Dropshipping is an ideal e-commerce business model with lost startup costs and zero overhead. You can start operations with as little as $100, making it one of the best passive income ideas for those with little income.
Moreover, as a drop shipper, you can sell different merchandise without buying or storing any stock. You pay for the goods once they are sold. No wonder it is a lucrative business option for many entrepreneurs.
And that is why this step-by-step guide demonstrates how to start a dropshipping business to help you build a sustainable side hustle.
What is Dropshipping?
Dropshipping is a retail fulfillment method where your company doesn’t keep the products it sells in stock. Instead, when a customer orders, the company sends the order to the wholesaler or manufacturer, who then ships the products directly to the customer.
The supplier takes care of everything from inventory management to shipping and handling. Dropshipping is a simple model: The customer pays you, and you pay the manufacturer or the distributor who sends the products to the customer.
And since you don’t keep inventory, you avoid unnecessary losses from overstocking, overstocking, and expired products. But how do you search and get the right supplier for dropshipping?
You can ideal supplier stores in the following places:
- Marketplaces like Alibaba and AliExpress
- Integrated supplier directory in your dropshipping store back end, such as DSers
- Print-on-demand services like Printful.
Unlike Affiliate marketing, you are responsible for creating and building your website ad brand in the dropshipping business model. You’ll also cater to shopping costs and set prices that result in sustainable profit margins.
9 Steps To Build a Profitable Dropshipping Business
As we mentioned earlier, a dropshipping business can be challenging. Like any other business model, you need to research, plan, and commit to success.
Here are 9 simple steps on how to start a dropshipping business:
Commit to The Dropshipping Journey
Let’s get some things out of the way. Dropshipping is like any other entrepreneurial venture- it will take time and commitment before you realize desired profits. This is not a get-rich-quick scheme.
You’ve probably heard about Amazon dropshipping businesses that make 7 to 8 figures. Well, it took those business owners time to build their brands. So examine your expectation vs reality on the investment and time needed to achieve the desired profits.
Let’s discuss your first investment asset- time
1- Investing Time In Your Dropshipping Business
We recommend investing time and effort more than money for new dropshipping entrepreneurs. Here is why:
- Investing time in the new startup will allow you to learn everything about the business, which will help you manage your operations as you expand.
- You’ll likely know and understand your customers and the market for better decisions.
- You’ll spend your money on what matters to your business’s success
- Investing time in dropshipping business can help you acquire the critical qualities of an entrepreneur.
But because most people start dropshipping business as a side hustle, it is unrealistic to expect them to quit their 9-to-5 jobs and devote all their time to building an online store for six months straight.
You can set realistic expectations for your business concerning customer support and fulfillment requirements to allow you to run the dropshipping business on the side. This will enable you to manage your finances before quitting your job and focusing on the business.
While not all businesses are the same, earning a monthly income ranging from $1000 to $2000 in 12 months is possible if you dedicate 10 to 15 hours weekly to building your business.
Let’s move on to the second thing to invest- money.
2- Investing Money In Your Dropshipping Business
Dropshipping business can be a manageable upfront investment. From the friends, we spoke to and the research we’ve done, we discourage outsourcing the process. You are better off bootstrapping the business yourself.
At the initial stages of the business, we recommend investing time to learn the ropes; otherwise, you’ll spend a lot of money on developers, programmers, and marketers. These unnecessary expenses can eat up your profits and discourage you from quitting.
With a small cash cushion of $1000, you can launch your dropshipping business and manage operating expenses.
3- Choose An Excellent Dropshipping Business Niche
Now that you’re committed to the business, choosing an ideal niche is the second step. This could be anything from fashion, pet supplies, home décor, and electronics.
But how do you know the right niche? Conduct market research to determine your competitors, demand, trends, and profitability.
If you have a Shopify or an Amazon dropshipping store, you can check out a list of popular products or best sellers section for inspiration. Focusing on your niche and choosing trendy products can improve your sales without competing with big brands.
Some low-competition niches for dropshipping stores include:
- iPhone cases for iPhone owners
- Dog bow ties
- Camping gear
- Exercise equipment
Another way to determine ideal dropshipping products is…
You can use Google trends to establish if people are searching for a product and when the product is likely to trend upward.
However, Google trends don’t display search volumes, so ensure to cross-reference it with other keyword tools like Keyword Everywhere.
You can add this keyword tool’s extension on your browser, and it will display the search volume for the specific keyword you’re searching for.
The image below shows the Keyword search volume for nail polish.
4- Research And Select Suppliers
Once you have identified your niche, you’ll need to research and select reliable suppliers who offer quality products at competitive prices.
Without reliable suppliers, your dropshipping business could struggle to pick. Building a good reputation for quality products and fast delivery is key to your success; that is where the right suppliers come in.
You can investigate marketplaces like Alibaba or discount stores like Walmart to find the best distributor. Check out their customer reviews and see what other drop shippers say about them before you commit.
Consider these things when choosing a supplier:
- Product Quality: Ensure the supplier offers high-quality products that meet your standards. You want to avoid damaging your reputation by selling low-quality products to your customers.
- Pricing: Profitability is vital for the success of every business. So look for suppliers that offer competitive pricing to allow you to make reasonable profits. We recommend checking out the best places to buy goods for Amazon FBA for your dropshipping store.
- Shipping times: Does the supplier have a reputation for timely delivering products to customers? Do they have reliable delivery options? You will likely get return customers if they receive their goods on time to solve their problems.
- Of course, your supplier should be reliable with stocks to avoid stock-outs. You, customers, won’t love the frustrations of delayed order fulfillment. So, why not order a few products from the supplier to see their reliability?
- Return policy: If possible, find a supplier with a return policy. Confirm with the distributor before you commit. Why is this essential? Your supplier’s return policy will dictate yours.
- Customer service: Excellent customer service is essential for a successful dropshipping business. Ensure your supplier offers open communication, allowing you to resolve any issues or concerns your customers may have quickly.
- Product range: A supplier with a wide range of products is advantageous because you offer options to your customers.
5- Conduct Competitive Research
You’ve established what to sell and where to buy them; it is time to shift focus to competitors to know how the market works. Analyzing your competitors can help you identify market gaps and build a stronger market plan to address the need.
If your niche has a lot of competitors, don’t be scared. It is a sign the niche has money, and you, too, can have your share. However, limit your research to around five dropshipping companies.
Here are some ways to conduct competitor research:
Google can display a list of potential top five competitors. For instance, if you deal in running shoes, the top 10 results should reveal your competitors and how they advertise their products.
Alternatively, you can use keyword tools like Ahrefs and SEMRush to find competitors in specific countries.
Competitor Spy Tools
Popular competitors’ spy tools like Alexa and Similarweb are excellent at finding and tracking your competitors’ online activities.
You can examine their top traffic sources, social media profiles, and the number of visitors.
You can also dive into social media pages to search your competitors. How do they communicate with their customers? How are their social media pages designed? How much engagement do they get?
The answers to these questions can solve your social media marketing strategy.
Your Competitors’ Email Lists
You can get your competitors’ updates and the next move into your inbox. Since your competitors often conduct email campaigns, you can learn a lot (deals and promotions) from their emails.
Your competitors’ websites are also an excellent place to learn their strategies. You’ll know their pricing, marketing methods, reputation, and product descriptions.
Organize this data on a spreadsheet for easy reference and decision-making.
6- Build an Online Store
The next step is to build an e-commerce site to display and sell your products. And ensure the design and themes appeal to customers and have shopping carts to ease purchase transactions.
This can be tricky for newbies because you deal with various moving parts. For instance, building an e-commerce site will include the following:
E-commerce platforms with content management systems (CMS), like Shopify, WordPress, and Squarespace
A Domain Name
WordPress users will need web hosting. An in-built payment gateway that accepts online payments. The best e-commerce platforms automate the purchase process once the customer orders.
Your e-commerce platform should allow you to link your dropshipping store to other marketplaces like Amazon, eBay, and other social media platforms.
7- Register Your Business
It is good to separate your dropshipping business from your assets. Once you have a domain name, fill out an LLC with the secretary of state.
The state will give you an identification number (TIN) upon submitting an online application to the IRS.
The TIN is helpful when opening a bank account. And your bank account is where the customer deposits the money. You’ll use the money to pay various expenses and suppliers.
Registering your business gives you a sales tax ID or reseller permit because the state requires you to remit taxes for goods sold.
However, if you register the business as a sole proprietor, you don’t need to fill out many forms. You can report your drop shipping business’s earnings on personal taxes.
8- Organize Your Finances
Many new drop shippers make the mistake of blending their business and personal finances. You can’t tell which expenditure is personal or for the business.
This confusion often makes accounting challenging, and the IRS will likely see it as a red flag during an audit.
Even if you run the business as a sole proprietor, separating your personal and business finances is an excellent idea.
Here is how you can do that:
- Open a business checking account: You deposit business revenue and withdraw expenses from here. That way, you can easily track your business accounting.
- Open a business credit card: Have a business credit card to make purchases. Since you’ll be buying many goods from suppliers, you’ll likely accumulate rewards you can use later.
You’ll need to collect a sales tax if the state you operate in requires it or if someone in your state placed the order. So, contact the department of commerce in your state to register your business as an online retailer.
9- Market Your Dropshipping Store
The first eight steps have covered how to start a dropshipping business, and now let’s focus on the final step- marketing your new store.
Since dropshipping is a competitive business, you’ll need to put in extra work to promote your store. It is the only way prospective customers will know you exist.
Consider some ways to promote your business:
- Invest in paid Facebook and Google paid ads
- Use influencer marketing
- Create blog content with an email list.
- Build communities with passionate individuals in your niche on social media platforms.
Like any other online business, evaluate which marketing channels are working and which ones aren’t. You can eliminate unfruitful channels and stick with what works, especially if you’ve invested money in these channels.
How Profitable Is Dropshipping Business?
You can make between 20 and 30% profit or up to $100000 yearly from dropshipping sales. If you want to know how much you can earn monthly, the figure can range from $1,000 to $5,000 in profits.
Does It Cost to Start Dropshipping?
You can start a dropshipping company with as little as $100. This makes it a viable option for those who want to bootstrap their new ventures.
And since you don’t pay for inventory upfront, you can sell a full range of expensive products and make profits after the sale.
How Challenging Is It To Start a Dropshipping Business?
Like any other online business, dropshipping has its share of challenges. While it seems like easy money where you sell other people’s products and take your cut, you need patience and effort to grow it.
Dealing with customer complaints and supply hitches can be stressful.
Can You Start a Dropshipping Business For Free?
Yes, you can start a dropshipping business for free since you don’t have to buy inventories. However, you’ll need an e-commerce platform that won’t charge you before you make a sale.
How Many Items Should I Start With Dropshipping?
Beginners can start with 5-20 products in their dropshipping stores. But you can focus on only some products first and promote at least 1-3.
The other products will make your store natural and pleasurable.
Is Dropshipping Beginner Friendly?
Yes, dropshipping is beginner friendly since it is a low-risk investment. It allows beginners to test their ideas without risking huge capital.