What is a Dropshipping Business?
Drop shipping is proving to be an extremely popular business model to budding entrepreneurs, especially, millennials and gen Zers. This is because it relies largely on internet marketing skills and the idea of not handling stock or the items one is selling adds to its allure.
If you have been looking for a business that you can start with limited funds, and grow as you continue with your regular job, then drop shipping is for you. Here’s a detailed guide on how to start a dropshipping business.
In a dropshipping business, the store owner gets to sell directly to the customer without having any inventory. When a consumer buys a product in this store, the product is shipped to them by a third-party supplier.
In terms of prices, the consumer pays the retail price the store owner has set, while the store owner pays the supplier the wholesale price. The rest is profit!!
How to Start a Dropshipping Business in 2021
Now that we’ve seen what dropshipping is all about, here’s what you need to do to set up such a business:
Commit to setting up a dropshipping business
Here’s what we mean by this: you’ll need to invest heavily either in time or money.
Dropshipping is no different from other businesses. It will require significant commitment and that you have a long-term perspective. What do we mean by investing in each of these?
Investing time into the business
This is our preferred form of investment for various reasons:
- You learn the ins and outs of how the business operates, which will come in handy when the business grows and you have to manage it.
- You develop an intimate knowledge of your customers and market, and this informs your decision making.
- You’ll steer clear of vanity projects that may eat up your capital to no success.
- You’ll pick up some new skills that will help grow you as an entrepreneur.
While not everyone might be able to quit their job and embark on growing their online store, it is still possible to start this business while holding a 9-to-5 position. All you need is to set the right expectations towards customer service and the appropriate fulfillment times for customers. As the business grows, you can move to working full time depending on the business’ cash flow and profitability.
Investing money into the business
In this approach, you invest a significant amount of money on programmers, developers, and marketers.
However, this approach has proven to be too expensive in the long end compared to investing time. This is because success in the dropshipping business requires that you be deeply invested in its success as you grow it from the ground up. Additionally, having no knowledge of how the business works at different levels may expose you to manipulation from expensive ‘experts’.
While you don’t have to do everything on your own, it’s advisable to be the primary driving force from the go.
However, you still need a small amount of money in the range of $1,000 for your business to be launched and be operational. This will be used in operational expenses and any incorporation fees required. Once you are committed to the business, the next step is coming up with a business idea.
Come up with a niche
The niche that you come up with has to be laser-focused and one that you love. If the product range is not focused, you’ll have a hard time marketing it. And if you are not passionate about the niche you choose, you might end up getting discouraged, as it is a lot of work scaling a drop shipping business successfully. With all this in mind, here’s how you can settle on a niche:
Settle for businesses with large profit margins. When in the drop shipping business, your focus is usually on marketing and customer acquisition. This means that the effort needed to sell a $20 item is almost the same as for a $1,500 item. As such, settle for a niche that has on demand higher-priced products.
Low shipping costs are crucial. Your supplier may be handling the shipping, but if the cost is too steep, then it may drive customers away. For this reason, find items that are inexpensive to ship, as this may present you the option of free shipping to your customers, taking up the cost in a bid to attract additional sales.
Ensure your products appeal to impulse buyers’ with lots of disposable income. When you are keen on getting traffic to your website, you want the highest conversion rate as most visitors might not come back. The products on sale should lead to impulse buys and appeal to those with disposable income.
Ensure people are actively searching for the item. Leverage tools like Trends and Google’s Keyword Planner to check keywords related to your niche of interest. If no one is searching, that might not be a lucrative niche.
Develop your brand. You earn bonus points if you can rebrand what you are selling and sell it as your own. Look for products that you can white label and make them your brand using custom branding and packaging.
Niches that you can start from home
Here are some of the most lucrative dropshipping niches:
- Power tools
- Tech supplies
- Lifestyle niche
- Beauty and Health
- Drones and Accessories
Conduct Competition research
You are probably aware that you will be operating in the same sphere as other drop shipping operations including retail giants like Amazon and Walmart. In spite of this, don’t make the mistake of going for a product that has little or no competition. This is actually a sign that there is no demand for the product.
Some of the reasons why a product may face no competition include high shipping costs, lower profit margins, or manufacturing and supplier issues. Settle for products with competition, as this shows there’s high demand and the business model is sustainable.
Some ways to conduct competitor research include:
- Leverage competitor spy tools like Alexa and Similar Web. These tools are good at tracking your competitors’ online activity. They’ll compile competitor online information, including their social media profiles, number of visitors, top traffic sources, and their competitors.
- Social media. Browse for Facebook ads related to your niche and note the top brands in the area. Look at how they communicate with their customers, how their feed is designed, and the amount of engagement they are getting.
- Subscribe to their email lists. By subscribing to your competitors’ email lists, you get their updates right into your inbox. You also get to see their marketing strategy. You also learn about the deals and promotions that they use to draw customers to buy from them.
- Google search. Search engines are a great place to start. Compile a list of your top five competitors. Search key search terms in your niche, like ‘phone covers.’ The top results are your top competitors and you will gather information on how they promote their products.
Learn everything you can from your customers and keep the research in a spreadsheet for continuous reference.
Settle for a supplier
Settling for a dropshipping supplier is a crucial step if you are to create a successful business. Without a supplier, you won’t have products to ship to the consumer, and your business will never see light of day. Partnering with the wrong supplier is another step into the grave and therefore you need to exercise utmost caution.
Ensure your conduct due diligence. As you will learn, many drop shipping suppliers are found overseas, thus communication is crucial, both in terms of their response speed and also being able to understand one another. If you are not fully confident with their communication abilities, then better ditch them for another supplier.
Alibaba has grown to be one of the largest resources of finding and communicating with potential suppliers and manufacturers. Oberlo is also a marketplace that helps you find products to sell online. Ensure you ask lots of questions and identify their production capabilities if your business is to grow exponentially. You want a supplier that will be able to scale with you.
You can learn from other entrepreneurs who have set up similar businesses in the past. You can find plenty of information online from business blogs to subreddits on drop shipping.
Build an eCommerce site
The next step to setting up a dropshipping business is to launch a website that supports this business model. You can leverage an ecommerce platform like Shopify for this. This site will be the home of your site- where you’ll be sending traffic, process payments, and sell products.
Shopify is a complete commerce platform that enables you to sell in different places, in multiple currencies, and you can manage products and payments. Plus, you don’t need designer skills or to be a developer to use Shopify. There are tools that will help you with everything that you need to design your store.
You might be tempted to get a web designer for a custom solution. However, it’s a wiser move to leverage plug-and-play alternatives, especially at the start. Once you are stable with a regular revenue stream, you can source for website customization.
Choose a business structure
If you are keen on setting up a long-term venture, then you want to start a legitimate business entity. Here is a rundown of the three commonly used structures:
- Sole proprietorship. This is the simplest structure to implement. However, it has no personal liability protection. In the event that your business gets sued, your personal assets are at risk. Its filing requirements are minimal and your business’ earnings are reported on your personal taxes.
- Limited liability company (LLC). This offers more protection of personal assets as your business is established as a separate legal entity. There are additional filing requirements and you’ll pay incorporation and ongoing fees.
- C corporation. Major corporations fall under this, as it offers the most liability protection. They are more expensive to set up as they are subjected to double taxation.
***Seek legal advice when deciding on the kind of business to choose***
Devise a customer acquisition plan
Despite having a killer product and website, you still need customers who want to buy. There are a number of ways to draw potential customers. The most effective way is to launch a Facebook ad campaign.
- Facebook ads enable you to generate sales and revenue from the word go. This will allow you to scale quickly. The site also enables you to exhibit your offer directly to a highly targeted audience. This levels the playing field with larger brands and retailers.
- Influencer marketing. If your budget is limited, influencer marketing is a sure way to experience higher return-on-investment while effeciently reaching your target audience. In fact, people nowadays tend to trust influencers more than conventional advertising. If you choose this route, settle on an affiliate fee as opposed to a flat rate. This way, you’ll both make money off each sale.
- Content marketing. This method will give you a long-term traffic stream to your online store. Start a blog and produce content on your niche. Make the content educative and entertaining to your target audience. Additionally, you can opt to start a YouTube channel, start a podcast, or create infographics that help advertise your brand. For each strategy, ensure that you subtly include call to action tabs.
- Communities. Involve yourself with cliques that are passionate about your niche. You can strike conversations with prospective customers on online forums such as Reddit, or even Facebook groups. Aim to help the potential customers while building relationships. This ensures they trust your brand and desire to buy from it.
Analyze and improve
You need to keep track of the results of your campaign and whether it is reaping benefits. With Shopify analytics, you can get information on:
- Sales. You can identify your best performing channels, where to pump more money, your best selling products, and your best customers.
- Shopper behavior. This includes the medium, that is, desktop or mobile and their conversion rates.
- Profit margins. You compare the sales and gross profits of every month.
You can also leverage tools like Search Console and Google Analytics to gauge search traffic and improve on your SEO.
In conclusion, with those steps, you should be on your way to setting up a stable drop shipping business with a revenue stream of over 1000 dollars a month. And with more consumers migrating from physical stores to online stores, the future couldn’t be brighter for drop shipping. What are you waiting for? Opportunity is knocking!