How to Start Dropshipping Business in 2021: The Simple Way to Sell Online
Read this full article about how to start dropshipping business. If you wish to know the fundamentals of entrepreneurship, you can start with a dropping business of your own. Running a dropshipping business means selling products to customers at your very own price. And the fun part is you don’t have to pay for the inventory until an actual sale is done. If you’re willing to put in the effort, you can build a gratifying business.
In this piece, I will talk about everything on how to start dropshipping business, as currently, the eCommerce industry is on the boom. As per Statista, in 2020, more than 2 billion people did online shopping, and in the same year, e-commerce sales reached $4.2 trillion across the world. So starting an online business couldn’t be more lucrative than before.
What is a Dropshipping Business?
A dropshipping business allows people to run a store without holding any inventory. Once a person makes a purchase, the supplier ships the products from the warehouse to the customer’s doorstep. It’s a hassle-free process where you don’t have to worry about packaging, storing as well as shipping the products you sell.
How Does the Dropshipping Business Model Work?
Three main components of a dropshipping business model are – the manufacturer, retailer, and the customer.
The manufacturer holds the responsibility of creating the products, storing & managing inventory, shipping products to customers, restocking them, and replacing any defective items. The manufacturer sells products to the retailer at wholesale cost while knowing the risk of unsold items.
The retailer i.e. you sell the manufacturer’s products through your website with your brand name on it. The retailer selects and markets those products. Also, you’ll be deciding the shipping costs as well as the prices that lead to a profit.
Moreover, in this type of business model, the customer buys the products directly from the retailer (you). In case of any issues, they contact the retailer of those products.
Reasons Why Starting a Dropshipping Business is a Good Idea
A dropshipping business model involves little risk & low costs. If we talk about startup costs, you are only required to pay for the products that you’re selling to customers.
You are not overburdened by bearing the costs of manufacturing products, storing & carrying inventory, maintaining unsold stock, as well as the cost of packaging and shipping of products. It’s a superb way to enter into entrepreneurship as you can do it on weekends and other free time. Though, it requires working on a daily basis for taking & processing orders.
Most of the processing just takes a single click of a button. The opportunities are endless whether it’s dropshipping or reverse dropshipping. All you have to do is take the initiative.
I have compiled five main reasons to start a dropshipping business:
- Limited Capital Required
The best thing about starting a dropshipping business or an eCommerce store is that you don’t have to save a lot of money to start it.
You can continue working on your 9-5 job, and eventually, become a full-time entrepreneur once your business is fully established.
The initial capital you require is the subscription fee for your domain name, an eCommerce website, along with a dropshipping platform that you wish to opt for. It may take some time to build a business, but if you sincerely devote your time & efforts, the results will be financially fruitful.
The cost of launching a dropshipping business is lesser than the initial cost that is required to build an inventory and sell it.
2. Low Business Overhead
Before you start dropshipping, you will have to purchase the products from suppliers or wholesalers, place an order, store them in a warehouse or your home with an aim of selling them. Besides, you will have to manage your inventory, the shipping for each customer, while tracking every step of the process.
Whereas when you opt for a dropshipping business, all you have to do is manage the orders that are placed and the relationship with your supplier or manufacturer. The process gets simple. There storing & managing cost isn’t involved, plus you don’t have to worry about the delivery of products to your customers. It also saves a lot of time.
You just have to pay the fee for the eCommerce website, your domain, and for the advertising of your business.
3. It is more scalable
Having your business to be scalable means owning a business model that easily facilitates higher sales, customer demands, and inquiries.
Dropshipping business model is scalable. All you need to think about is managing your inventory and the relationship with your supplier while keeping your customers satisfied & well-informed.
With emerging technology trends, you can easily automate your customer services along with a dozen of various aspects of your business.
4. Allows you to find new markets with low risk
After the onset of the pandemic in December 2019, the trend for face-masks, sanitizers, and other self-care products increased rapidly.
By March 2020, it became a huge necessity, with face masks becoming an essential everyday part of everyone’s daily routine.
With a dropshipping business, you can adjust your eCommerce store to suit your customer’s requirements and create a versatile product catalog that’s good-quality, relevant, and unique too. You can adapt easily and won’t have to change your business to the modifications that occur.
5. Sell faster with it
The dropshipping business allows you to add products to your product catalog in a matter of a few hours, and run ads & other campaigns as well. This way you sell faster, which means you can win more customers and leads for prospective customers besides having existing customers.
With dropshipping, you can sell items as they start gaining popularity which eventually leads to growth in business.
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How To Start a Dropshipping Business: The Step-by-Step Plan
Step 1 – Picking a Dropshipping Business Idea
Invest some time to find the best dropshipping business ideas. Usually, everyone will advise you to choose a niche you’re passionate about. But, it should be a combination of passion and profit. In reality, the best dropshipping business ideas must be profitable. It’s easier to be passionate when you’re earning money.
I would suggest you pick trending products as people are attracted to such kinds of items. I realized it’s useless to find a niche with no competition. Some of the most profitable niches according to me are jewelry, technology, fashion, beauty, lifestyle, etc.
So, if you’re wondering how to become a dropshipper, keep the following points in mind:
- Google Trend is an ideal way to know whether a niche has an upward or downward trend. However, it’s difficult to determine whether a niche is profitable & viable just by knowing the trend. Some niches may have an upward trend but less search volume to prove its popularity.
- Check out popular websites related to your niche. For example, if you’re browsing an apparel website, you’ll notice they have divided their clothing items into trend categories. This way you get an idea of what trends you need to add to your store. You can also look for the website’s best-selling items to help you choose your bestseller products to sell.
- Determine the search volume of a keyword. And, how competitive is it? This will help you find the most lucrative dropshipping business idea.
- Look for the order volume of various products to know the actual popularity of those products. Some products are new in the market and may not have a high order volume. This doesn’t mean they aren’t a good dropshipping business idea.
The most lucrative dropshipping business ideas contain trends within them. For instance, artificial eyelashes are quite a trend in the beauty industry. You can have trends as few products, but not as a complete store, especially if you’re setting up this business for the long term.
Step 2 – Performing Competitor Analysis
Once you’ve picked your niche, you need to know your competitors, what they sell, and how they carry on their business. This is how I performed by competitor analysis:
- Enter the product’s name which you wish to sell on Google and see which are the ones that show on the top. The top 10 search results will let you know about your main competition in a specific area or location.
If you are considering selling products in a location different from yours, you can use third-party tools like SEMRush to collect data.
- Search on social media platforms. I checked out different Facebook ads and social media profiles while looking for top brands. Find out the number of followers they have. Their style of marketing. The amount of engagement their brand gets. What could I do to stand out?
- Use Alexa to look for niche competitors that might not rank high on usual search results. The websites you find will give you an idea of the websites you are looking for, along with their social media accounts, their ads, the information about their audience & traffic as well as the competitors for that business.
- Check your competitors’ content and what turns out good for them by using tools such as BuzzSumo. This tool offers an insight into what type of content gains the highest number of social shares so that it helps you find inspiration for blog ideas.
You can also sign up for your competitor’s newsletter to keep track of the content they post.
Step 3 – Find a Manufacturer/Supplier
- Once I was done with the competitor analysis, I searched for the products and chose suppliers from the results that appeared. I checked the reviews, ratings and the time duration for which the supplier was on the platform. This helped me make a decision about which supplier to pick.
- When I compiled a list of 5-6 potential suppliers, I tried contacting them to inquire about things like minimum order quantities, price, shipping time, etc.
- Then, I made a final list of suppliers to 2-3 suppliers at maximum. The most effective way to pick a supplier is by ordering a product from them and then comparing the final outcome. Compare parameters like shipping time, packaging, quality of the product, while keeping in mind the needs & requirements of your customers.
Step 4 – Building your first dropshipping business store
There are few main components necessary for building a Shopify business model. These are:
- Domain name – Create your domain name as it matters for building a long-term business. Always create a .com domain name. You can include your niche as a keyword in the new domain name, however, make sure it’s a broader term like fashion, beauty, jewellery, etc so that you don’t have to change it in the future.
Avoid adding your own name to your domain. If you wish to sell your dropshipping business in the future, you can legally have the rights of your name.
- Sign up on Shopify – Shopify is the best ecommerce platform in the market. Shopify constantly adds new tools, features, resources and apps while making it easier to run a business.
- Shopify Themes – You can opt for a free Shopify theme. Try to get a theme which is easy to navigate with minimal complexities. You can change your themes over time. In the beginning, it’s better to go for a free theme. Once you start earning money, you can purchase a new & better theme to achieve a better design.
- Install Dropshipping platforms – A dropshipping platform allows you to look for products that you can sell. You can find products belonging to different niches. To start with, you can search for around 20 products or less than that.
Step 5 – Marketing your dropshipping business with whatever you have
This is one of the most important steps of running a dropshipping business. Market your business as much as possible. So, avoid tweaking your store design continuously as this doesn’t lead to any improvements. Don’t be scared to put yourself out there.
Your budget may be tighter when you’re just starting out. Some of the best marketing ideas that I can tell you are:
- Influencer marketing – If you can’t afford to pay influencers in the beginning of your dropshipping business, you can pay them an affiliate commission. I realised that sometimes even a niche influencer is not able to convert. Therefore, if you offer an affiliate fee for a sale, it lowers the risk of your dropshipping business and it’s the influencer’s responsibility to make a sale.
If your influencer has a considerable amount of followers, they are able to make more money as an affiliate marketer, as compared to the flat rate. Plus, the pictures act as social proof for your brand.
- Facebook Advertising – It’s obvious you won’t make lots of money through your first ad. But as you continue, you will definitely make money through Facebook ads, if done in the right way. Try to keep a low budget in the beginning to avoid any losses during experimentation. You wouldn’t even know what’s your best-selling product while you start with your dropshipping business.
Create multiple ads to know your bestseller product. As your budget increases, you can create separate ads for separate countries like the U.S., Canada, Australia, and the U.K.
- Retargeting Ads – For people who have a tight budget, retargeting ads keeps the costs minimal. This type of marketing works best when your dropshipping store attracts a lot of traffic. Retargeting ads help you convert the free traffic into paying customers. This is a much cheaper method than a Facebook ad. I used it in the initial
- Opt for free media coverage – Subscribe to an email list where journalists can contact you to create stories for their article. Some may be looking for product recommendations, while others for influencers belonging to a particular niche.
Step 6 – Optimize your dropshipping store
Once you’ve created a website, built & marketed your brand, you can begin assessing the results of your efforts. You will understand that certain marketing strategies are quite successful, while others may not work so well. Also, take a look at the pricing which you offer, and the price offered by your competitors.
Go for tools such as Google Analytics and Google Search Console to monitor your traffic and check whether it’s increasing or not. You can use third-party tools for social media reporting and email marketing, and set for monthly or weekly reports so that you’re reminded of analyzing the details on a regular basis.
Therefore, testing and optimizing your eCommerce store is best for generating more online revenue.
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How To Invest Time in your Dropshipping Business
Bootstrapping and sweat equity is what I recommend, especially if you’re a beginner at dropshipping business. I suggest this instead of investing heaps of money for the following reasons:
- You personally know your customers as well as the market, which lets you take better decisions
- You’ll learn the inside and out of running a business, which is essential when it comes to managing others as your own business evolves and grows
- You’ll learn a lot of new skills which eventually turn you into a better entrepreneur
- You won’t spend so much on vanity projects as they aren’t so important for success
I have seen that usually, people aren’t ready to quit their jobs to spend 6 months setting up their online store. It may be a bit more daunting, but it’s not impossible to start a dropshipping business even if you have a 9-to-5 job. However, you will be required to set proper expectations as far as customer service is concerned.
Once your business is up and running, you can start working full-time on your dropshipping business, as allowed by the cash flow and profits.
Every business and entrepreneur is unique. However, you can make $1000-$2000 monthly income within a year of working around 15 hours on your business. Thus, working full-time on your business can be really profitable for you.
Also, striving hard for marketing your business can prove really useful in the initial days to gain momentum. It might usually take at least 12 months while emphasizing strongly on the marketing of your dropshipping business.
It might seem a lot of hard work in exchange for a small payoff, but remember these two things:
- Once your dropshipping business starts flourishing, it will take less time, usually 40 hours a week, to maintain it. The amount of time and money you invest will pay off in terms of scalability and efficiency given by the dropshipping business model.
- When you build your business, you not just create a source of income but also build an asset which can be sold in the future. Always consider the equity value and the cash flow you generate while seeing your actual return on investment.
How To Invest Money in Your Dropshipping Business?
You can grow a dropshipping business by investing some amount of money in it, but I won’t suggest it. I have tried both bootstrapping as well as outsourcing the entire process and was more successful when I did all the work on my own.
In the initial stages, it’s important to find someone who’s interested in investing the time, effort & money in building a business from scratch. You need to understand the working of your business at every stage or else you’ll be dependent on your developers, programmers, and marketers who will take the majority of your profits generated.
I’m not saying you’ve to do everything on your own, but I strongly believe that being the main driving force behind your business will help you greatly.
And talking about the money, you’ll need some cash, let’s say around $1000 to launch your business and get it started. This amount can be spent on minor business expenses such as suppliers, web hosting, etc.
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Choosing the Business Structure
If you’re seriously considering starting a dropshipping business, you’ll have to launch a legitimate business entity. I cannot offer you much legal advice but I can introduce you to the three common business structures.
- Sole Proprietorship
This is one of the simplest business structures that you can go for, however, it doesn’t offer any personal liability protection. So, if your business gets sued, it also puts your personal assets in danger.
It doesn’t involve any filing requirements, and you can report your business’ profits to your personal taxes.
2. Limited Liability Company (LLC)
An LLC establishes your business as a separate entity which means personal assets are more protected than in a sole proprietorship. However, you will have to fulfill some filing requirements as well as you’ll be required to pay for incorporation and ongoing fees.
3. C Corporation
Most of the big companies fall into this category and offer the highest liability protection. This type of business structure is usually more expensive and is subjected to double taxation because the profits are not received directly by the shareholders.
So, if you’re wondering which business structure to opt for, I would say you can consult a lawyer regarding this. Usually, small entrepreneurs go for a sole proprietorship or an LLC.
I opted for an LLC for my dropshipping business as it offered liability protection besides other things.
Note: The business structure discussed above is applicable to business-owners of the United States, and is not required in other countries.
It’s Important to Have your Finances in Order
Entrepreneurs commit a common mistake of mixing their personal and business finances while starting a business. This leads to confusion and makes accounting tougher. It often results in the assumption of business liabilities.
This is why you must keep your business and personal finances separate. So, always open up a new account whenever you launch a new business in its name. You can open the following:
- Business Checking Account
Keep all your business finances in a single Business Checking Account. Deposit any business revenue and withdraw business-related expenses from it. This will give much clarity to your accounts.
- Credit Card
Opt for a business credit card for purchasing inventory and other dropshipping business expenses. A credit card is useful for buying products from suppliers, while you can also earn some extra rewards if you choose the right card.
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Check If You Require Any Business Licences
Entrepreneurs in most towns and cities need to have a business license that must be renewed regularly. However, this may differ in the case of a dropshipping business as these are mostly run from home. You can check the local laws and rules to see if anything is a must.
Where to Find a Dropshipping Business?
There are people who wouldn’t want to build a dropshipping business from scratch. There are drop shipping businesses for sale for such entrepreneurs. Exchange is a platform/marketplace of Shopify websites for people who wish to invest in a fully-operating business and even for those who want to skip the building part and get started with marketing.
The exchange has a huge collection of eCommerce stores such as dropshipping eCommerce stores, belonging to different price ranges and niches while allowing you to pick according to your budget and interests.
Therefore, if you are searching for a dropshipping business for sale, Exchange is the best option out there.
What factors must you consider when buying a dropshipping business store?
- Cost – Consider the budget you have for your business. Do you have enough for paying for your already existing store? Or do you also have funds to grow it? How much are you willing to pay for setting up your business? Can you negotiate?
- Age of the store/website – You can pick a dropshipping business depending on how old it is. An older business is likely to have more rankings.
- The design – Go for a store that’s designed by a professional, with an easy-to-navigate and a cleaner look.
- The amount of money it has made – At times, you may notice that a dropshipping business has made a huge sum of money. However, you must ask yourself – How much money a particular store was earning at its peak and how much it’s earning now? This will help you determine whether the dropshipping business is currently growing or not.
- Popularity of niche – If a store is in the business of selling trending products belonging to a popular niche, it could be beneficial to you. Broader niches like beauty or fashion are more likely to perform better than stores revolving around a particular kind of product like lipsticks.
- Penalizations – Make sure you check that the dropshipping business you’re planning to buy hasn’t been penalized. There’s a tool – Is My Website Penalized to know whether a website is penalized by Google or not. If it’s already been penalized, you might find it difficult to rank in search engines.
Frequently Asked Questions
1. How much money can you make as a dropshipper?
There are a lot of dropshippers who can earn up to $100,000 annually with a successfully operating dropshipping business. So, if you aim for something like this, you will have to pick the right supplier in order to build your brand.
2. How tough is it to start a dropshipping business?
Starting a dropshipping business can be a little overwhelming & competitive as there are a lot of entrepreneurs who sell similar products at similar costs. So, even if starting a business doesn’t involve any money or very little cost, it can still be hard due to the competition.
3. How do I start a dropshipping business?
To start a dropshipping business, you require a state of mind that is ready to learn entrepreneurship and consistency.
You will face fear and many challenges but all this will be accompanied by growth. Like all successful business owners, you must learn how to fail and use that failure as a ladder to successful entrepreneurship.
To start a dropshipping business, find an eCommerce platform, a trustworthy supplier along a trending product to sell. Then, register your business, if you must along with other formalities:
Following are the steps that need to be followed to create a successful dropshipping site:
- Pick a niche
- Research about competitive products
- Find a reliable supplier
- Build your dropshipping store
- Market/Promote your dropshipping business
- Analyze & improve your business
4. How Profitable is Dropshipping?
Dropshipping can be a really profitable business model as you don’t have to bear the shipping and manufacturing costs. It involves very little risk as you don’t have to incur bigger costs like in any other business model. Once you work with the right suppliers, you’re sure to reap high profits in the long run.
Ecommerce has witnessed tremendous growth over the past few years with sales reaching up to around 4.9 trillion dollars. Online shopping has become a new norm and has created a golden opportunity for people who are interested in entrepreneurship. This is why the dropshipping business is worth your time and efforts. If you wish to reap the benefits, you have to invest time in your business.
A lot of time people give up on dropshipping due to inconsistency and lack of perseverance. Building a dropshipping store needs time as you have to decide your niche, launch a store, get products, fix your pricing system, start selling while also marketing your business. Nothing happens overnight.
I have covered every important aspect of dropshipping business in this article. So, dedicating some of your time & efforts, you can definitely build your own drop shipping business. Using the right resources, you can make a lot of money once the business is established & rooted. Ecommerce is here to stay, so it’s time to set up a business that serves your niche as well as the community.