With a dropshipping business, you can start without investing a lot of money, manage inventory yourself, and grow as your business grows. It is important to understand, however, that dropshipping is much more complicated than it appears at first glance.
Here, we’ll dive into dropshipping’s nitty-gritty details, providing you with a realistic understanding of what it takes to succeed.
Table of Contents
What is Dropshipping?
Dropshipping is a retail business model where the store owner doesn’t keep the products in stock. Instead, when a customer makes a purchase, the product is directly shipped from a third-party supplier to the customer. This means the store owner doesn’t need to handle inventory, packaging, or shipping logistics.
The process involves three main parties:
- The customer
- The store owner (retailer)
- The supplier
The customer places an order on the retailer’s online store and pays the retail price. The retailer then forwards the order and customer details to the supplier, who fulfills and ships the product directly to the customer. The retailer makes a profit by selling the product at a higher price than they pay the supplier.
Dropshipping offers several advantages, including:
- Low startup costs
- Reduced operational complexities
- A wide variety of products without the need for physical storage.
However, it also requires effective marketing and customer service to succeed in a competitive market.
8 Steps to Start Making Money with Dropshipping
- Choose a Dropshipping Niche
- Do Competitive Research
- Find a Reliable Dropshipping Supplier
- Create Your Ecommerce Store
- Decide on a Business Structure
- Organize Your Finances
- Promote Your Dropshipping Store
- Analyze and Optimize Your Offering
Step 1: Choose a dropshipping niche
To be successful at dropshipping, you’ll need a profitable business idea as the first step. While dropshipping might seem simple, it all depends on how well you select your niche and the products that you want to sell.
Instead of just selling general items, look for niche markets where there is a clear demand. A niche is like a small part of a bigger industry. As an example, you might target a niche market such as running headphones instead of selling all kinds of electronics.
Keep an eye on what’s popular right now. The trending products are those that are popular due to world events or seasonal changes.
The following are a few examples of niche dropshipping stores:
- A stylish bow tie for dogs that caters to dog lovers.
- iPhone cases designed for iPhone users.
- Camping gear tailored for outdoor enthusiasts.
- The best exercise equipment for fitness enthusiasts.
It is not possible to dropship every product. You should consider such things as their size, weight, fragility, and cost of shipping. Typically, dropshipping works best with products that are small, light, and tough. After you take into account the cost of buying the product, shipping it, and other expenses, make sure you’re making a good profit.
There are also some handy tools you can use to test your dropshipping ideas:
- Google Trends: This tool shows you if a product’s popularity is going up or down and when it tends to be in demand. Remember, it doesn’t provide exact search numbers. So, use it alongside a keyword tool like Keywords Everywhere to get a better sense of the product’s popularity in searches.
- Keywords Everywhere: This nifty tool reveals the monthly search volume for your product and how competitive it is. It helps you gauge how popular your dropshipping idea is and might even spark new product ideas for your business.
- DSers Order Volume: In DSers, you can look up products based on their order volume. This gives you an idea of how potentially successful your business idea could be.
Online shopping has brought exciting opportunities to dropshipping businesses, but it’s also created a competitive environment. When drafting your dropshipping business plan, make sure you research your competitors.
Step 2: Do competitive research
Now that you know what you’re going to sell, it’s time to look at your competitors and see how they’re doing.
Make a list of your main competitors in your niche. These could be established brands or other dropshipping businesses. Mixing both will give you a well-rounded perspective.
If your market is crowded with competitors, it’s a good idea to focus on about five other dropshipping companies. Walmart, eBay, and Amazon can all be included in this group.
Here’s how to research your competitors:
- Run Google Searches: Start with search engines like Google. Input relevant keywords, such as “Kitchen knives,” to identify your top competitors. The first ten results will give you an idea of who your main competitors are and how they’re promoting their products. If you want to narrow down your focus to a specific country, tools like Ahrefs or SEMRush can provide keyword data tailored to those regions.
- Use Competitor Spy Tools: Platforms like Similarweb and Alexa are invaluable for tracking your competitors’ online activities. They offer insights into competitor websites, including social media profiles, major sources of traffic, visitor numbers, and even their own competitors.
- Explore social media: Get to know social media platforms. Identify top brands in your market and search for Facebook ads within your niche. Take a look at how these businesses engage with their customers, the aesthetics of their feeds, and the interaction they receive from their audience. If you keep an eye on their content, you can gain inspiration to set your business apart and enhance your social media strategy.
- Study your main competitors in depth: Take the time to study your main competitors. In other words, you should evaluate the quality, uniqueness, and variety of their products. In addition, you should examine the kind of experience they provide to customers. The process involves checking their website’s user-friendliness, reading customer reviews, assessing their return policies, and checking their customer service.
Don’t forget to research your competitors’ prices as well. Even though dropshipping allows for flexibility in pricing, you should balance being competitive with making a profit.
USP (Unique Selling Proposition) is what makes your business unique. Think about how you can add extra value that your competitors cannot. Depending on your target audience, it could be special products, high-quality customer service, faster shipping, or anything else that will appeal to them.
Step 3: Find a Reliable Dropshipping Supplier
If you want your dropshipping venture to succeed, you need a reliable supplier.The suppliers you work with have a big impact on how good your products are, how fast they’re delivered, and how happy your customers are.
With e-commerce platforms like Shopify, you can easily connect with potential suppliers. Tools like DSers make finding the right dropshipping products easy. You can integrate a wide range of items, from electronics to fashion, into your online store using this user-friendly platform.
By using DSers, you can add products to your store in just a few clicks. Using the app, your dropshipping orders will be seamlessly transferred to your supplier, so you won’t need to worry about inventory, packaging, and shipping.
The DSers also allow you to access more information about products and suppliers. When you click on a supplier’s link, you will be directed to their AliExpress page. You can read customer reviews, find the best-selling products, and discover the supplier’s reputation.
Make sure you choose suppliers that offer ePacket shipping, and especially those that are based in China. In countries such as the US, the UK, and Canada, ePacket can deliver products within a couple of weeks at a lower cost. By reducing delivery times and costs, this boosts customer satisfaction.
Step 4: Create Your Ecommerce Store
Now you’re ready to create your online store for dropshipping. Your store is where everything important happens, from attracting customers to handling sales and payments. You can accomplish this with a very user-friendly platform called Shopify.
Shopify is the best platform for dropshipping businesses. It’s an awesome toolkit for making and launching an online store. Shopify makes the whole process super easy, from picking a domain to adding marketing tools. This one-stop shop allows you to sell in multiple countries, manage your products like a pro, and use different currencies.
Shopify is easy to use, which makes it an excellent choice for small businesses. To create a website that looks really professional, you don’t have to be a designer or a tech expert. With Shopify’s store builder and themes, you can make your store look and function the way you want it to, without knowing a thing about technical stuff.
Step 5: Decide on a Business Structure
To build a strong foundation for your dropshipping business, you have to determine how to legally structure it. Different options are available depending on your business goals and situation. Each structure has its own advantages and disadvantages.
- Sole Proprietorship: This is the simplest and most common business structure. The setup is easy, but it does not protect your personal assets from business liabilities. In most cases, you only need to report your business earnings when you file your personal taxes.
- Limited Liability Company (LLC): An LLC protects your personal assets by separating your business and personal assets. Although it doesn’t protect you completely from liabilities, it provides better coverage than a sole proprietorship. Setting up an LLC, however, involves more paperwork and ongoing costs.
- C corporations: These corporations usually provide the most protection. Despite this, they have complicated setup processes, and they are double taxed – both the corporation and the shareholders are taxed.
It is important to make the right choice when it comes to structure, since it affects liability and taxes. It’s a good idea to get legal advice before making any final decisions. Business owners often choose sole proprietorships or LLCs because they’re simple and protect their assets.
Your business will also need an EIN, which is like a Social Security number. It’s important for many business tasks, such as filing taxes, opening a bank account, and getting wholesale dropshipping accounts.
The process of getting an EIN is easy – you can do it online. All businesses must have this number, according to the IRS. You need to make sure your dropshipping venture follows all rules and regulations to run smoothly.
Step 6: Organize Your Finances
With good financial management, you can stay on top of costs, boost profits, and stay in compliance with the law.
It is common for business owners to mix personal and business funds. Keep things clear and avoid confusion by setting up separate accounts for your business. You’re also protected if anything goes wrong with your business.
Make sure you have a business checking account. You’ll use this account for everything business-related. It’s where you put your sales money and take money out for business expenses. It’s easier to track your finances and manage your books with this separation.
For dropshipping expenses like inventory and marketing, get a business credit card. You might also earn rewards, like cash back or travel points, with this card.
Depending on where you’re based and who your customers are, you might have to charge them sales tax. If your state or region requires sales tax, you’ll have to collect it and send it to the appropriate authorities. Make sure you know what you’re supposed to do with your local taxes.
Step 7: Promote Your Dropshipping Store
Now it’s time to use smart marketing techniques to generate traffic, attract customers, and boost sales in your dropshipping business. To stand out in the busy world of online selling and keep those sales coming in, you need good marketing.
- Paid Advertising on Social Media and Search Engines: Try paying for ads on Facebook and Google. Facebook ads are great because they tap into people’s desires to buy stuff right away. With Google Shopping Ads, you can target specific words people search for to reach the people who want your stuff.
- Influencer Marketing: Use influencers to spread your message. They have big followings that believe what they say. Make sure you work with the right influencers to show off your product. You could even work out a deal where they get a cut.
- Content Marketing: Build your online presence through content. Start a blog about what you’re selling that’s helpful. It shows you’re an expert and gets people in the door. You can also try videos, cool graphics, and podcasts.
- Engage in communities: Join groups related to your products. Don’t be afraid to join the chats, give good advice, and show off your knowledge. Talk directly to your customers on Reddit, Facebook Groups, and online forums.
- Mobile Marketing: Everyone’s on their phones these days, so mobile marketing is a must. You can send VIPs special deals by making a special group. Live chat apps like Messenger are great for talking to potential buyers.
- E-mail marketing: Email is still powerful, even though it’s old. You can send emails with deals, things people might like, and info about your stuff. You can manage all of your emails with platforms like Shopify Inbox.
Don’t forget, marketing isn’t just about getting new customers. It’s also about taking care of those you already have. Make sure you give great service, suggest stuff they’ll like, and make buying from you easy.
Step 8: Analyze and Optimize Your Offering
Now it’s time to improve your dropshipping business. That means looking at the numbers that matter and making smart changes based on them. Here’s what you should check regularly:
- Sales: Check out Shopify and Google Analytics to see how you’re doing. Using these tools, you’ll know what’s selling, what people are looking at, and how much money you’re making. Track where you’re making the most sales and what your best-selling products are.
- Customer behavior: Look at how many people are buying things and how much money you’re getting. It’ll help you put your energy and money where it’s needed. Find out if people are shopping from their phones or computers. Watch how long they stay on your site. By doing this, you’ll be able to make your store work better for them.
- Profit Margin: See what makes you the most money. Find out what has the highest profit margins. It helps you figure out what to focus on and how to price things.
Be sure to use data-driven insights when making decisions. Look at the info you collect to see what’s working and what needs improvement. By doing this, you’re able to make smarter business decisions.
Is Dropshipping Worth It?
Depending on your goals and resources, dropshipping can be worth it.
Dropshipping might be a smart move for people who want to start an online store on a tight budget. It lets you try out products without committing a lot of money.
However, if you’re working with a big budget (around $2000-$3000), you might want to look at other options.
The biggest advantage of dropshipping is that you don’t have to deal with inventory or shipping. However, unless you have reliable dropship suppliers, you might have to spend too much time and effort handling customer questions and problems.
Most dropshippers don’t have real-time systems that update product availability, which can cause problems keeping customers informed. Ultimately, you need to find the right balance between simple logistics and potential customer challenges.
Read more: Best Side Hustle Ideas
Dropshipping FAQs
What is the average profit margin for dropshipping?
Profits from dropshipping usually range between 10% and 30%. This means that you could make $10 to $30 profit for every $100 customers spend at your online store. Keep in mind, these numbers can change depending on what you’re selling.
The profits from items such as perfume, jewelry, and even bigger things like stoves and grills might be 50% to 60%. A specialized product like a funeral urn might also bring high profits because it’s unique.
Don’t forget, though, that these figures don’t include credit card fees and advertising. After all these costs, most dropshipping businesses end up with single-digit net profit margins.
How much can you earn with dropshipping?
There are many factors that affect dropshipping earnings. In your first year, you might make $1000 to $10,000 per month if you use at least one effective marketing method. SEO alone could bring in six-figure yearly revenue if you rank for your key terms.
Influencer marketing, Facebook ads, and Google ads could also push your revenue past $100,000. The six-figure mark usually requires one main source of traffic, while a million dollars might require three or more sources.
Keep in mind that these numbers represent revenue, not profit. If you factor in 10-30% margins, your dropshipping business might generate between $1000 and $3000 a month.
How long does it take to make money from dropshipping?
While you can make around $100,000 in your first year if you master at least one traffic source, dropshipping usually produces slower results than wholesale or private label selling. It’s mostly because smaller profit margins make ad campaigns harder to run.
In addition, since the products you’re selling can be sold by others, competition can be fierce. To find the best sellers, you should try dropshipping a variety of products.
What’s the best price range for dropshipping?
Due to the tight margins in dropshipping, it’s usually recommended to aim for orders over $100. Higher-priced items allow you to make more profit per sale, so you can cover advertising and customer service costs. Facebook ads, for instance, usually require a minimum profit of $30 per sale to work.
Can you lose money in dropshipping?
Because of the low initial costs, dropshipping is hard to lose money. Most of your expenses go towards maintaining your website, which can be as low as $3 a month.
But there are times when you might lose money, like running ad campaigns that don’t make money, dealing with a high return rate, or selling products that are risky.
Anthony Smith is an internet entrepreneur. He created the Side Hustle Ideas Database to help people find side hustles for making extra money, with the potential of turning into a full-time income.
After graduating from the University of Pennsylvania with a business degree, he gained business experience at a consulting firm. At the same time, he tried various side hustles including freelance writing, blogging, and eCommerce. He managed to turn his side hustles into a full-time business, earning over $3 million. Now, he enjoys financial freedom and travels around the world as a digital nomad.