Starting a dropshipping business, like any other business, isn’t simple. However, it is a significant first step into the world of entrepreneurship. You may sell to consumers without having any inventory. You don’t have to pay for items upfront. And if you’re serious about your new company, you can create a long-term, sustainable, and profitable business.
Consider taking the following business and financial actions as part of this whole dropshipping guide if you’re considering launching your dropshipping store.
Some are required, while others are simply a good idea. However, dealing with them upfront will save you time and aggravation in the future.
How does the dropshipping business model work?
Before we get too far ahead, let’s quickly review how the dropshipping business model works.
Dropshipping is a business model in which eCommerce entrepreneurs sell products without carrying any inventory. When a store owner receives an order from a customer, they contact the supplier, who will then ship the products directly to the customer’s door. Dropshippers never have to worry about stocking or fulfilling product orders.
This arrangement is ideal for entrepreneurs looking to launch their eCommerce store with little up-front investment. And because the supplier handles all of the inventory and shipping, dropshipping frees up a lot of time that would otherwise be spent on these logistics tasks.
Now that we’ve covered the basics of dropshipping let’s look at how to start your own dropshipping business in 2022.
Is dropshipping profitable?
Dropshipping is a prevalent business model, but that doesn’t mean it’s automatically profitable. Most dropshipping businesses fail within the first few months.
There are several reasons why dropshipping businesses fail, but the most common is not having enough margin to cover the costs of acquiring customers.
Customer acquisition is getting people to visit your store and buy your products. And it was not cheap. It’s one of the most significant expenses for any eCommerce business.
To succeed with dropshipping, you need to have a healthy margin (the difference between your product cost and your selling price) to cover customer acquisition costs. If you don’t, your business will quickly become unprofitable.
How much can you make as a dropshipper?
This is a difficult question because there are so many variables. The amount of money you can make as a dropshipper depends on the price of your products, the cost of customer acquisition, and the margin between these two numbers.
To give you a rough idea, most successful drop shippers make around a 10-20% net profit margin. So, if you’re selling a product for $100, you can expect to make $10-$20 in profit per sale.
Of course, this is just a rough estimate. Your actual margins will vary depending on your business.
How hard is it to start a dropshipping business?
Starting a dropshipping business is not as difficult as you might think. It’s pretty simple.
The hardest part of starting a dropshipping business is finding a niche and building a store that appeals to your target market. But even this isn’t difficult if you’re willing to do the work.
Once you’ve built your store and sourced your products, the rest is easy. You need to drive traffic to your store and convert that traffic into sales.
Starting a dropshipping business is not difficult if you’re willing to put in the time and effort. And the rewards can be significant.
Where to find a dropshipping business for sale
If you don’t want to start a dropshipping business from scratch, you can always buy an existing one.
There are several places to find dropshipping businesses for sale. The most popular is probably eBay, but there are also several dropshipping marketplaces and forums where entrepreneurs sell their businesses.
When buying a dropshipping business, be sure to do your due diligence. Ensure the business is profitable and you understand the reason for its sale. Otherwise, you could buy a business that fails shortly after you take over.
How to Create a Successful Dropshipping Business Plan: 9 Steps to an Effective Dropshipping Business Plan
- Commit to starting a dropshipping business
- Choose a dropshipping business idea
- Do competitive research
- Choose a dropshipping supplier
- Build your eCommerce store
- Decide on a business structure
- Get your finances in order
- Market your dropshipping store
- Analyze and improve your offering
1. Commit to starting a dropshipping business
The first step to starting a dropshipping business is to commit to starting a dropshipping business. This may seem obvious, but it’s important to remember that starting a business is a big commitment. It’s not something you can decide to do on a whim.
Before you start a dropshipping business, you need to be sure you’re ready for the responsibility. Ask yourself if you’re prepared to put in the time and effort required to build a successful business. If the answer is no, you’re not ready to start a dropshipping business.
Investing time in your dropshipping business
Starting a dropshipping business is not a get-rich-quick scheme. It’s a real business, and it takes time and effort to build a successful one.
The first step is committing to investing the time required to make your business successful. This means creating a dedicated workspace, setting regular working hours, and ensuring you have the time and energy to focus on your business.
If you’re not prepared to commit, you’re not ready to start a dropshipping business.
Investing money in your dropshipping business
In addition to investing time, you also need to invest money in your business. This includes the cost of your eCommerce platform, hosting, domain name, and any other tools or services you need to run your business.
You should also have some money set aside to cover unexpected costs. This could include the cost of replenishing inventory if you have a sudden spike in sales or the cost of shipping products to customers if your supplier runs out of stock.
If you’re not prepared to invest money in your business, you’re not ready to start a dropshipping business.
2. Choose a dropshipping business idea.
The next step is to choose a dropshipping business idea. There are several factors to consider when choosing a dropshipping business idea, including your interests, skills, and the needs of your target market.
Shopify offers a list of popular items to help inspire your next dropshipping business concept. Shopify selects trends products based on the top-selling categories on the platform to help you get attention and traction without competing with bigger, more established businesses.
Niche items have a more devoted following, making selling to specific audiences more straightforward by increasing awareness of your goods. Dropshipping without money may be an excellent place to start with fitness, fashion, beauty products, technologies, phone add-ons, and yoga-related goods.
Here are a handful of examples of niche dropshipping businesses:
- Dog bow ties for dog lovers
- iPhone cases for iPhone owners
- Camping gear for campers
- Exercise equipment for fitness folks
You have a variety of options for testing out your dropshipping business ideas, including:
Google Trends. Google Trends can tell you if a product is trending upwards or downwards, as well as the seasons when it tends to trend. Note that Google Trends does not show search volume. So, if you’re using it, compare your statistics with a keyword tool like Keywords Everywhere to see how popular the product is in search.
Keywords Everywhere. Keywords Everywhere is a Google Chrome extension showing monthly search volume, CPC, and competition for any keyword you enter into Google. This can help you validate your dropshipping business ideas and find high-traffic keywords to target in your marketing efforts.
DSers order volume. DSers is a Shopify app that gives you access to data about the sales volume and average order value for products in AliExpress. This can help you find high-selling products to dropship on your Shopify store.
3. Do competitive research
Once you’ve chosen your dropshipping business idea, it’s time to do some competitive research. This involves investigating your potential competitors to see what they’re doing well and where they could improve.
There are several ways to do competitive research, including:
Google Search. One of the simplest ways to do competitive research is to search for your potential competitors on Google. This will give you a good overview of your competition and what they’re selling.
Social media. Another way to do competitive research is to check your potential competitors’ social media accounts. This will give you an idea of their marketing strategy and how they interact with their customers.
Google AdWords. If your potential competitors are running Google Ads, you can use the Google AdWords Keyword Planner to see which keywords they’re targeting. This can give you insights into their marketing strategy and what kinds of products they’re selling.
Reviews. Finally, you can check out reviews of your potential competitors’ products and services. This can give you an idea of their quality and customer service levels.
4. Choose a dropshipping supplier.
Now that you’ve chosen your dropshipping business idea and done some competitive research, it’s time to choose a dropshipping supplier. A dropshipping supplier is a company that manufactures and ships products on your behalf.
There are a few things to consider when choosing a dropshipping supplier, including:
Product quality. Make sure to check out the quality of your potential supplier’s products. You don’t want to end up with many low-quality products you can’t sell.
Shipping times. Another essential thing to consider is shipping times. You want to make sure your supplier can ship products quickly and efficiently.
Customer service. Finally, you want to make sure your supplier has good customer service. If there are any problems with your order, you can get in touch with them and get it sorted out quickly.
5. Build your eCommerce store
Now that you’ve chosen your dropshipping business idea and found a supplier, it’s time to build your eCommerce store.
There are a few things to consider when building your store, including:
Design. You want your store to look professional and trustworthy. This means choosing a clean, modern design and using high-quality product photos.
Functionality. Your store should be easy to use and navigate. This means having a well-organized product catalog and an efficient checkout process.
SEO. Finally, you want to ensure your store is optimized for search engines. This means using the right keywords and ensuring your products are easy to find.
6. Decide on a business structure.
Now that you’ve built your eCommerce store, it’s time to decide on a business structure. This is a crucial decision that affects taxes, liability, and paperwork.
There are a few common business structures for dropshipping businesses, including:
Sole proprietorship. A sole proprietorship is the simplest business structure. You’ll be the sole owner of your business, and you’ll be responsible for all the profits and losses.
Partnership. A partnership is a business structure where two or more people own and operate the business together. Each partner will be equally responsible for the business.
Limited liability company (LLC)
An LLC is a business structure that offers limited liability protection. This means that you won’t be personally responsible for the debts and liabilities of the business.
C Corporation. A corporation is a business structure that offers limited liability protection and separation of personal and business assets. This makes it one of the most complex business structures.
Which version should you pick? We’re not attorneys, so we’d suggest consulting with one before making any incorporation decisions. The majority of small firms choose either a sole proprietorship or an LLC. We prefer using an LLC for all our dropshipping operations because we believe it provides the best balance of liability protection, independence from personal finances, and cost savings.
Note: The following information relates to the business structure and EIN (employer identification number) shown below, which only applies to companies in the United States. Please see the notes at the end of this post for details on incorporating a US-based company from outside of the US.
Request an EIN for your business
You can skip this step if you’ve decided to operate your dropshipping business as a sole proprietorship or partnership. However, if you’ve decided to operate your business as an LLC or corporation, you’ll need to request an EIN from the IRS.
An EIN is a unique identification number used to identify your business for tax purposes. You can request an EIN online, by fax, or by mail.
To request an EIN online, you’ll need to fill out the Online EIN application on the IRS website. This process usually takes about 10 minutes, and you’ll receive your EIN immediately after submitting your application.
To request an EIN by fax, you’ll need to fill out Form SS-4 and fax it to the IRS at (855) 641-6935. You should receive your EIN within four business days.
To request an EIN by mail, you’ll need to fill out Form SS-4 and send it to the address listed. You should receive your EIN within four weeks.
You’re ready to incorporate your business now that you have your EIN number.
7. Get your finances in order.
Now that you’ve decided on a business structure and requested an EIN, it’s time to get your finances in order. This means opening a business bank account and getting a business credit card.
A business bank account will help you keep your personal and business finances separate. This is important because it will make it easier to track your expenses and income and make it easier to file your taxes.
Credit card
A business credit card will also help you keep your personal and business finances separate. In addition, a business credit card can help you build business credit, which can be helpful if you ever need to take out a loan or line of credit for your business.
To open a business bank account, you’ll need to visit your local bank or credit union and provide them with your business information, including your EIN.
To get a business credit card, you can apply for one online or in person at your local bank or credit union. You’ll need to provide your business information, including your EIN, and you may need to provide a personal guarantee.
Business checking account
A business checking account is a bank account used for your business’s day-to-day transactions. This account is separate from your bank account and should be used for all your business expenses.
To open a business checking account, you’ll need to visit your local bank or credit union and provide them with your business information, including your EIN.
Collect sales tax
If you’re selling products to customers in the US, you may need to collect sales tax. Sales tax is a tax that is levied on the sale of goods and services.
To find out if you need to collect sales tax, you can check with your state’s Department of Revenue. Each state has different rules for when sales tax must be collected.
If you need to collect sales tax, you can register for a sales tax permit online or in person at your local Department of Revenue office. You’ll need to provide your business information, including your EIN, and you may need to pay a registration fee.
After registering for a sales tax permit, you’ll need to collect sales tax from your customers and remit it to your state. Each state has different rules for how often sales tax must be remitted.
Local business licenses
Depending on your business type, you may need to obtain local business licenses and permits.
For example, if you’re running a restaurant, you’ll need to obtain a food service license. You may need to obtain a zoning permit if you’re running a home-based business.
Incorporating outside the United States
If you’re incorporating your business outside of the United States, you’ll need to follow the country’s rules and regulations.
For example, if you’re incorporating in Canada, you’ll need to register your company with the Canadian government.
8. Market your dropshipping store
Now that you’ve set up your store and started selling products, it’s time to start marketing your business. Several ways to market your dropshipping store include social media, search engine optimization (SEO), and pay-per-click (PPC) advertising.
To learn more about how to market your dropshipping store, check out our guide to marketing a dropshipping business.
1. Paid ads (Facebook and Google).
A Facebook ad will cost you approximately 97¢ each click, which isn’t terrible if you’re just getting started with advertising on the social networking site. Facebook advertisements are scalable; goods may perform well on them and appeal to consumers’ urges to impulse buy. You can utilize Google Shopping Ads to target long-tail keywords where customers are more likely to buy. There is usually more price competition with Google ads, but it’s worth a try.
2. Influencer marketing.
This method is fantastic if you have a great product and is also very cheap. You can contact micro-influencers (those with fewer than 10,000 followers) to review your product on their Instagram account for as little as $5 per post. This is an excellent way to get started with influencer marketing.
3. Content marketing.
Content marketing is a long-term strategy that involves creating valuable content (such as blog posts, eBooks, and tutorials) and then promoting that content to reach your target audience.
Content marketing can effectively attract organic traffic to your store, build brand awareness, and generate leads. However, seeing results from a content marketing campaign can take time.
4. Communities.
If you can find relevant online communities where your target audience hangs out, you can participate in those communities and promote your store to the members.
For example, if you’re selling pet supplies, you could join a pet-related Facebook group and post about your store occasionally. Just be sure not to spam the group with your promotions.
5. Mobile marketing.
With more and more people using their smartphones to shop online, making sure your store is optimized for mobile is essential. This means having a responsive design that looks good on all devices and creating mobile-friendly content such as SMS campaigns.
Mobile marketing can be a great way to reach your target audience and generate leads and sales.
As with any effective internet business, keep an eye on which channels are operating and which aren’t—particularly if you’re paying for them with sponsored advertisements. As your company expands and improves, you may constantly adjust your marketing strategy to decrease costs while increasing revenue.
8. Analyze and improve your offering
Even if your store is up and running and you’re making sales, it’s important to regularly analyze your business and products to see if any areas can be improved.
Here are a few things you should look at regularly:
- Sales data: Use your sales data to see which products are selling well and which aren’t. If you have products that aren’t selling, you can try running promotions or discounts on those items to see if that boosts sales.
- Customer feedback: Pay attention to the feedback your customers are giving you, both positive and negative. Use that feedback to improve your products, customer service, and overall store experience.
- Website analytics: Use your website’s analytics to see how customers find your site and what they do once they get there. This can help you identify areas where your site needs improvement.
Regular improvements to your store will help you increase sales and keep your customers happy.
Launch your dropshipping startup today
Whether a novice entrepreneur or an experienced business owner, selling online via dropshipping is a fantastic, low-risk, low-cost way to start. Thanks to the growth of third-party apps and marketing automation solutions, it’s no longer difficult to operate your business online. Hopefully, this dropshipping guide motivates you to establish a road map to success and financial independence, so you may enjoy the life you’ve always imagined for yourself, like many other eCommerce entrepreneurs.
