Starting a dropshipping business is one of the easiest ways to make money online in 2020.
But with the barrier to entry being so low, dropshipping has exploded in popularity over the past decade, meaning that many markets are highly competitive.
If you’re thinking of starting a dropshipping business - either as a side hustle or a means to leaving your full-time job - you can save yourself time and set yourself up for success by following the simple steps outlined below.
But first, what is a dropshipping business?
A dropshipping business is where you are able to sell merchandise to your customer without holding any inventory. A customer purchases an item from your store at retail price. You then forward the order to your supplier, which you pay the wholesale price. Once your supplier receives the order, they ship the item directly to the customer under your business name while you earn the profit margin. All you have to do is set up the retail website, find customers, and handle customer support.
There are thousands of people around the world who make five-, six-, and seven-figure incomes from drop shipping and there’s no reason why you can’t do the same.
In this complete guide to drop shipping, we show you how to start a drop shipping business in 5 easy steps:
Understanding how the dropshipping business model works is important, as it’s quite different to traditional retail and eCommerce businesses.
Dropshipping is a supply chain management method in which the retailer does not keep goods in stock but instead transfers the customer orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer.
In more simple terms, dropshipping works like this:
This means that you - the dropshipper - don’t have to buy and store bulk stock, which saves you having to invest a lot of money upfront.
It also eliminates the risk of buying in bulk and not being able to sell all of the products, leaving you out of pocket.
This is why dropshipping is so popular - it requires minimal investment, but reaps similar benefits to traditional retail models.
The hype around dropshipping means some people are sceptical of it as a viable business model and cautious about diving in.
There is limited information about dropshipping specifically, but these statistics should help to provide you with peace of mind (and, hopefully, a sense of excitement).
Google Trends data also shows a massive increase of interest in dropshipping over the past few years.
Other than a positive attitude, a good work ethic, and genuine motivation to commit to your new business venture, there are only a few essentials required to start a dropshipping business.
A niche is a segment of a market. For example, bluetooth speakers are a popular niche in the home audio market. You could even say that outdoor, waterproof bluetooth speakers are a sub-niche of the bluetooth speaker niche. You get the idea. The more specific your niche is, the better.
Choosing a niche is the first step to starting a dropshipping business. The rising popularity of dropshipping means it’s becoming harder to find niches that aren’t already saturated. But new products and niches are emerging every week, so the opportunities are almost endless.
A common misconception about dropshipping is that you can be successful and profitable in any niche, but that’s simply not true. If you choose a niche that’s already saturated with sellers or dominated by major brands, you’re going to face an uphill battle with your new business.
Here are a few guidelines to help you choose a dropshipping niche that will make you money online in 2020:
While it’s possible to dropship everything from toothpicks to the kitchen sink, some products are more suitable for dropshipping than others.
The perfect dropshipping product is generally:
Now that you know the criteria for a good dropshipping niche, you can start narrowing down product ideas for your eCommerce business.
You should aim to brainstorm at least 10-20 product ideas and then use the guidelines above to either qualify or eliminate them from your list.
Once you’re done with that process, you might only have a few product ideas that are considered viable. If you have none, then you’ll need to start the process again.
If you have at least one solid product idea at this stage, you’re ready to progress to the next level.
SaleHoo Labs is a powerful market research tool for dropshippers and eCommerce store owners. It provides you with valuable information on tens of thousands of products across 25 categories, such as:
It can help to give you product ideas and save you hours of time that it takes to conduct market research manually.
If you want to set yourself apart from the thousands of others who are thinking of starting a dropshipping business in 2020, you need to have a few tricks up your sleeve.
You need to find a way to be better and smarter than your competition so that you operate more efficiently and make more sales than they do.
How do you do this? The same way that champion sports teams, like the Philadelphia Eagles or the Golden State Warriors, prepare each week - by studying the competition.
When you’re starting a dropshipping business you should absorb as much information as possible from as many sources as possible. Product listings and reviews of top sellers in your niche are perfect places to look for ideas to improve on what your competition is doing.
The first step to starting a dropshipping business is about choosing a niche. To re-cap:
For more information on deciding what to sell online, check out this guide
For many aspiring eCommerce entrepreneurs, finding a reliable supplier is the hardest part of starting a dropshipping business.
You rely on suppliers to keep your product in stock, to uphold product quality, and to ensure orders are shipped to your customers in a timely manner. As a dropshipper, your supplier is your most important business partner.
A good dropship supplier should:
There are essentially two ways to find good dropship suppliers. You can either search online manually or use a wholesale directory like SaleHoo.
If you’re setting up your business in the United States or Canada then you most likely need a sales tax ID (also known as retail or reseller’s license, tax ID, resale number, resale certificate or vendor's license).
Sales tax is a tax levied on all sales of physical goods to consumers and is typically about 6-9% of the sale price. Most states require you to have a tax ID, but there are exceptions, including Alaska Delaware, Montana, New Hampshire, and Oregon.
It’s standard for businesses to pass this expense on to consumers by adding it to the retail price.
Applying for a tax ID is easy and inexpensive. You can do it by visiting your local county clerk’s office or online – just Google “[your state] + sales tax ID”.
To get a sales tax ID, you may need to be a business entity, a company, or a sole proprietor (which applies to a lot of at-home online businesses), and have a Federal Tax ID number.
While it's important you collect the exact amount of sales tax (otherwise you’ll be held liable for the difference), not all eBay sellers need a tax ID.
That said, some wholesale suppliers require you to have one before they will do business with you.
Related: What is an EIN number?
So you’ve decided on a product and you’ve lined up a supplier - now you need a place to start selling and making money.
Choosing the right selling platform or online marketplace is crucial to the success of your business - but which platform is best for you?
You need to decide between selling on an established platform, or starting your own independent online store.
Let’s take a look at the pros and cons of the different selling platforms and online marketplaces.
Most dropshippers use a well-established online marketplace like Amazon or eBay, especially when starting out. Why?
However, there are some cons to be are of:
That said, here are a few of the most popular online marketplaces for dropshipping businesses.
A lot of dropshippers take the route of starting their own online store. While it requires more investment up front, this is really the ultimate long-term option for making money and building a business online. There are plenty of online tools, like Shopify and SaleHoo Stores, that make it really easy to get started.
If you have the time and money to invest in your dropshipping business and you’re planning to be in it for the long haul, then starting your own store is a good option, especially with established platforms becoming more and more saturated every year.
Now that you have a selling platform for your dropshipping business, you need to attract customers to your store. This is where a customer acquisition strategy comes in.
Customer acquisition is the art of persuasion. You can think of it as advertising and marketing. Sounds expensive, right? But it doesn’t have to be. You can take the fast (paid) path or the slow (free) path to gaining new customers. Let’s take a look at both strategies in more depth.
Facebook Ads for Dropshipping
Facebook is the world’s largest social media platform. It’s a great place to advertise your products as you can tap into a huge audience. This is how Facebook makes its money, so every customer you acquire through this method comes at a cost. Facebook ads are a good option for the following reasons:
For a comprehensive guide to Facebook ads for beginners, check out this post.
Google Ads for eCommerce
Google is the world’s most popular search engine by far. If you have an online store, you want it to rank on the first page of Google. You can achieve this organically, or you can buy ads for your store to appear at the top of the page for the keywords you want to rank for. Google ads are a good option for the following reasons:
Social Media Influencer Marketing
Influencer marketing has become a huge part of customer acquisition for retail brands in recent years. It could play an important part of any customer acquisition strategy in 2020. It can be particularly effective if you are in a trendy niche. For instance, if you’re selling a new style of handbag, you could reach out to an Instagram model and ask if she will share a post of her with the bag, tagging your business. One post can result in a bunch of new fans and customers. The cost of influencer marketing depends on how famous the influencer is. A post from Kim Kardashian might cost $250,000, while a post from a model with 10,000 followers might only cost a few hundred dollars.
Blog or Forum Marketing
This involves finding blogs or forums that are related to your product/niche and actively participating in discussions. By positioning yourself as an authority in your niche and including a link to your website, you can increase traffic and acquire new customers.
This most commonly takes the form of a blog on your store website, a Youtube channel, trendy Instagram posts, or witty posts on Twitter. Content marketing is meant to involve the creation of valuable content that helps to build an audience that you can then convert into customers. It’s not as explicit as advertising and should always be more about serving your audience than your brand.
If you're looking for a guide, here's a great resource from Adam Enfroy on how to start a successful blog this year.
Social Media Marketing
It’s getting harder and harder to achieve organic reach on social media, but it is still possible. If you can consistently create and share great content on your social media channels you’ll eventually build a following, which you can then convert into customers.
Building an email list is still one of the most effective ways of acquiring customers. You need a way of capturing email addresses, such as a request to sign-up at checkout, or an offer or competition that requires an email address. Once you have a decent list of email addresses you have a way of reaching a large group of people regularly, for free.
As you can see there are several strategies to attract customers to your store. What is your preferred method of growing a new dropship business?
Huzzah! We’ve reached the end and, by now, you should be well on your way to starting an eCommerce dropshipping business from scratch.
The work is far from over, though. Now you have to successfully run your business.
But don’t worry! As long as you follow these next few tips, you’ll have a successful eCommerce drop shipping business for years to come.
We hope you’ve enjoyed this article on how to start a dropshipping business. Did this inspire you to create one? Leave a comment down below. And don’t forget to share this article with your entrepreneurial friends.