How To Start a profitable Dropshipping Business
without making common mistakes. Here Is What You Need To Understand To Succeed!
E-commerce retail sales to hit 600 billion dollars in 2024 in the United States
Number of digital buyers to rise from 1.32 billion in 2014 to 2.14 billion in 2021
E-Online stores with this model have a potential profit margin of 15 to 45 percent
These statistics mean that there is a high demand for online retail, which gives you the perfect opportunity to begin. In this guide, I have listed everything you need to know regarding the dropshipping business. I have also included how it works, my recommended dropshipping platforms, and the possible challenges you will encounter. Hold on to your seats and let me give you the lowdown on this exciting new venture.
What Is Dropshipping?
The concept of dropshipping is simple. The classic e-commerce model requires you to purchase products from a supplier in bulk, stock them and then sell to your customers. In the drop shipping scenario, you do not need to hold inventory.
Instead, you direct the customer’s order to the manufacturer or supplier, who then ships out the goods directly to your customer.
How Does Dropshipping Work?
Before I continue, I first want to make sure you have a clear understanding of the key players in this business model.
The primary advantage of dropshipping is that you do not hold any product inventory.
This means you do not have to spend any money on items that you may or may not sell. Instead, your customer first pays for the product, and you can use that money to pay the supplier for the order.
Let me break this whole process in four steps:
The customer purchases a product from your online commerce store at a retail price set by you.
You or your online system forwards the order to the third-party dropship supplier, who then charges the wholesale price.
The dropship supplier packages the product and ships it to the customer under your store’s name.
The difference between the retail and wholesale price is your gross profit margin, deducting your overhead and marketing costs gives you your net profit margin.
Dropshipping Pros: Why Is It a Good Idea?
In this extensive guide to dropshipping, I will show you how to start your business in five steps:
Selecting your dropshipping platform
One of the keys to success is thorough planning. Though some people succeed even if they run in blind, that process is not something I recommend. Especially when you are starting a business, it pays off to have a plan in place.
Also, you must prepare yourself mentally for your new business venture. A positive attitude, an excellent work ethic, motivation and avoiding the same mistakes as 90% of the dropshippers do, are all necessary factors.
Now that I have finished the basics let us explore these steps in more detail.
Choosing a profitable niche
Start with your interests, as you will have unique knowledge of the items and market movements. Research if your intended niche has competition that is easy to beat.
Do not work on a segment with zero competition. It is highly likely that nobody has tapped into that because of a lack of audience. Instead, the most profitable niches are usually the ones with most people.
When considering a possible dropshipping product, consider these characteristics from products that sell well on e-commerce platforms.
- Major brands do not reign supreme –
Do not select a product dominated by a huge brand to increase your chances in the market. For example, Apple and Samsung are big names in the smartphone niche. So, it makes no sense to venture into that segment when you are up against such massive company names, but you could “supplement” or piggyback with some accessories or something.
- Small and lightweight –
The lighter the item is, the better. This detail will help you minimize costs for shipping, resulting in a higher profit margin.
- Available all-year-round –
When you are only starting, avoid seasonal items with high demand during a specific time of the year. Marketing Christmas decorations or summer products will severely limit your selling power during the off-season.
Finding reliable suppliers
With your newfound understanding of the dropshipping business model, you should now understand that manufacturers or suppliers can make or break your online retail store. Reliable suppliers are few and far between, so you should spend a lot of effort into securing one.
When building a dropshipping business, 84 percent of online retailers find this step to be the primary roadblock. So, here are some qualities to look for to help you with your research.
- Must be familiar with the dropshipping model –
Not all product manufacturers or suppliers are into the dropshipping industry. Before you reach out to them, ensure that their business is a drop shipper.
- Have experienced staff –
As soon as you place the customer’s order, the supplier has all the responsibility in the remaining steps of the dropshipping process. The manufacturer's representatives must appear helpful and knowledgeable.
- Provide fast shipping –
Though there are manufacturers in the United States, most that offer drop shipping are overseas. It is illogical to expect overnight shipping, but these suppliers should ship as fast as possible. If you also ship outside your country, 1 to 2 weeks is acceptable for dropshipping.
- Have quality products –
In the dropshipping cycle, the products sent to the customers no longer pass by you. Therefore, request samples from the manufacturer to test the products’ quality before fully committing. The supplier should also have high-quality product photos for you to post on your website.
Selecting your dropshipping platform
Selling on Online Marketplaces
- The account setup is usually easy and straightforward.
- These sites already generate a considerable amount of traffic, which are already your potential customers.
- The targeted audience trusts these platforms.
- The platform charges you for every sale made.
- You have limited management of customer service and branding.
- You directly compete with other sellers on the same platform.
Building Your Online Store
- YOU HAVE FULL CONTROL OVER BRANDING, LAYOUT, DESIGN, ETC.
- You have higher profit margins for every sale since there are no additional fees.
- You do not compete with other sellers on one platform.
- CREATING AN INDEPENDENT STORE COSTS MONEY.
- You do not have guaranteed traffic from well-known platforms.
- You will have to invest in marketing for your website to reach a higher ranking on search engines.
If you have funds to spare and are interested in this business in the long-term, I recommend creating your store, but not just another dollar store, you must create a brand! However, if funding is an issue and you want to try it out first, then joining established platforms is the way to go.
So, you have your whole system setup and are now ready for your first sale. To make it happen, you have to draw customers to your online store. There are two main routes you can take.
When you start a business, I know you want to minimize costs as much as possible, especially with actual profit far off. Before you skip this step because of the dreaded word “paid,” first hear me out. Paid advertising is a tried-and-tested method of putting the name out on your product. You do not have to spend hundreds or thousands of dollars on Facebook advertising immediately.
Though the impulse to go big is tempting, I recommend starting small with your advertising budget. This detail gives you more room to experiment with different products for your promotion.Take it slow and see if the ads generate any return. But do remember that Ads are commodity, and ads alone are not going to save your dropshipping store. You will need to have all the foundational elements in place to make sales.
You can learn more about how to grow and scale your dropshipping business with my new course Digital Mastery Business Blueprint. I’ll guide you through:
- Buyer Awareness Levels
When you have these in place, your dropshipping business will boom. But, to really scale your business, you must set-up…
- On-Demand Traffic
- Scalable back end
- New revenue streams
Aside from paid ads on Facebook or Google, you can also reach out to social media influencers. I know their rates are usually too high for a start-up business, so consider offering them an affiliate commission instead. If they agree, then this kind of deal minimizes the risk for you even further.
For their part, influencers have the potential to get higher commissions, the more the product sells, as compared to getting a flat rate at the start of the promotion. You do not have to go for one with millions of followers immediately. Instead, look for an account in your niche with a broad audience.
Everybody wants free stuff, but you have to know that results may take longer than doing the other route. Since you are not investing money, you have to devote more time and effort in promoting your business. Here is something I wrote for 9 killer marketing strategies to launch your next online business, you can check it our right here.
The first way is to establish yourself as an authority in your product niche and actively participating in related blogs or forums. Places like relevant Facebook groups, Reddit and Quora already generate traffic, so you can undoubtedly contribute valuable info to those places and generate traffic to your website.
Second, if you have platforms of your own, you can create original, relevant, and valuable content to build your audience. You can post a blog on your website or YouTube channel or create Instagram and Twitter posts.
Last, e-mail marketing is one of the best ways to acquire customers. Once you have their e-mail addresses, you now have a way to reach numerous people regularly, on-demand. Some of the most popular email marketing tools are AWeber, ConvertKit, ActiveCampaign, GetResponse, MailChimp and Drip.
Evaluating your results
This last step is one of the most crucial, though often forgotten, parts of any process. Once you have created your retail store, branding, and advertising strategy, it is essential to evaluate your results.
You may find some advertising campaigns do not work well as you expect, or you may need to change your strategy. Tools like Google Analytics will help in the evaluation process to monitor your website traffic.
Data obtained from these analytical tools will help you decide the next step in your advertising campaign.
How To Make Money From Dropshipping?
I mentioned earlier that typical profit margins range from 15 to 45 percent. However, you should be targeting even higher profit margins to account for the overhead and marketing expense, so try to target at least 100 percent or even higher profit margin.
Since your profit primarily comes from the difference between the retail and wholesale prices, I recommend sourcing your products directly from a manufacturer to ensure higher margins. It is also essential that you find the right niche, as saturated markets are challenging to penetrate. However, when you setup your marketing system with the help of my new course Digital Mastery Business Blueprint, you can sell ice to Eskimos.
With these things in mind, your dropshipping business is ready to take off. Once it gains traction, the potential for a money-making machine with minimal input is high. Here are some success stories to inspire you to start in this e-commerce industry.
- Irwin Dominguez was a local marketing consultant before becoming a dropship retailer. After only eight months of launching his business, he made a million dollars in sales.
- Poker players Aloysius Chay and Galvin Bay earned 60,000 dollars per day after 12 months of launching their dropshipping business.
Like you probably noticed, making it big in e-commerce does not happen overnight. The dropshipping business has enormous potential for profit, but you have to put in the effort and dedication to push through the initial phases.
My 10 Recommended Dropshipping Platforms
Now that you have grasped the basics of the dropshipping business, it is time to choose a platform that suits your needs. I mentioned earlier that you could either choose an established marketplace or create your store. However, one of the significant roadblocks to dropshipping is finding suppliers. Here, I have outlined ten places where you can discover items to dropship and retail in your online store. Regardless of the product niche you select, I am confident that these will appeal to you.
This Canadian-based company started in 2004 and has established an excellent reputation in the e-commerce industry. This platform provides many useful features for dropship retailers, including theme settings, order management, credit card payments, and unlimited hosting.
You get to build an online store that is perfect for a fee for those who are technically unsavvy. Shopify has excellent scalability, depending on the package you select, and it also offers multiple support channels.
If you already have an existing website, you can easily integrate that with the Shopify platform. You do not have to worry about other technical details; instead, you can focus on building your brand as the website is user-friendly.
This Texas-based company only started in 2009 and now has over 600 employees worldwide. This platform has thousands of e-commerce websites, and retailers can choose a specific package with average transaction fees. Like most platforms, it offers a trial for 15 days, after which you need to pay for the continued use of its services.
Like Shopify, the website offers the necessary features for your dropshipping business, including order management, multiple payment gateways, and marketing elements. It is also beginner-friendly and scalable for those fast-growing businesses.
It offers support through e-mail, live chat, and phone, with a robust self-help section on its BigCommerce Resource Centre. Besides its three regular packages, large enterprises can also host their online store on the platform at custom pricing.
This e-commerce platform started in 1999, and since then, it contains over 30,000 retail stores, including popular brands like USA Bride and Tiny House Coffee Toasters. It offers a 14-day free trial, after which you can select from three competitively priced packages.
Retailers pay monthly, although Volusion provides discounts for those who take advantage of an annual subscription. Regardless of the plan, it offers unlimited product hosting and file storage.
The numerous features include order processing, inventory tracking, SEO tools, and a dropshipping app. Volusion accepts 22 third-party applications, including Doba, Grasshopper, Hover, and Shippo.
The only downside I have is the transaction fees associated with each purchase. However, this percentage becomes smaller with the purchase of a better package.
This organization started in 2015, and it works as a plugin to WordPress. This detail makes creating the retail store straightforward. If you do not have the creativity to build your own, AliDropship can build it instead.
Much of the whole process has been automated, including the export of products from AliExpress. Therefore, the retailer can focus on increasing sales through various marketing strategies.
Since it is part of the giant Alibaba Company, the platform has over 100 million products and thousands of trusted suppliers. It is more prevalent in the Asian market, but the website offers to ship worldwide.
If you already have a WordPress site, then you may consider choosing this solution. However, you can only dropship items from AliExpress and no other suppliers.
Similar to AliDropship, this one is a plugin specifically designed for integration in the WooCommerce platform. WooDropship offers three plans at a monthly subscription, and it allows retailers to pull product information from AliExpress.
The interface is user-friendly, so beginners will not have challenges utilizing it. WooDropship allows retailers to edit an item’s pricing as well as customize the product description. This feature will keep your online store apart from other platforms in the same niche.
The minor downsides to this software are the recurring monthly fees and the limited number of orders based on the subscription package. WooDropship also does not have add-on features to its interface.
This dropshipping platform started in 2015 and has since become one of the most widely used e-commerce software worldwide. You can assimilate Dropified with other websites like Shopify and WooCommerce, which is ideal for those who already have an online retail store and recently added dropshipping.
Aside from those two, this software also integrates with applications like Zapier to improve your store’s productivity. Dropified is even compatible with AliExpress, which allows the retailers to pull information for tons of products into their platform.
Dropified offers two packages that vary in support, the number of available products, monthly order maximums, and user count. Like the other platforms, it has extensive customer support through e-mail, live chat, support articles, and social media pages.
If you are already using Shopify as your e-commerce platform, then Oberlo is a perfect match. This built-in extension only started in 2015, but it has already built an excellent online reputation in dropshipping circles, especially for those on the Shopify marketplace.
New Shopify users will already have an integrated extension, allowing retailers to import products from AliExpress securely. Like Shopify, it has a user-friendly interface and has fully automated features for order fulfillment.
Retailers can easily mark up the prices and choose from any supplier on the platform. Growing businesses can scale their retail store, as well.
One of the chief downsides is that the plugin only works with Shopify. When it comes to suppliers, you can only choose from the ones on AliExpress.
Compared to the other platforms on this list, Spocket, established in 2017, is relatively new. This website enables retailers to choose from a wide selection of suppliers who primarily reside in the United States and Europe. You can also find several merchants based in Australia and New Zealand.
You can integrate this application into your online retail store, and it will take care of the whole dropshipping process. The source of your products makes Spocket unique from other dropshipping platforms, as the latter mostly obtain their goods from the Eastern market.
I mentioned earlier that a reliable supplier provides sample products, and Spocket does precisely that. You can verify the quality of products on your retail store and test the supplier’s delivery speed.
Because of this factor, you can also take product photos of your own, which is essential for those who focus on building their brand. The suppliers provide discounts of up to 60 percent, which will allow retailers a higher profit margin.
This Florida-based company started in 1999 and is a directory service that connects retailers to thousands of suppliers. I mentioned earlier that finding reliable suppliers is like searching for a needle in a haystack, and this organization saves you that time and effort for a fee.
To be clear, Worldwide Brands does not sell particular products; instead, it publishes wholesale product sourcing information for retailers. The platform accepts two business models: dropshipping and traditional wholesale.
It connects you to potential suppliers for your particular niche by providing all their company information, but you have to contact them yourselves. For a one-time fee, you get access to numerous verified suppliers, with new ones added weekly. If you plan to sell products in different niches, then this resource may work for you.
This New Zealand-based company started in 2005 and has become one of the most well-known dropshipping platforms worldwide. It has over 8,000 suppliers, including those who sell branded products.
Salehoo offers one of the most competitive prices in the market, and you can choose from one year or lifetime access. In both packages, you have access to its extensive supplier directory and Market Research labs.
Some suppliers require a minimum order, but Salehoo has some with low to zero requirements. Though the headquarters are in New Zealand, the platform ships worldwide, which is ideal for those venturing into the dropshipping business.
One thing I especially like about Salehoo is the training opportunity. The platform takes great pride in assisting new entrepreneurs in their business journey, so it offers fantastic customer support on top of step-by-step guides and videos.
The Challenges With Dropshipping
With all the hype surrounding dropshipping, you might feel tempted to jump into this business venture right away. However, no business model is perfect, and the same goes for the dropshipping business.
However, with the right resources such as my Digital Mastery Business Blueprint, this system has unlimited potential. In this section, I will list the challenges most retailers face, whether you are a beginner or have been in the business for a few years. In the same way, I will note how you can overcome them to make your business experience smoother.
These drawbacks are real issues that you have to face before venturing into this business, but you can avoid most of them by choosing the right dropship supplier.
Once you have placed the order to the supplier, the next steps are out of your hands. Ultimately, you have to trust the manufacturer ensures quality control and complete the remaining parts of the supply chain.
Although you outsource fulfillment, the retailer is the one who is facing customers all the time. In case there are problems with the supplier or the shipping, you will have to bear the brunt of customer dissatisfaction. This part is challenging when you do not see or use the product.
Possibility of copycats
With the business’ low barrier to entry, it is highly likely that you have other people doing the same thing. Depending on the market you will enter, it may also be challenging to differentiate yourself from other retailers.
Without quality control, there is a likelihood of customers returning the product for various reasons. Common reasons include getting the wrong item, unneeded merchandise, misleading product descriptions, and damage. Since the customers will direct these returns to you, you must ensure that your website clearly states the returned products' handling process. Otherwise, you will have a challenging time and even lose customers.
Best Marketing Methods and Tools To Increase Sales and Customer Lifetime Value
Aside from getting the whole dropshipping system in place, another hurdle to overcome as an entrepreneur is to increase your product sales. In step #4, I have already mentioned several methods to help you improve your sales figure. In this section, I will go over several marketing tools to help you run your dropshipping business more efficiently.
In this section, I will go over several marketing tools to help you run your dropshipping business more efficiently. However, it is best to use additional tools for product research to determine your intended niche's viability. There are instances wherein products have an upward trend but do not have a high search volume.
Ubersuggest Keyword tool
Another tool to help you with market and product research is Ubersuggest Keyword tool. This feature provides the search quantity and keenness of a keyword. It will help you recognize your business ideas' potential, especially if you plan to expand your product selection.
This e-mail automation tool is one of the most popular in the industry because of its competitive pricing and user-friendly features. It also integrates with two of the most well-known e-commerce platforms, Shopify and WooCommerce. I like Aweber has a free tier for your first 500 subscribers. This helpful amenity is ideal for those who are starting and do not have too much money to spare.
Other e-mail tools you can use are ConvertKit, ActiveCampaign, GetResponse, MailChimp. Aside from on-boarding or welcome e-mails, send messages to your customers regularly and and obviously cart abandonment, re-targeting and re-marketing are essential. This process helps to keep you relevant and may even open opportunities for cold customers.
This software is another e-mail automation tool that can integrate with Shopify and WooCommerce. If you have more money to spend, you can invest in Drip as pricing varies with the number of people on your account. What is unique about this tool is the embedding of tracking codes that gather data on your customers' interactions with your retail store, including the products they view and the products they purchase.
This guide has already established the importance of social media in your marketing campaigns but handling multiple platforms can become challenging. This tool is a social media manager that can work with popular platforms like Facebook, Instagram, Pinterest, Twitter, and Google+. Buffer can track your posts and help you schedule them all at once. If you use Shopify or WooCommerce, you can integrate this tool using third-party software.
This tool is another social media manager similar to Buffer, but it can integrate to over 20 social networking platforms. Hootsuite offers four different plans, with prices depending on the number of users and social profiles included.
This software is arguably the most popular analytics tool across all industries, for a good reason. Its best-selling point is that it is free, making it perfect for both beginners and advanced users. Though novice users may find it challenging the first few times, Google offers plenty of tutorials regarding the use of this helpful too.
This software deals with one of the most crucial aspects of the industry: customer support. The live chat facility is free for the first three operators, which beginners and small business owners can use. Tidio can integrate with e-mail and Facebook Messenger to read and reply to all your messages in one platform. Upon subscribing to the paid plans, you get access to more features like automated messages when no operator is available.
I hope this guide helped you understand the essential information you need to start a dropshipping business. Like with all things in life, it will take some time before your business kicks off the ground. But trust me when I say the results are all worth your effort.