How to Start Dropshipping Business
Dropshipping is one of the fastest growing online business ideas and the reason for it to become an increasingly popular online business model is the fact that it doesn’t require a huge investment to get started with dropshipping. And, so almost every first time eCommerce entrepreneur is interested in knowing how to start dropshipping business
You don’t need to invest in manufacturing, storage, and delivery, instead just create an online store where customers place an order, and you notify the vendor about the sale who then takes care of the rest of the procedure, i.e. packaging, delivery, etc.
Moreover, it’s also not such a complex business model, so anyone who has a keen interest in starting and running their own business can start dropshipping with a small investment, i.e. under $1k in most cases.
If you are a wannabe entrepreneur and looking to to know how to start dropshipping business, you might already have started researching for the answers to questions like:
- How profitable is dropshipping?
- How can a beginner start dropshipping business?
- How much do beginner dropshippers make?
- What do I need legally to start a dropshipping business?
- How many dropshippers are successful?
- Is dropshipping worth it?
- What percentage do dropshippers make?
- How much money do you need to start dropshipping?
- Should I start dropshipping?
- How long does it take to make money dropshipping?
- Can dropshipping make you rich?
Well, dropshipping is definitely worth trying, however, success in any business depends on your commitment, market research, and timely decisions, so is the case with dropshipping. You must also know that not all dropshippers become successful overnight; many may fail several times before finding the best product to dropship.
Let’s explore the answers to the questions above to know how to start dropshipping business successfully with a small investment.
How Profitable is Dropshipping; How Much Do Dropshippers Make?
The first thing you must know before knowing how to start dropshipping business is its feasibility. Success in dropshipping businesses depends entirely on what product you want to sell, who your target market is and how effectively you sell. Typically dropshippers can make anywhere between $50 to $5,000 in daily profit, and high demand products play a vital role in the profitability of a dropshipping business. Moreover, you must also consider profit margin, marketing and sales costs, and recurring purchases when picking products.
And yes, most dropshipping businesses may not be able to make quick money or earn huge profits initially, but with consistent efforts and hard work, a business can yield good profits. Generally, it takes between 6 and 12 months for dropshipping businesses to be profitable.
Typically, dropshippers earn profits through a certain commission rate (percentage of revenue from each sale that you make) and the average dropshipping commission rate is between 15% and 20%, but it may be more depending on the demand and supply of the product.
How Much Money Do You Need to Start Dropshipping?
Dropshipping may seem to be a “no-cost business idea” for seasoned online entrepreneurs who have experience in building websites and eCommerce stores. However, it is not really a zero investment business, as you always need some money to make more money.
Yes, it is a low cost business idea, and you can start a good and potentially profitable dropshipping business in under USD 1000. Though you can build a free website using some platforms like Wix, it’s always good to invest in your own domain and hosting.
You may also consider selling through an Etsy shop where you won’t need much effort to build the store, but the platform will charge you a certain fee for each listing and sale which may affect your profit margin in the long run.
Other than the store setup costs, the major expense that you will have is “marketing”. Ideally, you should spend 20% of your budget on store setup and 80% on marketing.
How to Start Dropshipping Business?
The idea of getting into dropshipping is very exciting, but to start a dropshipping business and make it profitable you need to invest time and a parallel effort, just like you need to do in building a business with a physical setup.
Let’s explore the step-by-step guide to start a dropshipping business.
1- Finding a Profitable Product
Although you can sell just anything through dropshipping, finding a product that is in high demand in the region where you will be selling is a tricky matter. You may need to spend hours researching the right product, but in the end, your research will be worth it.
Clothing and accessories, sporting goods, pet accessories, DIY tools, and materials, etc. are among the least risky yet highly demanded products, however, this may vary from country to country.
2- Create Business Plan for Dropshipping Business
A business plan is a detailed document that serves as a roadmap to success for any business and you do need one to start a dropshipping business and make it profitable and grow it to the next level. However, it should not necessarily be a ten-page long document in the beginning, and you can start with a one page business plan too.
Make sure your business plan lists the following items:
- Quick stats about the market for products you want to dropship, i.e. how much is the demand, who are the target customers, profit margin, expected profit, payment processing, etc.
- List of products you will be dropshipping.
- List of vendors.
- Where and how will you find customers?
- Where and how will you promote these products?
- How will you make the customers return and buy more?
- How many products do you plan to sell per month, per quarter, and per year?
- How much will you spend on building an online store?
- How much will you spend on marketing?
- What tasks will you do yourself and what will you outsource?
3- Get Your Dropshipping Business Legal
This is the most important step as you might not be able to operate without fulfilling legal requirements. The first and foremost requirement is to have a business entity (company/sole proprietor) and have a Federal Tax ID Number (EIN). Which you can apply online through the IRS website. Then you will require a sales tax ID to operate such a business, however, there’s an exception in some states, i.e. Alaska, Delaware, Montana, New Hampshire, and Oregon.
Applying for a tax ID can also be done online or by visiting your local county clerk’s office. Your state’s Department of Taxation and Finance website will provide the relevant details.
3- Build Your Online Store
Using a ready-to-use eCommerce platform like Shopify is probably the best option for non-techie first time entrepreneurs as well as for those who have a working knowledge of building basic websites. At a later stage when your dropshipping business grows further, you may want to move to a self hosted eCommerce platform.
Other than building a robust store, you must also take care of the content on your store. This includes both copywriting and product photography. Having great taglines and attention-seeking product descriptions are essential for converting your website visitors into customers.
4- Start Product Promotion & Marketing
Marketing is the backbone of an eCommerce business, and so you cannot build a profitable dropshipping business without effective marketing.
Ideally, you should have an actionable marketing plan in hand which lists your marketing budget, platforms that you will use to promote your products, marketing goals, Social Media & SEO tools that you will be using, deadlines for different tasks, and measurement methods.
Moreover, there should be a person responsible for marketing efforts if you are not going to do it all yourself. Marketing will be an ongoing process, and there’s always room for improvement, even in your best-performing campaign.
Summing it Up
Now you know how to start dropshipping business and understand that starting a dropshipping business is a great way to earn a decent income, however, if your goal is to make huge profits in a short time period, this may not work. Even for seasoned entrepreneurs, it may take a while to get well into dropshipping. Dropshipping is a great business to start when you invest time, money, and consistent efforts; you will build a profitable business in six months to one year for sure!