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Dropshipping is a form of ecommerce order fulfillment that allows merchants to sell products on their website that they are not themselves responsible for warehousing or shipping. Instead, merchants purchase products wholesale from manufacturers or dropshipping suppliers, which oversee fulfillment for them.
The process looks something like this:
Today 33% of ecommerce stores use dropshipping as a fulfillment method, and with the ecommerce industry growing at a 17% clip annually, dropshipping’s popularity is only expected to increase.
In this guide we are going to talk about how to start a dropshipping business. But before we do, we want to discuss the advantages and disadvantages to dropshipping as a business model. Knowing the pros and cons will help you create a business with the greatest chance for success.
Dropshipping has become a popular business model because it makes starting an ecommerce business simple. Shipping is taken care of from the get-go, and adding new products to your catalogue is as simple as a few clicks. Your risk is minimized because you don’t have to pay for inventory or warehousing, and if the products you sell ever lose popularity you can simply change them out.
In addition, the upfront costs are minimal. You only buy what you know you can sell, and many dropshippers won’t charge you a fee to work with them. Plus, dropshippers offer cheaper and more efficient shipping for their vendors than they would otherwise get. All you have to pay for is your ecommerce website and internet connection.
Finally, most dropshipping services will allow you to provide your own labels, so your customers don’t even need to know you’re a dropshipper.
At this point dropshipping probably sounds too good to be true. Unfortunately, a lot of other people thought the same thing, which makes the dropshipping industry highly competitive. Because of all this competition, the profit margins are low as merchants compete to offer the lowest prices on popular items.
This is a vicious cycle, as you need to do a lot of business to compensate for your low profit margins, and yet you have a lot of competition for every sale. You are also at the mercy of the manufacturers or suppliers you work with, as they have control over fulfillment and returns, yet you have to deal with the customer.
It can also be harder to build a brand as a dropshipper, given that you are selling a variety of other businesses’ products.
If you understand the risk and reward of dropshipping and are still interested in proceeding, the first step is to leap a few bureaucratic hurdles. These include:
Once you sort through the red tape of starting a business, you are ready to start the work of creating your dropshipping business.
In dropshipping, you and your competitors all have access to the same products and work with suppliers that offer similar levels of service. Therefore, the great differentiator between your business and your competition will be your marketing efforts. To market successfully, you need to identify a target demographic and sell a product that speaks to them in some way.
Here are some things to keep in mind as you refine your business concept:
Once you settle on a niche you want to target with a specific product, it is time to find a supplier that sells that product. This shouldn’t be hard as there are many different dropship suppliers that offer millions of different products.
Your dropship supplier is a key partner in your business. To help you find the right one, we recommend prioritizing the following criteria:
Now that you know what to look for in a supplier, let’s talk about the two types of suppliers you can work with: dropship marketplaces and manufacturers.
Photo credit: Oberlo
For those new to dropshipping, the easiest way to get started is with dropship marketplaces. These are businesses that exist to work with ecommerce dropshippers. Most sell millions of different products that they purchase wholesale from manufacturers and importers and sell to vendors at a markup.
The major players in the industry offer special plugins to make integrating with your ecommerce website a cinch. While we encourage you to do your own research on dropshipping marketplaces, some names to be aware of include:
While dropship marketplaces offer merchants an easy way to launch their business, working with manufacturers and importers is where you will really make your money. That’s because you can cut out the middle man (the dropship marketplaces) and buy wholesale directly from the source.
However, manufacturers typically have average order volume thresholds that dropship rookies might not be able to meet. They also don’t offer seamless integration with your ecommerce platform, which means a lot more work for you in terms of adding and managing inventory. Therefore, we recommend waiting until you have a foothold in the industry before working directly with manufacturers.
When that day comes, however, you can conduct your search using the following online directories:
For domestic manufacturers:
For international manufacturers:
We’ve identified a market and we’ve aligned with a supplier. Now it’s time to build the actual website where we will sell our products. There are two ways to go about this. You can either create a store on a major ecommerce marketplace like Amazon or eBay, or build your website from scratch using an ecommerce platform provider like Shopify or WooCommerce. Let’s explore each option:
The benefit of selling on well-established marketplaces like Amazon is that they are easy to set up and users find them to be trustworthy. However, using an ecommerce marketplace seriously limits your independence as a merchant, as you will have limited control over the branding, design, and marketing of your store. In addition, these platforms will charge you a fee on every sale you make, and you must adhere to their terms of service.
If you’re going to be a dropshipper, we recommend building your own ecommerce website. As we said earlier, your marketing is what will set you apart from your competitors, and ecommerce websites offer you a lot more functionality in that regard.
There are many good ecommerce platform providers out there. Choosing which platform to use for your business will partially depend on who your dropshipping supplier is, as some offer direct integrations. If you use Oberlo, for example, it makes a lot of sense to create a Shopify store.
In general, consider what kind of store you want when deciding on your platform. More product-focused stores will benefit from being on platforms like Shopify or BigCommerce, because they offer a lot of product functionality. If you want your store to be more content-focused (which could be a boon to your marketing and SEO efforts), consider using WooCommerce, which integrates with the content management system WordPress.
Regardless of which platform you choose, you are going to need to market aggressively. This is typically done through a combination of email marketing, paid ads, and social media. Each approach has its own merits. We recommend settling on a few that work best for you.
Although the cost of starting a dropshipping business is fairly minimal, it is not nonexistent. At a minimum you will be paying for your ecommerce website, inventory, and some shipping and marketing costs.
There are a few different avenues you can take to finance a dropshipping business. They are as follows:
Note that if you are seeking a loan, online lenders are going to be your best bet. Dropshipping is a highly competitive industry, and banks tend to be risk-averse. Online lenders also offer faster funding, and more flexibility.
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The information we have provided should be enough to get you off the starting line and into the race. Just remember that competition is fierce. The best way to break away from the pack is to create a highly focused concept, partner with a good supplier and ecommerce platform, and market like crazy. Good luck!