On the surface, dropshipping seems to take all the best parts about ecommerce without any of the bad. Selling and digital marketing sound fun, but not logistics and overseeing each leg of shipping. While there’s truth to that, dropshipping in practice is much more complicated—and difficult. To make it work, you need to know how to start a dropshipping business right.
In this guide, we explain how to start a dropshipping business from scratch in 7 steps. We’ll touch on everything from business ideas to launching a website, but first you need to know what you’re getting into.
What is dropshipping?
Dropshipping is a business model where the seller doesn’t actually own the merchandise; they simply hand off the sales orders to the supplier, who then delivers the product. In traditional ecommerce, the seller buys and stores their goods themselves and fulfills shipments on their own. In dropshipping, the seller merely oversees the sales channels while the supplier does the rest.
Sounds great, right? But there’s a catch. Because the supplier is doing most of the work, they keep most of the money. Dropshipping is not the get rich quick scheme some people might claim. You’re essentially working for commission, but you still have to pay for advertising and online maintenance fees from your own pocket. To truly get rich, you have to sell a lot.
So why do people do it? It’s more than possible to run a successful dropshipping business, as long as you have the right skill set. Dropshipping is for people talented in sales, social outreach and digital marketing, but not-so-talented in management, bookkeeping and logistics.
What to consider when starting a dropshipping business
Let’s talk a little about the pros and cons of starting a dropshipping business to make sure you’re ready.
The big advantages of dropshipping are that you don’t have to worry about shipping and storage. Considering the amount of time and effort taken up by shipping and storage, that’s a huge benefit, especially if you want to avoid the headaches from managing those kinds of details.
The other great advantage is that you can start a dropshipping business with practically nothing. Because you’re not procuring your goods before you sell them, there’s virtually no startup capital—just the cost of starting a site, or even just joining an existing one.
The downsides, as mentioned above, are that you don’t make much profit per sale. To compensate, you need to sell more than a traditional ecommerce seller. So if you’re interested in dropshipping because you think it will save time on logistics, think again. Any time you do save should be reinvested into getting more sales.
There’s also some minor downsides, like not having any control over the supply chain. If your supplier ships something late or the package is damaged, you’re the one that has to put out the fire. Another drawback is that some popular online marketplaces don’t allow dropshipping, so it can be restrictive where you sell.
What it all comes down to is where your business strengths are. Dropshipping relies on sales and people skills, as well as digital design for all your online properties. Your success in dropshipping depends on your understanding of ecommerce marketing, content marketing, social media, web design, UX design, branding, advertising and good, old-fashioned sales techniques.
Having a good handle on those areas gives you a head start. You’ll be ready to take the first step in starting a dropshipping business.
How to start a dropshipping business in 7 steps
1. Choose a niche
Considering how competitive ecommerce is, the best way to survive is to target a specific niche. In other words, find a specific group of shoppers and cater your business to them. We recommend using a niche that follows these criteria:
- you personally belong to it (so you understand the shoppers’ particular needs)
- there’s an opening in the market, i.e. no one else is serving them
- there’s a dropshipping supplier who offers relevant products
For example, let’s say you’re a fan of the rock band AC/DC, because everyone is. With your personal knowledge of what AC/DC fans want to buy, you can open a store that sells band merchandise that’s hard-to-find elsewhere—as long as you found a dropshipping supplier who carries them.
But if you’re a Beatles fan, that’s more of an oversaturated market. You’d have to create an even more specific niche, more specialized and with less mass appeal. For example, you could sell only inexpensive Beatles merchandise, targeting the niche of Beatles fans on a budget. Maybe you could focus exclusively on a particular type of merchandise, such as Beatles hats. The point is, if your initial niche is too broad, see if you can hone in on it.
As mentioned, ecommerce is competitive. If your approach is too broad, you’re directly competing against the heavyweights like Amazon, Walmart and Ebay. It’s better to focus on a specific group of underserved shoppers, especially if you’re just starting out.
2. Competitor analysis
Checking to see what your potential competitors are up to is part two of finding a niche; you have to double check that there’s room for you in whatever market you’re trying to break into.
With dropshipping, it’s rare for a seller to get exclusive access to a product. That means there will likely be a few other people selling your exact same products from the exact same suppliers. If that’s what your competitor analysis reveals, there are two ways to beat them: pricing and marketing.
A pricing strategy involves undercutting your competitors’ prices while still maintaining enough profit margin to sustain yourself. This requires crunching the numbers to see if you still turn a profit while undercutting your competitors. If not, you may need to rethink your niche.
A marketing strategy is a little more nuanced. Can you convince shoppers that your brand is superior even if you’re selling the same things? That’s where the social outreach and digital design skills come in. If you know where and how to advertise, you can outsell your competition just by being more well-known.
Likewise, if your site design, social media and ecommerce branding are more appealing, you can win over shoppers that way. Integrating UX techniques into your online store can increase conversions and sales, as well as harnessing a brand personality that connects with customers in your niche. Design is crucial to dropshipping, even more than it is to traditional ecommerce.
3. Find a supplier
This is the last part of solidifying your niche. As long as you can find the products you need at prices that match your business model, you’re good to go.
Luckily, the more popular dropshipping becomes, the more suppliers that crop up. If you can’t find what you’re looking for with one group, you can always try another. To get you started, here are some of the bigger dropshipping suppliers to consider:
- AliDropship—The dropshipping arm of the AliBaba/AliExpress empire, offering goods from hundreds of thousands of China-based manufacturers.
- SaleHoo—An organization of suppliers from around the world; they vet suppliers for you for extra security, but tend to cost more.
- Spocket—An app designed for easy integration of dropshipping into your online store, with a collection of suppliers from the US and Europe.
- Oberlo— Another dropshipping app designed to make sellers’ lives easier with quick-access features.
- Printful—A print-on-demand company that allows you to customize the designs on clothing and generic merchandise.
Keep in mind that some of these dropshipping services charge their own subscriptions fees on top of whatever the supplier makes, so be sure to add those recurring fees into your budget.
4. Build/design your store
Next, you need a place to sell. A lot of dropshipping sellers opt to design their own site since other marketplaces put limitations on dropshipping. It shouldn’t be a problem, though, since there’s plenty of ecommerce platforms to choose from.
Some sites like Shopify are made for convenience; you can launch an online store quickly and easily, with plenty of dropshipping apps available at their app store. However, there’s not much opportunity for customization, which may hurt your branding. Sites on platforms like WordPress take longer to develop, but give you a little more creative freedom.
Site customization and web design in general enhance both your branding and sales strategy. For starters, you can use your site to incorporate the 8 elements of branding, like color scheme, imagery and tone of voice. These visuals affect shoppers on a subconscious level, eliciting certain feelings that can appeal to your target niche.
On a more technical level, you can fine-tune the usability and design of your site to increase conversions, especially if you incorporate the principles of UX design. For example, the text you use for your “Buy” button or how many forms a shopper has to fill in at checkout. These techniques aren’t always self-evident, so you may want to hire a professional instead of learning them all yourself.
Aside from web design and customization, you should also pay attention to search engine optimization (SEO). Using the right keywords in your website copy can get your store featured higher in search results for those keywords. Again, more specialized niches work better for SEO too since they have less competition.
Before you start selling, you still have some legal hoops to jump through, like incorporation, taxes and licenses.
The legal requirements for starting a dropshipping business—or any business—vary from country to country. More often than not, you’ll need to register your company and business structure with your government, along with any necessary tax information. It’s best to double-check with official resources that you’re not overstepping any bounds.
To start a dropshipping business in the US for example, your first choice is your business structure. Because most dropshipping businesses are run by individuals or small teams, sole proprietorship and LLC are the most common types. If you’re new to this, the Bench blog has a handy comparison chart. You’ll also need an employer identification number (EIN); the IRS lets you apply online here for free.
There’s state sales tax, which can get confusing, even for tax experts. If the state you operate in collects sales tax, you should check out this dropshipping sales tax guide to make sure you handle all the compliances in your particular state. For example, some states require dropshipping sellers to acquire a resale certificate. It all depends on the state.
While you’re taking care of these formal matters, it’s a good time to open a business bank account. Even if you’re using your own savings to start a dropshipping business, it’s a good idea to keep your personal and business accounts separate. Getting a company credit card also helps, since you’ll be making a lot of business transactions with site subscriptions and online advertising.
6. Marketing and Outreach
The marketing and outreach phase is the step that never stops. Your job from now on is to get people to shop with you.
There’s tons of different approaches to attract customers, and you can use as many as you can handle. Some methods will work better with certain customer groups and branding styles than others, so if you’re not sure which ones to prioritize yet, experiment with a few and see what works.
In particular, you want to focus on these areas:
- Online advertising—Search engine ads, paid social media posts, sponsored content are some of the online advertising essential for ecommerce. Getting clicks on an ad can bring shoppers straight to your product page.
- Email marketing—Emails are one of the most personal ways to get in touch with customers, so they’re a great fit for dropshipping. You can use newsletters to show off your brand voice and improve customer loyalty with exclusive deals and promotions.
- Social media—Because dropshipping relies so much on branding personality, your social media presence can bring in the most traffic. Aside from being charming and likeable, you can also host social media contests to popularize your hashtags or elicit more user-generated content.
- Influencer marketing—Partnering with a popular social media influencer can get your name out there with a vote of confidence, considering influencers are trusted in their field. Try offering some free samples to whomever is popular with your niche.
- Content marketing—Publish regular content like videos or blogs about topics your niche is interested in. Followers will see you as an authority on those topics, making them more receptive to related sales pitches.
- SEO—Most people start online shopping by googling the product they want. If your site shows up high in those search results lists, it increases the chances of them clicking on your link. You can improve your SEO by strategically writing your site copy and publishing regular blog posts.
A solid ecommerce marketing strategy incorporates a few of these branches at the same time, but through trial-and-error you’ll learn which ones to prioritize most. Which brings us to our final step…
7. Analyze and repeat
No one gets everything right their first try, but your success in ecommerce depends on how quickly you adapt. You should always be looking for ways to improve business, and the most reliable source for that is your site analytics and sales data.
Numbers don’t lie. If you want to know if a specific ad campaign is working or if a certain product is selling, just check your data. Your analytics reveal, in no uncertain terms, what’s working and what’s not.
Pay particular attention to the data from your marketing campaigns. If you’re advertising on multiple channels, which one is bringing in the most sales?
When it comes to site data, focus more on conversions than general traffic. Your Facebook ads may bring in the most traffic, but maybe your Google ads are bringing more people who actually complete a sale. In that case, you’d want to readjust your budget and allot more funds to Google ads.
You’ll also want to keep a close eye on your competition. They may suddenly drop their prices or offer a new promotion, in which case you’ll need to respond quickly.
Need help with the design aspects?
Dropshipping appeals to entrepreneurs who have a knack for sales and marketing… but that doesn’t necessarily mean they have a knack for visual design, too. Fields like branding, web design, UX design and logo design are each their own distinct disciplines just like sales and marketing. Just because you’re good at one doesn’t mean you’re good at them all.
To truly create the best dropshipping brand, you may need to hire experts, like designers who have their own specializations from logo design to web page design to retail design, who will suit your niche.