Dropshipping Business: A comprehensive guide to success [2022]

Before diving into the world of ecommerce, here’s a sneak peak of what you are about to witness all about dropshipping business. Feel free to jump to your desired topic by clicking on the sections below.

Summary

What is Dropshipping?
Benefits of Dropshipping
Advantages:

• Easy to understand and manage
• Low risk
• Gives you flexibility
• Fast Transactions

Disadvantages:

• Low profit margin
• No control over products
• Limited options

How to Start Your Dropshipping Business

1. Find the right idea/concept
2. Research the market
3. Look for suppliers
4. Build your very own store
5. Set up your finances
6. Market your business

Frequently Asked Questions (FAQ)

• Is dropshipping profitable? How much capital is needed to start?
• Is dropshipping legal?
• Where to dropship?

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What is Dropshipping?

Dropshipping is a business model wherein online stores fulfill orders without keeping inventory. Merchants source products from third-party suppliers and have them shipped directly to customers after they place an order. It is an online business that lets the seller stand in the middle of a transaction between the manufacturer and customers.

When it comes to shipping and fulfilling orders, the seller doesn’t have to do much and won’t need a lot of time. There’s no need to purchase stock or make a tedious order process. Simply forward the customer’s order and the third-party supplier will do all the heavy lifting on the seller’s behalf.

Dropshipping is a popular alternative for aspiring business owners who want to start a new ecommerce business but don’t have the financial resources or desire to run a conventional retail store. Unlike with traditional brick-and-mortar stores, dropshipping sellers don’t need to open a physical store or hire employees, keep the lights on, pay overhead expenses, or stock items. Instead, they open an online store and buy from wholesalers who already have the items and warehouse facilities.

Benefits of Dropshipping

Now that we know what dropshipping is, the question is: why doesn’t everybody use it? Is dropshipping a good business model? It is a good business idea for many people, but it may not be right for everybody. There are other things to know before starting dropshipping. We’ll look at the pros and cons of using this model so you can decide if this type of business is right for you.

Advantages:

• Easy to understand and manage

You don’t need to have any experience running a business before you start dropshipping. You can set-up your business and learn everything as you go, if you spend some time learning the basics.

Starting a dropshipping business is a great way to get into the e-commerce game. With few start-up costs, and no storage facility or staff required, you can get your business going quickly. Once you have it up and running, it’s surprising how little you have to do.

You’ll need the right tools, resources and knowledge to start your dropshipping venture. We’ll run through everything in this guide so you’ll know what you need to get started.

• Low risk

Dropshipping allows you to skip the risk of purchasing thousands of items – that may or may not sell – all at once. It eliminates inventory overhead and risk. You can put that money into other aspects of your business, including marketing and customer retention. This takes away the upfront cost of the product and makes it possible to offer a product at a lower cost than competitors in the market.

It’s an attractive option for businesses that want to keep costs low or launch without a significant amount of cash. You can get started with as little as a hosting fee, and of course, time.

Dropshipping is also a good way to test the market for a new product or concept before you invest in them. If you’ve been wondering what kind of t-shirt or jewelry would sell well on your site, dropshipping lets you see what customers think in real-time without having to spend money on the items before the site goes live. If the product doesn’t sell, you can quickly switch strategies until you find the right one for your business.

• Gives you flexibility

This is undoubtedly one of the best things about it. You get to be your own boss and decide how things will work. It’s one of the most flexible jobs anyone can have.

You can work from anywhere with just a laptop, which is ideal for those who want to be able to work when it’s most convenient. You’re in control of how fast you go—you don’t have to go out of your way to do things. Make the business work for you at your own pace.

Dropshipping allows you to choose how to carry out your business. You can add new products whenever you want and change your strategies as you go along. If you’re going away on vacation, for example, you can set everything up so that it runs on its own and brings in money while you’re away. With all these possibilities under your belt, the sky’s the limit!

• Fast transactions

Another advantage is that your dropshipper handles the packaging and shipping all of your products. Many business owners struggle with how to package, ship, and fulfill orders on their own. By using dropshipping, this portion of the business is taken care of for you.

Dropshippers are often large companies that get a lot of orders every day, so they may offer even lower shipping rates than your small or medium enterprise can get. Since shipments go straight from the warehouse to the customer, dropshipping can also cut down on the number of damaged goods.

You can also avoid logistical problems and eliminate the need to store physical inventory. You don’t have to worry about how you’ll manage too much or too little inventory because your products will be sent directly from the manufacturer or distributor to your customers. It also means that your business is less likely to be affected by changing trends that instantly cause some products to become popular or unpopular.

Disadvantages:

• Low profit margin

One of the issues is that dropshipping profit margins are expected to be low at the start. That doesn’t mean it can’t be profitable, but you should know that the product margin might be small in some niches.

This is a big problem when you’re in a highly competitive niche. When you fight for customers’ attention, it can be difficult to earn the profits you want.

If you choose the right niche and target the appropriate people, you’ll have better margins and less competition. Targeting a niche with enough demand and fewer people is a good way to start out. Eventually, though, sales may start to level off. At that point, it’s important to have a highly optimized ad strategy in place.

The average dropshipping profit margin is between 15% – 20%. Anything above that is considered a good profit margin for dropshipping.

Because there’s little investment required to start a dropshipping business, fierce competition exists. The most popular markets are hit the hardest by this trend. Essentially, other business owners can lower a company’s markups to offer the lowest prices if they’re able to grow their businesses big enough.

Worse yet, you may also have a tough time getting good prices or exclusive deals from suppliers. If you’re just starting out, your competitors who have been in business for years have the tools you don’t have to undercut your prices. That means that potential customers can get the same thing cheaper from someone else, so why should they buy from you?

• No control over products

In traditional e-commerce, if a customer is unsatisfied with a product, how quickly they receive it, or how returns are processed, you can take the necessary steps to remedy the situation.

But in dropshipping, you do not have control over some parts of that process, such as stocking products, fulfilling and shipping orders.

You are pretty much caught in a tricky situation. All you can do is reassure your customer and hope that the supplier fixes the problems. This lack of control puts off some entrepreneurs, but it’s usually not a big deal. It’s important to work with suppliers that provide excellent customer service, but sometimes problems with suppliers are inevitable.

This means that things can be hard to handle when they go wrong. Such problems can make it hard to keep customers. If you fix them quickly and respond well to your customers, you can minimize the damage and keep customer loss at a minimum.

On top of that, communication can take longer because you have to go back and forth between the supplier and the customer. Slow responses can cause communication to stall, which results in problems taking longer to solve.

• Limited options

Dropshipping gives you freedom to switch between different markets and products. However, there is one small drawback: if your supplier doesn’t have the type of products you want in stock, you will not be able to sell them.

Let’s say you use dropshipping to sell shirts and other print-on-demand items. You decide to add customizable mugs to your collection in response to requests from customers. You then discover that your dropshipping supplier doesn’t offer them.

You have at least three choices to deal with this situation. First, you give up selling personalized mugs and miss out on the business chance.

Second, you wait until your dropshipping supplier starts to sell the item you want to sell; however, there is a possibility of losing clients during this time.

Lastly, you may want to consider adding an additional supplier that carries the product you want to market.

The third option may be the best one. You get to sell an item you want, and your customers are satisfied. The only issue here is dealing with multiple suppliers makes things more complicated.

You may need to consider a number of different factors when you work with multiple suppliers, such as shipping time, pricing and billing information, return policies, and so on. You’ll need to keep track of a lot of different information in order to avoid problems related to your inventory or poor ratings.

We’ve covered the pros and cons of dropshipping. Think this business model is for you? If you’re still interested, read on for a list of things you need to know to get started.

How to start your dropshipping business:

Here are six easy steps to get your drop shipping business off the ground:

1. Find the Right Idea/Concept

A successful dropshipping business is based on a concept or idea that becomes the focal point, product line, and content of the company. This can emerge from something you are interested in or something that you notice is trending in sales as you research products and try things out. You can develop various ideas and concepts then build up on them as your business progresses.

For example, print-on-demand items such as prints of artworks and photos are popular dropshipping products in the market right now.

Researching products and focusing on niche items can help your marketing efforts stand out, enabling your website to be more visible in search results related to your market segment. This will allow potential customers to check your website, increasing the likelihood that they will purchase something from your shop.

You should ask yourself how your business idea and products will help customers solve their problems. By doing so, you’ll have an edge in the fiercely competitive world of e-commerce.

2. Research the market

When you’re starting out, it’s a good idea to research products and popular items. Search for classifications that suit your store and make people interested in your business.

Don’t know where to begin? Here are some resources and methods to help you get the data you need in gauging product potential.

You can use the volume of sales. A new dropshipping business isn’t the best way to fill a market gap. By looking at what products are already selling well, you can be sure that people will want what you offer.

Another one is the keyword search volume. Through keyword data, you can see how many times a term has been searched for in the last day, week, month, or longer. This shows product demand and the likelihood of success for your idea.

Trend data is also a viable research strategy. It can show if a product is likely to be a long-term success or give ideas for products that might sell well for a short time.

The great thing about dropshipping is that you can change your products to meet customer needs faster than if you sold them in a physical store.

3. Look for suppliers

Your dropshipping store will serve your clients by working with wholesalers and manufacturers who deliver your goods.

Getting the items you need is one of the most time-consuming parts of starting a dropshipping business, no matter how you find your suppliers. To make sure your work pays off in profits, you’ll need to consider each item’s overall feasibility and partner vendor.

Think about these factors as you look at possible products and suppliers:

• • Item Trend

Most dropshipping marketplaces make it easy to find out how many times an item has been sold. Even though you might be able to market less popular items well, your time is usually better spent on hot-sellers.

• • Profit growth

Credit card processing fees and shipping expenses will always cut into your earnings, so look at the wholesale rate and suggested price for each item to see if it could be profitable. Remember that you can raise the markup on an item to make your revenues more profitable or lower it to get more people to buy.

• • Quality of Items

One of the biggest problems with dropshipping is determining the quality of your items. You can purchase samples from suppliers, but this could take too long. Most sellers judge an item’s quality based on how highly rated the supplier is and how many times the item has been sold by that supplier.

• • Location of the dropshipper

The location of a supplier will affect shipping cost and delivery time, which are both essential factors in a customer’s buying decision. Many dropshipping stores are in China, so if you want fast, trackable deliveries, look into partnering with ePacket shipping vendors.

• • Reliability of the Supplier

It can be hard to gauge a supplier’s reliability before working with them. But most dropship marketplaces are highly selective about their vendors and will drop any seller who consistently gets complaints about customer service or product quality. Additionally, customer reviews of vendors can be very helpful.

• • Policy on returns

Most dropshipping marketplaces try to avoid returns and deal with most problems by giving refunds that don’t require a return. But each marketplace works differently, so you’ll want to confirm the return policy and procedures for each platform (or direct supplier) you use.

4. Build your very own store

Setting up the foundation for an e-commerce website includes things like arranging payment processing, linking a domain, and creating a layout.

Simple e-commerce platforms like Shopify makes it easy to create an online store with little or no web design experience. You don’t need to know much about technology. It’s fast, easy to use, and has lots of apps to help you grow your business.

Different e-commerce platforms have tutorials, frequently asked questions (FAQs), and how-to articles to help you get started. Most offer helpful customer service, or even free setup help sessions to make this process as simple as possible. You can use these tools to learn how to set up your shipping plan, add products, and more.

Choosing a plug-and-play e-commerce platform as your first choice is a good idea, especially in the beginning stages of your business. You can always customize and join other marketplaces once you’ve established yourself and are making a profit. But you can always hire a web design and development team if you have the budget.

Your store’s design and how you plan to find suppliers will determine the best platform for your dropshipping business.

Learn more about setting up your own shop here.

5. Set up your finances

Planning ahead and keeping your business and personal money separate is a crucial step in running a small business. This is a stage that many part-time or casual store owners miss, which can cause a variety of issues.

Set up a checking account for your business. Deposit all income into it, and pay all costs out of it. This will keep you from spending your personal money on business expenses and make it easier to track your finances. If the IRS audits you, you’ll have a clear record of your business’s finances.

Getting a credit card for your business is a smart move. Using it for business-related purchases can help you separate your personal and business finances, and you’ll also earn big rewards for the goods you buy from suppliers.

6. Market your business

Once your website is up and running, you’ll need to let people know about it to get them to visit.

Create Facebook, Instagram, and Pinterest accounts to promote and drive traffic to your store through audience interaction and posts that link directly to products.

From your Shopify or Etsy product listings, it’s easy to integrate your Facebook Shop. Then, use the new listings to make posts that you can share with your network. You can also start creating shoppable posts on both Instagram and Pinterest.

This is a great way to find interested customers where they spend most of their time. Plus, it reduces the steps needed to make a sale, helps you collect data, and builds your online presence — components that can drive your dropshipping success.

Learn more about marketing your small business here.

Frequently Asked Questions (FAQ)

• Is dropshipping profitable? How much capital is needed to start?

Yes, you can make money with dropshipping. This business model is a low-risk way to run a business that lets you sell products to your customers without spending a lot of money to keep the business going. Because of these reduced costs, this is a much faster way to earn profits than other business strategies. And you only need less than $100 to start.

• Is dropshipping legal?

Yes, it is. It’s essentially a store, and like any other store, it needs to follow the law. You’ll need to register your business; keep track of the tax laws in your state; and make sure you’re honest about where your items came from.

The rules for taxes and registering your dropshipping business differ on where you live. So, before you set it all up, make sure you know the rules about dropshipping, taxes, and running a business in your region.

• Where to dropship?

You can set up a business using Shopify, Etsy, Amazon and other online marketplaces. You can also dropship your products depending on the supplier you choose and the market you enter.

If you are in the industry of print-on-demand selling art prints, then WE can be the perfect partner for you. You can integrate your e-commerce shop (like Etsy or Shopify) or tool with our platform for smoother transactions.