How To Start Dropshipping Business
What is Dropshipping
Dropshipping is a business model where an online retailer doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. In other words, the retailer acts as a middleman between the supplier and the customer.
Here's how dropshipping typically works:
- Set up an online store: The retailer creates an online store, usually using an e-commerce platform, where they showcase and sell products.
- Choose suppliers: The retailer identifies suppliers or wholesalers who are willing to dropship their products. These suppliers can be found through online directories or marketplaces.
- Select products: The retailer selects the products they want to sell from the supplier's inventory and adds them to their online store. They can choose from a wide range of products without having to purchase or store them beforehand.
- Customers place orders: When a customer purchases a product from the retailer's online store, the retailer receives the order details and payment.
- Notify the supplier: The retailer then notifies the supplier or wholesaler of the order details and provides the customer's shipping information.
- Supplier fulfils the order: The supplier prepares the product for shipment and directly ships it to the customer. The retailer typically pays the wholesale price to the supplier, keeping the difference between the wholesale price and the retail price as profit.
Key advantages of dropshipping include:
- Low startup costs: Dropshipping eliminates the need for upfront inventory investment, as the retailer only purchases products after receiving an order.
- Wide product selection: Since the retailer doesn't need to physically hold inventory, they can offer a vast range of products without worrying about storage limitations.
- Reduced operational tasks: Dropshipping eliminates the need for tasks like inventory management, packaging, and shipping, as these responsibilities are handled by the supplier.
- However, it's important to note that dropshipping also has some challenges. These can include finding reliable suppliers, maintaining good customer service without direct control over the shipping process, and dealing with potential inventory and product quality issues.
- Overall, dropshipping can be a viable business model for entrepreneurs looking to start an online store with minimal upfront investment and operational overhead.
How to start a dropshipping business:
- Commit to starting a dropshipping business
- Choose a dropshipping business idea
- Do competitive research
- Choose a dropshipping supplier
- Build your e-commerce
- Decide on a business structure
- Get your finances in order
- Market your dropshipping store
- Analyze and improve your offering
Commit to starting a dropshipping business
As with any other business, dropshipping takes significant commitment and a long-term perspective. If you’re hoping for a six-figure income from six weeks of part-time work, you’re going to be sadly disappointed.
By approaching your business with realistic expectations about the investment required and your profit potential, you’ll be much less likely to get discouraged and quit.
When starting an e-commerce business as a beginner, you’ll need to invest heavily using one of the following two currencies: time or money.
Choose a dropshipping business idea
The second step in learning how to start a dropshipping business is performing the necessary market research. Just as if you were opening up a retail store and looking into the different locations, competitors, and trends, you want to investigate a niche you’re interested in and make decisions based on how profitable it can be.
But the truth is, coming up with validated product ideas to sell is tricky.
To help inspire your next dropshipping business idea, Shopify curates a list of trending products based on the top-selling product categories on the platform. By focusing on more niche and trending products, you can help get the attention of shoppers and gain traction without competing with larger, established businesses.
Niche products often have a more passionate customer base, which can make selling to specific crowds easier by raising awareness for your products.
Fitness, fashion, beauty products, electronics, phone accessories, and yoga-related items may be a good entry points to start dropshipping with no money.
Some examples of a niche dropshipping store could be:
- Dog bow ties for dog lovers
- iPhone cases for iPhone owners
- Camping gear for campers
- Exercise equipment for fitness folks
- You can also use the following tools to test out your dropshipping business ideas:
Google Trends. Google Trends can help you determine if a product is trending upward or downward, as well as the seasons they tend to trend in. Note that Google Trends doesn’t show search volume. So if you use it, be sure to cross-reference your data with a keyword tool like Keywords Everywhere to determine the product’s popularity in search.
Keywords Everywhere. This keyword research tool shows you the monthly search volume for your product and how competitive it is. You can use this information to gauge the popularity of your dropshipping business idea and inspire new product ideas for the future.
DSers order volume. In DSers, you can search for products based on order volume to determine the potential of your business idea.
Although the growth in e-commerce is a great benefit for those looking to start a dropshipping business, it also creates a lot of competition. That means you’ll want to do competitor research when putting together your dropshipping business plan to find success in selling your products.
Do competitive research
Now that you know what you’re going to sell in your store, you want to look at who your competitors are and understand the way they work. Your competitors may hold great clues to success and can help you build a stronger marketing plan for your dropshipping business.
If your market has a lot of competitors (which is a good thing in dropshipping), limit your research to about five other dropshipping companies, including one or two big players like Walmart, eBay, or Amazon. It’ll help you keep focused and plan your next steps.
Some ways to go about your competitor research are:
Run a Google search. Search engines are an obvious starting point. Use Google to build a list of your top five competitors. Start with key search terms in a simple search, like “ear plugs.” The top 10 results will show you who your top competitors are and how they are promoting their products. If you want to focus on a specific country, you can use a third-party tool like Ahrefs or SEMRush to find keyword data in those areas.
Use competitor spy tools like Similarweb and Alexa. Online tools like these are great for finding (and keeping track of) your competitors’ online activity. They give you a list of competitor website information, such as their social media profiles, top traffic sources, number of visitors, and who their competitors are.
Browse social media. Search for Facebook ads in your niche and check out the top brands in the market. Look at 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 never miss a beat. Use this information to find ways for your business to stand out and improve your social media marketing strategy.
Learn everything you can about your top competitors: their websites, prices, marketing methods, product descriptions, reputation, etc. Keep your research organized in a spreadsheet so you can easily refer to it when making decisions for your store.
For example, if you want to use an email list to promote your business, you can look at your spreadsheet to see if competitors are already doing it and the tactics they’re using, all in one place.
Choose a dropshipping supplier
Choosing a dropshipping supplier is a critical step toward creating a successful dropshipping business. Without reliable suppliers, a dropshipping business wouldn’t have any products to ship to customers and, therefore, cease to exist.
At this point, you’ve vetted what dropshipping products you want to sell and know they can be profitable—now you want to make sure you find a dropshipping supplier that gives you the high-quality service you need to grow. E-commerce platforms like Shopify offer a plug-and-play style option for finding potential suppliers by connecting DSers to your online store.
DSers is a marketplace that makes it easy to find products to sell online. Whether it’s electronics, fashion, toys, or other trending items, you can find products with good profit potential from dropshipping suppliers around the world and add them to your store with one click.
The app manages to forward customer orders to your dropshipping supplier, so you never need to worry about packaging, shipping, or managing inventory. It costs nothing to get started.
The DSers app uses AliExpress to help you find and add products to your store. If you want to read more about product quality or shipping times, or further vet a supplier, you can do so from the DSers product page.
When you click a supplier’s link, you end up on its AliExpress page, where you can find reviews, top-selling products, and more.
One thing to keep in mind: Aim to sell quality products from DSers that provide ePacket shipping if your supplier is from China.
ePacket is an affordable and fast option for shipping items from China to countries like the US, the UK, and Canada. Rather than wait months for a package to arrive from China, your customers will only have to wait up to two weeks, for a cost of only a few dollars.
Build your e-commerce store
The next thing you need to start a dropshipping business is an e-commerce platform like Shopify. This will be the home where you send traffic, sell products, and process payments.
Shopify makes it easy to build and launch your e-commerce website, from finding a domain name to adding marketing and sales plug-ins. It’s a complete commerce platform that allows you to sell in multiple places (including online), sell in multiple currencies, and easily manage products and accept payments.
You don’t need to be a designer or developer to use Shopify either. And you can easily change the look and feel of your store template with the store builder and Shopify themes.
Decide on a business structure
If you’re serious about your venture, you’ll want to set up a legitimate business entity. We’re not lawyers and can’t offer legal advice, but we can give you a rundown of three commonly used business structures.
Sole proprietorship
This is the simplest business structure to implement but also offers no personal liability protection. So if your business is sued, your personal assets also may be in jeopardy. Filing requirements are minimal and you simply report your business’s earnings on your personal taxes. No other state or federal business filings are required.
Limited liability company (LLC)
An LLC offers increased protection of your personal assets by establishing your business as a separate legal entity. While liability protection isn’t foolproof, it does offer more protection than a sole proprietorship. You may need to comply with additional filing requirements and will need to pay both incorporation and ongoing fees.
C corporation
Most major corporations are set up as C corporations, which, when done properly, offer the most liability protection. They are likely to be more expensive to incorporate and are subject to double taxation, as income doesn’t pass directly to the shareholders.
So which structure to choose? It’s best to consult with a lawyer before making any incorporation decisions. Most small entrepreneurs tend to go with either a sole proprietorship or an LLC.
Note: The business structure and EIN (employer identification number) information discussed below applies to entrepreneurs in the United States and won’t apply to other countries. For information on incorporating a US-based business from outside the US, please see the notes at the end of this article.
Request an EIN number for your business
The IRS requires all businesses to have an employer identification number, which acts as a Social Security number for your business. You’ll need this number to file your taxes, apply for wholesale dropshipping accounts, open a bank account, and do pretty much anything related to your business.
Fortunately, getting an EIN number is easy and free. You can apply for an EIN number online.
Get your finances in order
One common mistake entrepreneurs make when starting a business is blending their personal and business finances. This causes confusion, makes accounting more difficult, can lead to personal assumptions of business liabilities, and is a big red flag for the IRS if you’re ever audited.
You’ll want to keep your business and personal finances separate as much as possible. The best way to do that is by opening up new accounts in your business’s name. You’ll want to open the following:
Business checking account
You should run all of your business finances through one primary checking account. All business revenue should be deposited into it and all expenses should be withdrawn from it. This will make accounting much easier and cleaner.
Credit card
You should have a business credit card that is used for business expenses and dropshipping inventory purchases only. Because you’ll be buying a lot of merchandise from suppliers, you can rack up some serious rewards with the right rewards travel cards.
Collect sales tax
You’ll need to collect sales tax only if both the following are true:
The state you operate from collects sales tax
An order is placed by someone living in your state
For all orders placed by residents of other states, even if those states charge their own sales tax, you won’t need to collect any tax. There’s a good chance we’ll see changes to these laws in the coming years, but for now, the tax laws for small online merchants are very advantageous.
If your state does charge sales tax, be prepared to collect it on the limited number of orders from customers in your home state. You’ll want to contact your state’s Department of Commerce to register as an online retailer and find out how frequently you need to submit the tax you collect.
Learn more about how to pay sales tax and liability by reading Drop Shipping and Sales Tax: A Simple Guide by Bench.
Local business licenses
Most cities and towns require businesses to get a business license that needs to be renewed on a regular basis. However, this requirement may differ for dropshipping e-commerce businesses, many of which likely will be operated from home offices. You’ll want to look into your local laws and regulations to see what, if anything, is required.
Incorporating outside the United States
It can be complex, but it’s possible for international merchants to incorporate a business in the United States, giving them access to US-based drop shippers and customers. The merchant will need to come to the US to complete the necessary paperwork, have a trusted business partner in the US who can act on his behalf, or hire an agency to set everything up.
The following resources can help get you started with understanding this process:
Non-resident Delaware LLC and Corporation for Foreigners, by Delaware Corporate Headquarters
Market your dropshipping store
Now that you know how to start a dropshipping business store, it’s time to talk about marketing your new store. To stand out in your market, you may want to put extra effort into your marketing and advertising efforts when building your dropshipping business plan.
With so many things about dropshipping being automated, you can spend time focusing on marketing and promoting your business in the following ways:
Paid ads (Facebook and Google). Facebook ads are scalable, products can perform well on them, and they tap into people’s desire to impulse buy. You can run Google Shopping Ads and target long-tail keywords where shoppers are more likely to buy. There’s typically more price competition with Google ads, but it may be worth your time to test it out.
Influencer marketing. As a new drop shipper, you may have a limited budget to market your business. Influencer marketing is an affordable way to reach your target audience because people tend to trust influencers more than traditional advertising. If you go this route, negotiate an affiliate fee with the influencer versus a flat rate. It’s a win-win situation because they’ll make money off of each sale and the cost will be less for you. The best social media platforms for influencers are TikTok and Instagram.
Content marketing. If you want to build a long-term stream of traffic for your store, add content marketing into your dropshipping business plan. Start a blog around your dropshipping niche and create content that entertains and educates your target audience. You could also make money on YouTube, create infographics, or start a podcast to help get the word out about your brand.
Communities. Get involved with groups of people who are passionate about your niche. You can start conversations with potential customers on Reddit, Facebook Groups, or online forums. Remember not to be too sales-y when engaging with a community. Aim to help and build relationships with potential customers so they trust your brand and want to buy from it.
Mobile marketing. Mobile marketing is a broad term that refers to a business connecting with customers on their mobile phones. For example, you can start a VIP text club and encourage website visitors to sign up for exclusive deals and promotions. Or provide customer support in a live chat conversation with shoppers through Messenger.
Email marketing. Email marketing is a powerful tool for dropshipping businesses, as it helps build long-lasting relationships with customers and drives repeat purchases. By sending targeted, personalized content such as promotional offers, product recommendations, and informative newsletters, you can increase customer engagement and boost sales. You can use Shopify Inbox for free with your Shopify store.
As with any successful online business, keep an eye on which channels are working and which aren’t—especially if you’re investing money in them via paid ads. As you continue to grow and improve your business, you can always adjust your marketing strategy to lower costs and maximize revenue.
Analyze and improve your offering
After you’ve been marketing and managing your dropshipping business for some time, you can start looking at the results of your hard work. Shopify analytics can help you answer some important questions about your online store, such as:
Sales: What are my best-performing channels? Where should I put more ad dollars? What are my bestselling products? Who are my best customers?
Shopper behavior: Are people buying more on desktop or mobile? What’s the conversion rate for each device?
Profit margins: What products and variant SKUs are the most profitable? What are my sales and gross profits looking like month over month?
You can also use tools like Google Analytics and Search Console to measure search traffic over time and improve your search engine optimization (SEO) efforts. Plus, if you’re using a third-party app for your social media or Messenger marketing, check the reports monthly to make sure your overall strategy is working for your business.
When creating a dropshipping ecommerce store, you want to create a data-informed analytics system. Remain consistent with what you analyze over time and measure your store’s performance against clear KPIs. This will help you make smarter decisions for your store and take your small business to the next level over time.
How does the dropshipping business model work?
Dropshipping is an order-fulfillment method that lets store owners sell directly to consumers without stocking any inventory. When a customer purchases a product from a dropshipping store, a third-party supplier ships it directly to them.
The customer pays the retail price you set, you pay the suppliers’ wholesale price, and the rest is profit. You never have to handle products or invest in inventory.
In order to sell products, you just need to register an account with a supplier.
