it to experts but they may charge you. Don’t even think about going to Fiverr and hire someone for $5, that will waste time and money without giving you any results.
Worst-case scenario? Your website could even get banned if Google and other search engines find out you’re using black hat tactics. Never use black hat tactics.
Learn how to do technical SEO, on-page SEO, off-page SEO, building quality backlinks, creating and publishing content on a regular basis, and advertisements. An effective way to generate backlinks is to reach out to other websites that have a decent domain authority of at least 20+.
Learn more about technical SEO here.
Can You Start Dropshipping With No Money?
Yes, you can. It depends on whether you have a basic online store set up or not. Setting up an online store is only going to cost you around $4 or less, which could be argued is negligible when compared to startup costs. If you choose a free dropshipping marketplace like Amazon or AliExpress, you probably won’t have to spend a penny.
If you decide to sell the product by placing advertisements on social media and search engines, that could cost you a fortune.
FAQ: Affiliate Marketing vs Dropshipping
Simply put, in affiliate marketing, you are marketing someone else’s product or service listing. The listing could belong to anyone, a merchant, or a dropshipper. The merchant is responsible for the inventory and shipping. You don’t get to decide the price and will only receive a commission if someone buys the product through your recommendation (usually a link).
In dropshipping, the manufacturer is in charge of the inventory and shipment while you simply list it on your website and decide your own price, usually higher than the base rates offered by the manufacturer. That being said, affiliate marketing is very similar to dropshipping as a business model. In that, you are responsible for marketing.
Now the problem with affiliate marketing is that success depends squarely on whether someone clicks through your link and then follows through with call to action. If the buyer decides to revisit the link later on without using your affiliate code and buys the product, you probably won’t make a penny off the sales even though it was your hard work that made it possible.
But when someone places an order on your website, that will always translate into money transferred directly into your account.
With dropshipping, you may be responsible for handling customer support. That costs money if you’re hiring or outsourcing an expert. Additionally, if something goes wrong, it’s on you. Refunds can be tricky. Customer support isn’t really tough because you just only have to provide a few general guidelines. With affiliate marketing, you don’t have any stake involved in the process whatsoever.
To get started with affiliate marketing, most beginners would set up an account with Amazon Associate or Clickbank. The only cost you have to bear is hosting and paid marketing. If your website starts ranking well, you could generate a lot of passive income without lifting a finger. That being said, you need enough sales volume for appreciable revenue. It is entirely possible for you to have spent $200 on ads only to make $50 via commissions. So make sure to weigh these pros and cons.
So those were the basics of setting up a dropshipping business with a low-risk approach. You won’t get overnight success and getting recognized will take quite a bit of effort from your end. But that is the beauty of dropshipping – it’s a low-risk, high reward business model that ultimately pays off.
As you get more experienced, you’ll realize just how important it is to gain specialization in a particular product. For example, you don’t want to sell mechanical keyboards. You want to sell mechanical keyboards designed for gamers obsessed with RGB lighting and comfy arm-wrests. You don’t want to just sell padlocks. You want to focus on padlocks designed for warehouses.
Have your own dropshipping store? Share your experiences with us in the comments below!