There are lots of ways to start businesses online, and many hopeful entrepreneurs can find themselves caught in a web of uncertainty about which is best for them. One option open to you is an increasingly popular kind of business called a dropshipping business. Below, we’ll give you a short introduction to this kind of business, list some of its benefits and setbacks to help you decide if it’s right for you, and include a fast guide to get you started.
What Is Dropshipping?
The traditional and most well-known model of business is the retail business, in which the retailer orders large inventories from suppliers, such as manufacturers and wholesalers, and then sell those stocks to customers. Whenever you go to a store and make a purchase, most of the time what you’re buying has been purchased from that retailer in bulk from someone else. A dropshipping business, on the other hand, is a bit simpler: rather than ordering merchandise in bulk, you list merchandise from suppliers and factories on your website. When a customer fills out an order, you notify the supplier, who sends the order directly to the customer. Throughout the transaction, you don’t handle a single piece of inventory.
But how does the profit factor in? Well, when you list a product on your site, you get a cut of what it sells. For example, if you sold a purse on your site for $100, and you get 50% of the revenue, then you’ve just made $50 in profit. Keep in mind, though, that different suppliers will strike different deals with you for the margins, and it can be rare to find margins as high as 50%.
Dropshipping businesses are fairly common. For example, the popular shopping website Amazon offers it alongside their own inventories to help customers find what they’re looking for.
How Do I Know If This Is Right for Me?
Like any other business ambition, this particular method has its associated benefits and risks. While you’ll often hear it praised as an easy way to turn a profit, it’s still hard work with no guarantee of success. Before making your own attempt, make sure you’ve carefully asked yourself what you want from a business venture and carefully weighed your options before you decide whether it would be right for you.
In order to help you make your assessment, here’s a list of some pros and cons to get you started!
- It’s fairly easy to open up shop. Normally when you go to open a business, business plans and are needed, and you need to buy merchandise as well as a place to set up your retail store. In comparison, dropshipping businesses are fairly easy to get started: all you need is a website (although that can be an important challenge in itself—but more on that later), some drop shipping partners, and an internet connection. You don’t need a warehouse or any of the other things commonly associated with retail businesses. In fact, you need no merchandise at all until a customer has made a purchase.
- Tons of options. The number of things you can sell is limited only by the number of deals with suppliers you make. It’s also easy to make more money without much added work as your business grows. That’s why this model of business is popular both for newcomers and experienced entrepreneurs.
- More straightforward and less risk. If you want to explore new products to sell, all you need to do is contact a willing manufacturer or wholesaler and put it on your site without much risk—it will become apparent quickly whether it’s worth keeping available or not. The only associated risk is lost ad revenue (but more on that later) and site space. This makes dropshipping businesses a particularly appealing option for new entrepreneurs who would like to start their business but don’t know if they’re ready to go through all the hassle associated with beginning a more traditional business.
- As was mentioned earlier, it can be hard to find deals where you make a great cut of the profit margins. You need to have a solid plan in place as well as persistence to make sure you see worthwhile profits.
- You take responsibility if something goes wrong with one of your suppliers, such as a mishandled order or incorrect delivery. If something happens, it’ll be up to you to set things straight.
- Your inventory can get complicated. For example, if a customer orders from multiple suppliers, you need to pay the shipping costs of each. Additionally, with all the merchandise to be aware of, it can become a big responsibility to make sure what you’re offering remains consistent with the inventory of your suppliers.
If you decide a dropshipping business would be right for you, here’s a quick guide to get you started!
1. Decide What You Want to Sell
Naturally, one of the first things you’ll want to do is decide what kind of product(s) you’ll want to sell to achieve success and turn a profit. Even if you want to stick to selling items you’re passionate about, there are some considerations you should keep in mind, such as…
- Like with any business, you’ll want to look carefully at marketability. How quickly will your items sell? How strong is the demand? Is it rare in your market, fairly common, or somewhere in between? These are fundamental questions, and can be especially important if you’re looking to get started up and turn a profit quickly. If you’re looking to go the fast route, ask yourself what you can sell and market that will get people to buy the quickest. Remember, it’s always possible to scale and sell more items after you have a solid base of sales and customers. Speaking of which…
- Who is your target customer? Generally, there are two kinds of customers to consider: one-off customers and return customers. The former will be the people who search for your product and buy from you just a few times or less, whereas the latter will want to keep coming back and can be especially lucrative as time goes on. Having this loyal base can be a great source of consistent income and stability. Although they can be hard to secure, especially since it takes time to earn a loyal base like that because it requires building a long-term relationship and providing them with great customer service. Another group to keep your eye on is people who buy many items at once, such as businessmen.
- If you’re looking to sell a niche product, it’s important to figure out the right one. It can be a risk, but if you tap into a popular product that other companies don’t readily offer, then you could be a hit with a lot of success very quickly. If you don’t have a niche product in mind, think of hobbies. What do lots of hobbyists do that require products that can be hard to find? If you’re not sure, you can always research to get ideas. Look for popular hobbies—or ones that have a dedicated base—and check the market.
Some items that tend to sell pretty well in bulk include computer accessories, wearable items, and entertainment. Think along the lines of both a customer and a businessman when deciding what you’d like to put up for sale.
Once you’ve decided what you want to sell, it’s time to build your store.
2. Figure Out How to Sell Your Product
There are a few mediums to sell your products. While you can certainly choose to use just one, it’s not a bad idea to focus on a combination of two or more to really get yourself out there.
One of your best bets is to build a website from which to sell the products. Should you choose this route, the importance of your website being professional, attractive, and easy to use can’t be overstated. It’s how you represent yourself as a business to the world, and very often it can influence whether a customer wants to buy from you or someone else. Customers look for a clean and modern design that they can easily use on desktop and mobile devices.
Having a website has clear benefits. Your customers want a reliable website to go to and shop, and if you have that it’s easier to build a relationship with them. A website also lets you build your brand carefully. There are many more options available to you if you have you own site than if you restrict yourself to selling through established third-party businesses such as Amazon, Ebay or Etsy.
If you want to build a site, you have two main options:
- Hire a team to build a custom website who will design you a great site and offer other useful services like SEO management. The setup usually costs from $2,500 to $3,000. This is ideal for businessmen who want to own their website rather than lease it from Do It Yourself hosting sites. Businesses that enlist the help of development teams tend to get a sleeker, more professional site than those that don’t. And if you plan on running your dropshipping business for several years then getting a custom site can actually cost less than leasing.
- Sign up for an e-commerce service and build it yourself. Many popular e-commerce services such as Shopify, and BigCommerce will give you a shopping cart (which is what you use to sell products) and some basic customization tools and the opportunity to code your site by yourself. If you’re tight on a budget, then these platfomrs offer options to get a simple site done with low upfront costs. This option is good if you’re on a strict budget. However, be aware that many sites that business owners try to build this way end up looking less than ideal, and you may need to pour a lot of time and effort into it.
In addition to creating your own website, you have opportunities to sell on popular sites like Amazon and eBay. This has clear benefits as well. First of all, it’s relatively easy to get started—so if your goal is to start a business quickly, going through an existing could be a good bet. You also get to offer products to an already-existing large audience without the hassle of marketing. However, selling on eBay and Amazon is very competitive and negates your ability to build an independent brand or a relationship with customers. You’ll also need to pay fees for every project listed and sold on these sites.
3. Find Your Suppliers
Once you’ve figured out what you want to sell, you can start looking for suppliers. Suppliers refer to anyone from whom you’ll get what you’re going to sell. There are generally two kinds of suppliers:
- Manufacturers. These are the companies that make the products you’re going to sell, and will generally get you the best prices per item. However, many of them also require a minimum number of items purchased for each order – so you’ll need to be ready to buy in bulk in some instances.
- Wholesalers. These are companies that buy in bulk from manufacturers, usually in a specific industry, and offer the items for resale plus markup. They usually have smaller minimum purchase requirements, meaning they’ll be the cheaper option for you most of the time.
In order to find good wholesalers for what you’re trying to sell, there are lots of websites online that will give you lists, such as GlobalSources and Wholesale Distributors. Simple Google searches should also bring you to what you’re looking for. Don’t be afraid to really dig into the search pages, and don’t be unnerved when the supplier websites look less than stellar, as many of them look amateur but offer good material.
4. Market Your Business
Marketing is one of the most important steps to ensuring a successful business of any kind. If you’ve decided to make your own website, then getting traffic through ads and search engines is your next crucial step after finding your suppliers. There are two ways to do this online: pay per click (PPC) marketing and search engine optimization (SEO).
- Pay Per Click marketing campaigns are when you put ads on web pages and pay the hosting website for each click they get. Google is the most popular website on which to put ads, as most people find solutions to their problems and products through searches there. Whenever you search for things on Google, the top results are the ads that were placed there by businessmen who pay Google to display ads when you search for certain keywords. PPC marketing can be especially useful if you have a sizable budget, and need to get traffic quickly. However, it can be costly if you aren’t careful.
- Search Engine Optimization refers to the art of pushing your website as high up in the Google page rankings as possible. There are a number of ways this is achieved. The most popular is through keyword search—matching words on your page to the words that might come up in searches. Another way is to build your site’s “authority” in the eyes of the search engine—which is done by other big websites linking to you. This is a pretty good option long-term, since most page visits come from organic search results. However, it’s a process that requires a lot of time and patience with no guarantee of success. This option is best if you’re low on budget and have a lot of time to invest. If you have the budget, it can be advisable to hire a professional team to handle your SEO since they’ll know the ins and outs.
It’s advisable to go both routes, but in the event that you can only choose to focus your energy on one, it depends on what you’re looking for. If you want quick success, PPC is the way to go. If you want long-term organic success, you should focus on SEO.
You’re On Your Way!
If you’ve followed the advice in this article then you’ll likely have a dropshipping business up and running in no time. From there the test will be a matter of how hard and smart you’re willing to work. And how long you can remain diligent. If you’re persistent, and you invest in self-education and hiring skilled professionals for the work you can’t do yourself, you should be on your way to success.