Monday, June 28, 2021

How to Start a Dropshipping Business

Like any business venture, running an ecommerce store isn’t easy.

But with dropshipping, you can sell products online without ever touching the inventory.

No manufacturing, no storage, no shipping labels—you don’t even need to pay for the goods upfront.

You can run a dropshipping business from your couch with minimal overhead and collect profits without worrying about complicated logistics.

This guide will teach you everything you need to know about starting a dropshipping business—even as a complete beginner.

The Easy Parts of Starting a Dropshipping Business

The easiest part about starting a dropshipping business is setting up your online store.

All of the best ecommerce platforms support dropshipping. So if you have no experience building a website, you can get up and running with an ecommerce platform in a matter of minutes. Shopify has everything you need to create an online store out of the box.

It’s just a matter of selecting a template and customizing the site with your own content.

Your ecommerce platform should integrate seamlessly with your dropshipping provider as well. So your product catalog, inventory, and even product images can be automatically updated on your website.

Another easy part of starting a dropshipping business is the cost. You don’t need a ton of money to get started here.

The upfront investment is limited to your business formation fees, ecommerce platform subscription, and dropshipping provider fees. In many cases, the total cost here is less than $500. Getting a bank loan or pouring your life savings into a new business isn’t required.

Dropshipping is low-risk and flexible. It’s something you can do as a side hustle, and you won’t need to secure any office space or warehouse leases. You can run a dropshipping business from your laptop.

The business formation process is easy, too. There are online business formation services out there that can handle all of the paperwork and legal filings on your behalf. It’s a fast and cost-effective way to legally form a business entity for your online store.

The Difficult Parts of Starting a Dropshipping Business

Just because the concept of dropshipping is simple, it doesn’t mean that it’s easy. Many entrepreneurs think they can start a dropshipping business, put it on autopilot, and just watch the money roll in without doing any work. But that’s rarely the case.

While there’s no shortage of potential products to sell online, finding the right products to sell on your site is a tall task.

You need to put in lots of research and effort to find products that are profitable but also in high demand. Assuming you’ve done this properly, then you need to build your brand and drive customers to your website.

You’ll be competing with hundreds, if not thousands, of other businesses online. Why should someone buy from you instead of Amazon, Walmart, or other more established businesses?

Building a reputable brand online and driving high-converting traffic to your website can take years.

To make your brand more appealing to potential customers, you’ll also need to establish a social media presence, get positive reviews, and focus on other areas of your site for leads, like a blog. All of this takes lots of time, and it’s not something you can do overnight.

Once you start selling products online, you’ll also have to deal with customers.

How are you going to manage pre-sale inquiries, post-sale support, and returns at scale? When you’re just getting started, you can probably handle a few questions per week on your own. But at scale, this is impossible for one person to manage.

You need to put a plan in place that will support the growth of your dropshipping business. So when you start selling more products, things will continue to run smoothly without customer service bottlenecks.

Step 1 – Decide What To Sell

Lots of people know they want to start an online store, but they have no idea what they’re going to sell. Even if you already have an idea, don’t skip ahead to the second step just yet—verify that your idea is worth pursuing and there is interest in it.

There are several things to consider as you’re going through this process. But profitability needs to remain at the forefront the entire time.

Many experts will tell you that you need to be passionate about what you’re selling to succeed. But that’s only true to a certain extent. While it’s nice to sell something you’re interested in, you need to make sure that your interest will actually make money.

For example, let’s say you love fitness—specifically weight lifting. Selling workout equipment online may not be very profitable. Weights and large pieces of equipment will have higher shipping costs and potentially eat into your profits.

On the flip side, let’s say you know nothing about the fitness space, but you discover products in this category have substantial profit margins. It could be tough for you to market your brand and succeed if you don’t know about the category.

Ideally, there should be a balance between selling something you’re interested in and selling something profitable.

Select Your Niche

Trying to sell your product to everyone and anyone is a recipe for disaster. The best dropshipping businesses are laser-focused on a specific niche.

Establishing a clearly defined target market before you do anything else will help ensure that you’re not dumping money into a product category that won’t work.

For example, let’s say you want to sell clothes. Everyone wears clothes.

But you need to narrow your niche to something more specific, like men’s yoga clothing. Then you can build your target market and brand around this category.

Try to build your niche around a target market with disposable income. If you’re a student starting a dropshipping business as a side hustle between classes, it could be tempting to target college students since this is a niche you’re familiar with.

But do college students have enough money to buy whatever you’re selling? Not necessarily.

Run a Competitive Analysis

Once you’ve narrowed down your product category and niche, you need to research the competition before proceeding.

Regardless of the category, you’ll always have competitors. But some spaces are undoubtedly more crowded than others. Avoid saturated markets that are dominated by big players in the industry.

Run some keyword trend analysis and compare the costs to advertise different terms or phrases in your niche. This is a great way to see how many other businesses are fighting for the same customers.

Look for the low-hanging fruit. Selling a product with a 5,000 monthly search volume and $0.75 average CPC (cost per click) on Google is better than a product with 500,000 monthly searches and an average CPC of $32.50.

The latter is far too saturated and will be tough for you to penetrate and make money.

Step 2 – Choose Your Business Structure

Once you’ve validated your business idea and decided what to sell, it’s time to legally form a business.

Formally creating a business puts separation between you and the company. Not only can it protect your personal information, but it also offers liability protection.

For example, let’s say a customer gets hurt using one of your products and sues the company. A business entity can shield your personal assets from the lawsuit.

The easiest way to set up your dropshipping business entity is with a business formation service. These online platforms make it easy for anyone to start a business with little investment required. It’s easier and less expensive than hiring a lawyer or trying to fill out and file the paperwork on your own.

LegalZoom is a top option in this category.

I like LegalZoom because the platform has a reputation that speaks for itself. The service has been used to form over two million businesses across a wide range of categories.

LegalZoom offers several popular entity types, registered agent services, and legal consulting services for businesses as well. So you can get everything you need in one place.

In addition to its simplicity and reliability, LegalZoom is extremely affordable. Business formation services start at just $79 plus state filing fees.

All you need to do is answer some simple questions online, and LegalZoom will take care of the rest. They’ll handle all of your state filings, federal filings and get your EIN (employer identification number) as well.

Here’s a brief overview of different entity types you can choose for your dropshipping business:

Sole Proprietorship

Sole proprietorships are the easiest to form because the filing requirements are minimal. State and federal filings aren’t required—your business income gets reported on your personal tax returns.

But sole proprietorships don’t offer any liability protection. So your personal assets might be in jeopardy if you’re using this structure to run your dropshipping business.

LLC (Limited Liability Company)

An LLC is one of the most popular business types for online stores.

An LLC establishes a separate entity for your business. While the liability protection isn’t necessarily bulletproof, it offers much more protection than sole proprietorships. LLCs combine the taxing structure of a sole proprietorship with the liability of a corporation.


Corporations fall into two categories—C corps and S corps.

The biggest difference between these two options is taxation. S corporations have pass-through taxation, meaning shareholders (owners) report income and losses on their personal tax returns. C corporations are taxed twice.

Generally speaking, LLCs will be the best option for most dropshipping businesses. Corporations work well if you’re getting outside investors and want to sell stock in the company, which isn’t typical for dropshipping sites.

Step 3 – Build Your Online Store

Now it’s time to create your website and ecommerce shop. The easiest way to do this is through an ecommerce platform. Just make sure the ecommerce platform you’re using supports dropshipping out of the box.

Shopify works well for most new dropshipping businesses.

The platform has everything you need to start selling online immediately. You can create a professionally designed online store in a matter of minutes by choosing a template that fits within your niche.

Shopify also offers solutions for helping you find the best products to sell online.

It’s also easy to get paid with Shopify. You can take advantage of the platform’s built-in payment processing or integrate a third-party payment processing solution to your site.

Another reason why I like Shopify so much is that you can sell online through multiple sales channels. In addition to your website, Shopify supports sales on Facebook, Instagram, eBay, Amazon, and Walmart Marketplace.

Plans start at just $29 per month, and you can try it free for 14 days.

Step 4 – Select a Dropshipping Supplier

Once your online store is up and running, it’s time to figure out where your products will be coming from. It’s important to use a supplier that seamlessly integrates with the ecommerce platform you’re using.

This will make it easier for you to manage online orders and limits the amount of work you need to do when a customer buys something on your site.

Ideally, the order will go straight to the supplier without any manual steps required on your end.

Compare Suppliers

When comparing suppliers, you need to find a balance between price, quality, and reputation. Some suppliers might be really cheap, but the products are of poor quality.

For some of you, this might not be important. But others will prioritize quality. It all depends on the type of brand you’re building.

Your supplier will ultimately be a direct reflection of your business. The customer doesn’t care where the product comes from or if you’ve never actually seen the inventory in person. They ordered something from your website—so if they’re unhappy, you’ll get blamed.

Integrate the Supplier With Your Ecommerce Platform

Connect your supplier to the ecommerce platform. For simplicity’s sake, let’s say you decided to go with Shopify.

There are hundreds of different integrations available on the Shopify App Store to simplify your dropshipping process.

The exact integration process will look a little different depending on the ecommerce platform you’re using and the supplier you choose.

Step 5 – Market Your Online Store

The first four steps are relatively straightforward. But once everything is in place, the hard part begins.

Now you need to drive customers to your website. This can be a time-consuming and potentially costly process depending on the methods you choose.

Here are some ideas to get you started:

  • Build a social media presence
  • Run paid ads on Facebook, Instagram, and Google
  • Create a content marketing strategy for long-term traffic
  • Add a blog to your site
  • Partner with influencers to promote your product
  • Start a YouTube channel to run product demonstrations
  • Join communities where people are passionate about your product or industry
  • Collect email addresses and run promotions for new customers

The key here is to try and keep your customer acquisition costs as low as possible initially. Then find ways to retain your customers after the initial purchase so that they buy more in the future.

Don’t get discouraged if you’re not selling products on day one. It takes time to have success in this space.

from Quick Sprout