Every day more entrepreneurs are reading dropshipping books and taking dropshipping courses to learn how to dropship.
But, that knowledge is meaningless if they don't know how to set up a new business. From creating a drop shipping business plan to getting an eCommerce business license to building a website, there's a lot involved in starting a business.
Read on to learn what a dropshipping business is, why it's a good business model, and the steps you should take for starting a dropshipping business.
What Is a Dropshipping Business?
A dropshipping business is a type of eCommerce business where the suppliers handle product storage, packing, and shipping. The seller operates a website or storefront on an online marketplace that lists products for sale that they don't actually own. When they make a sale, they pass the order along to their supplier, along with their own payment for the item. The supplier then picks, packs, and sends the item directly to the customer.
Advantages of Dropshipping
Dropshipping has many advantages particularly regarding costs associated with warehousing and inventory carrying costs.Â
Here are just a few:
- Low startup costs. For small businesses and entrepreneurs, this is a major draw. Instead of purchasing inventory upfront for a large sum, you can sell as you go.
- Low inventory costs. Storing product costs money, particularly when the products don't have a quick turnaround time. Work in process inventory and raw materials inventory can eat through your budget. Dropshipping puts those costs on the supplier.
- Low fulfillment costs. You don't have to pay a warehouse crew to pick and pack your orders with dropshipping. The supplier will eat those costs as well, so you can hit your target inventory management KPI more easily.
- Can focus on sales. Since you aren't burdened with sitting inventory, you can quickly shift what you offer. Focusing on bestsellers is easier than ever and you can focus on maximizing sales and dropshipping profit margin.
How to Begin a Drop Shipping Business
Since the dropshipping business model is so streamlined, many entrepreneurs are choosing it for their new ventures. This can often be a confusing and complicated task, particularly if you only have dropshipping business ideas. However, it's made much easier when approaching it in a logical manner.
Here are the steps you should take when starting a dropshipping business:
1. Get Your Paperwork in Order
Before you spend time seeking out the best dropshipping products and suppliers, you'll want to make sure you fill out all the requisite forms. You don't want the federal or state government coming after your business and levying fines because you moved too quickly. First, you'll need to apply for an eCommerce business license and any requisite permits based on the products you sell. Make sure you understand the requirements in your area as you need far more documents to sell wine online than you do if selling coffee online.
At this step, you should also create a robust business plan and look into picking up eCommerce business insurance. Even though your suppliers will handle most of the work, you can still be held liable if something happens. You can also handle some other administrative tasks at this point like setting up an account with one of the best banks for eCommerce business. The more you do at this step, the easier it will be to grow after launch and the less likely you'll make dropshipping beginner mistakes.
2. Pick a Niche
Before investing in a new website and dropshipping website builder, you need to pick out the industry and market that you're going to serve. It's important that you make this as specific as possible. You'll have a very hard time marketing and selling your products if your website seems vague. Start by asking simple questions like, "what is dropshipping" and learning more about the dropshipping model. This will give you some insight into what product offerings make the most sense for the dropshipping model. You may even want to look abroad and invest in the reverse dropshipping model.
The dropshipping niches you pick will affect many aspects of your website including your markup and margin (see markup vs margin), eCommerce shipping costs, and the impact of your website's eCommerce SEO. If you choose a highly competitive niche, you'll run into issues getting your website noticed.
3. Research Competitors
Once you've decided you're starting an eCommerce business, you're entering an arena with thousands of competitors. Luckily, you also have easy access to their storefronts, eCommerce email marketing, eCommerce PPC ads, and more. Delve into the companies you think are most interesting in your chosen niche and make note of what you like and dislike about your competitors’ web presence.
It's important to remember that your competition doesn't just include other small dropshipping websites, but major brands as well. Look at the big box brands serving your target market and try to find areas that you think you can do better. There are likely smaller subsegments of customers who are underserved on their site, so that's a great place to focus your initial efforts.
4. Find a Supplier
One of the most important steps in starting a dropshipping business is finding the right suppliers. This not only impacts your ability to meet customer demand, but also your website. Your suppliers need to have fast and efficient order fulfillment abilities (see order fulfillment meaning). They should also have a comprehensive shipping policy that you can use on your website. This will let you promote products and delivery times that are accurate and ensure customer satisfaction. You can use a wholesale directory to find dropshipping vendors in your chosen industry. This is especially helpful if you choose the drop surfing method.
You should also work with the supplier to make sure they include a packing slip and RMA in every shipment. This lets your customers make returns more easily when necessary. It will also inform how you list out your returns policy on your website. Just make sure to select a supplier who sells products of good quality. Choosing low-quality goods can easily upset customers and damage your reputation even if you have good customer service for dropshipping. Since many others have taken this route, it has caused some to ask "is dropshipping dead" and "is dropshipping legal?"
5. Choose a Platform
With your supplier and niche chosen, it's time to find the right platform for your website. Whether you choose a headless eCommerce platform or a marketplace, there's a tool for you. Evaluate your own technical abilities and the amount of time and money you have to invest in the venture. An online marketplace is often the best place to start from entrepreneurs who don't know how to code their own websites. Choosing the right tools and eCommerce software for your site is how to make money dropshipping.
For food suppliers, the best choice to sell online is BlueCart eCommerce. It has cutting-edge tools and resources for selling B2B wholesale food (see what is wholesale), DTC food, or both. Even better, all BlueCart customers also get listed in our wholesale marketplace where their products can reach 95,000+ buyers.
6. Build Your Site
Once you've selected your platform, it's time to start building your actual website. A good place to start is by creating an outline of the pages you'll need to get the site launched. Things like landing pages, category pages, product pages, and a shopping cart are necessary. When satisfied with the plan, start creating the pages in your platform and testing their functionality. Make sure you're building the pages with on-page SEO for eCommerce in mind. It's particularly important to use SEO for eCommerce product pages, so your products can drive traffic to your website. Be sure to familiarize yourself with different SEO terms.
7. Start Marketing
After your website goes live, it won't just start making money for you. You need to use eCommerce marketing to get your brand in front of prospective customers. You should try to use the social platforms that your target audience is most likely using to maximize the chance your dropshipping ads and marketing materials will be seen. You can also use eCommerce content marketing to draw readers to your blog posts and turn them into customers and affiliate marketing vs dropshipping to reach new markets. If using email marketing, you should look into eCommerce marketing automation and automated dropshipping, so you can set up an email program that automatically sends when someone signs up on your website or makes a purchase.
Get Down to Business
The dropshipping business model is a great choice for beginners and veterans alike. It lets you grow more quickly while keeping costs low. By following the tips above, you'll no longer need to ask "is dropshipping worth it?" Your revenue will show it is and you may even need to start filling a few dropshipping jobs. Consider also using a business process flow chart template to map out your operations.
To help make running your new dropshipping business even easier, check out the dropshipping for dummies guide we've put together. It has great information on things to avoid and ways to maximize revenue while minimizing costs. You could also look into cross docking if you have a little bit of storage space and want more quality control.