If you’ve ever used YouTube to search for side hustle ideas, you’ve probably come across a how-to video about dropshipping. It has been gaining popularity among online sellers, but is it all that it’s touted to be? If you are looking for options to build your wealth, starting a dropshipping business may be something to consider.
What Is a Dropshipping Business?
Dropshipping is a way of handling online orders that doesn’t require the retailer or seller to be involved in maintaining the physical product inventory. When a customer places an order with a retailer or seller, it’s sent to a third party, who fulfills and ships the order.
For example, imagine that a graphic designer would like to use a hand-drawn illustration they’ve done to print T-shirts. The designer creates an online listing featuring the T-shirt design, along with pricing and other details. When a customer finds the listing and places an order for the T-shirt, the graphic designer is notified of the purchase — but isn’t required to do anything.
Instead, a third-party supplier that the designer has chosen receives the order, prints the T-shirt, ships it to the customer and pays their expenses before sending the remaining profits to the designer.
Pros and Cons of Dropshipping
When considering starting a new side gig or business venture, it is important to weigh the good with the bad. Here is a look at some of the pros and cons of dropshipping.
| Pros | Cons |
|---|---|
| Low overhead as you don’t have to store any inventory, printing or shipping materials | Fewer profits as they are shared with a third-party supplier |
| Can start right away as many companies offer a quick setup | Highly competitive and can be hard to gain traction in a crowded marketplace |
| Low maintenance business model | Diminished brand value and potential legal issues due to a third-party supplier |
| Potential for a long-term revenue stream | Little or no quality control as you don’t see products before they are fulfilled or shipped |
How To Start a Dropshipping Business
If you have been wondering how to start a dropshipping business, it may be more within reach than you thought. Here are five steps you can take to start now.
- Choose your business concept.
- Source your products.
- Select your suppliers.
- Build your online store.
- Register your business.
1. Choose Your Business Concept
Your business concept not only defines what you’re selling but also the demographic to whom you’re selling. It is crucial to pick a concept you feel you can sell and market well. That being said, as dropshipping has so many product options, you can switch things up as you learn more about what is working best for your business.
2. Source Your Products
When it comes to selling products, especially with third-party sellers, it is important to research how the products you want are distributed, how many sellers carry them and what the wholesale cost is. This will better prepare you for how to design your website and choose products for your specific market demographic. The following are examples of popular marketplaces.
- Alibaba
- AliExpress
- Doba
- Megagoods
- Oberlo
- Printify
- SaleHoo
- Wholesale Central
- Worldwide Brands
3. Select Your Suppliers
For a dropshipping business, it is important to choose a reliable supplier from an online marketplace to ensure the best inventory with the best stock quantities. This will be the company that actually ships the products to your customers so be sure to double-check some of these factors.
- Profit margin: Be sure to consider the cost of transactions such as shipping and how that will eat into what you make per product. You should aim for a 20% profit margin, but of course, if you can get more you should do so.
- Quality control: The supplier you select represents the quality of the goods you are selling. Higher quality could mean higher cost, but it also builds a better reputation which leads to more sales.
- Reliability and accountability: Make sure the supplier you choose sticks to delivery timeframes and shipping costs and estimates. Before choosing a supplier, order a few things through them to get an idea of what you should expect.
4. Build Your Online Store
There are many ways to build your online store’s website through platforms such as Squarespace, WordPress or Shopify. This content management system is essential to allow your customers to see and purchase your products.
While designing your online store, you can choose such things as your domain name, how you would like customers to pay and how you want to receive payment. This is called a payment gateway. Make sure the domain name is something that relates to your store and easily shows up if someone is searching for it. This will also help in the marketing of your dropshipping business.
5. Register Your Business
By registering your business, it separates your company assets from your personal assets. This is important for both tax and income purposes. Here are the steps to register your business.
- Choose a name or use your domain name to file for LLC with the Secretary of State.
- Once your application is submitted, you will receive a tax identification number from the IRS.
- This number links your payment gateway with your account.
This linked account will be where you take deposits and pay company expenses.
How Much Can You Earn by Dropshipping?
Some dropshippers earn up to $100,000 per year, according to Shopify. Your income from dropshipping will be influenced by a number of factors, from competition for your product to the size of your competitors and the margin you’re able to keep.
Dropshipping Best Practices
Like most efforts in business, your effort creates a result, so make sure you’ve done your homework.
- Have a plan for mishandled orders. The fulfillment process may belong to someone else, but the customers are yours. Have a policy in place for when things go awry.
- Manage inventory. As a dropshipper, you’re reliant on your suppliers to have what they need on hand. If they’re constantly short on product, it’ll be hard for you to stay in business. Research your suppliers well and consider working with several.
- Don’t let shipping unknowns slow you down. Shopify advises choosing simplicity over perfection when dropshipping, like starting with flat-fee shipping and adjusting as your business grows.
- Know how you’ll deal with returns. You will request a return merchandise authorization from your supplier, and you may face restocking fees.
- Advertise. From search engine optimization to ads on Facebook and Google and social media campaigns, there are many ways to get the word out about your product.
Final Take
With dropshipping, it’s possible to start a business quickly and efficiently which makes entrepreneurship all the more accessible. It can be a simpler alternative to paying for all your stock in advance and risking either not selling enough or not having enough product.
But remember, like any other business, dropshipping can have drawbacks. Do your homework upfront and know what you’re getting into.
FAQ
Here are the answers to some commonly asked questions about dropshipping.- Is dropshipping a profitable business?
- As with any business, dropshipping can vary in profitability. Factors to consider include such things as transaction and shipping costs as well as expenses associated with your third-party supplier. An average profit margin would be between 15% and 20%.
- How much does a dropshipping business make?
- There is no guarantee as to what a dropshipping business can make since the dropshipping marketplace can be both competitive and saturated. However, some dropshippers earn up to an estimated $100,000 per year. Your income from dropshipping will be influenced by a number of factors, from competition for your product to the size of your competitors and the margin you're able to keep.
- How can a beginner start dropshipping?
- To get started with your dropshipping business, you can follow these steps.
- -Choose your business concept.
- -Source your products.
- -Select your suppliers.
- -Build your online store.
- -Register your business.
- To get started with your dropshipping business, you can follow these steps.
- Is dropshipping good for beginners?
- Dropshipping can be good for beginners as there is low overhead, you can start right away and you don't have to store any of the inventory you are selling.
Kelli Francis contributed to the reporting for this article.