What is Dropshipping Business?

What is Dropshipping Business?

Dropshipping business is a great entrepreneurship opportunity for making money online. The post shares everything you need to know about Dropshipping.

So, if you want to start a Dropshipping business, then you should go through this comprehensive guide that offers you all the necessary details about this online opportunity for making money.

In fact, Dropshipping has exploded in popularity over the recent years, and thousands of people around the world are making up to seven-figure income from Dropshipping.

So, let’s get started and explore the Dropshipping business idea.

Dropshipping Business

Table of Contents

What is Dropshipping Business?

The Dropshipping business model offers you an entrepreneurship opportunity wherein you can run a store without the need to hold any inventory.

When the sale is made, your supplier will ship the products from their warehouse and deliver it to your customer’s doorstep.

So, in Dropshipping business, you don’t need to care about storing, packaging, or delivering your products.

The Dropshipping business is different from traditional retail and eCommerce businesses in the sense that the retailer does not need to stock the goods. The retailer transfers the customer’s order and shipment details to the manufacturer or another retailer, who then delivers the goods to the customer.

Dropshipping business has become highly popular with merchants as almost 33% of eCommerce stores use Dropshipping as a fulfillment method.

How Dropshipping Business Model Works?

The Dropshipping business model is simple to understand. It involves three key players:

  • The Manufacturer (supplier)
  • The Retailer (you)
  • The Customer

The manufacturer (supplier) is responsible for creating products, managing inventory, delivering products to customers, replacing defective products, and even restocking products.

The manufacturer sells the products to the retailer at wholesale prices and assumes the risk of unsold inventory.

On the other hand, the retailer (that is, you) sells the manufacturer’s products on its website under your own brand. They are responsible for choosing and marketing products. Plus, they handle customer inquiries and complaints.

Lastly, the Dropshipping business model involves the customer who buys the products directly from the retailer (that is, you). In case of any questions or issues, the customer contacts the retailer from whom they have brought the product.

In simple terms, the Dropshipping business model works like this:

  • A customer goes on to purchase an item from your store at the retail price
  • The order is then forwarded to the supplier. You need to pay the wholesale price to your supplier.
  • The supplier delivers the product to the customer under your business name

So, Dropshipping requires a minimal investment on the part of the dropshipper as they don’t have to buy and store bulk stock. It eliminates the risk of buying in bulk when you are not able to sell all of the products.

Why is Dropshipping a good business idea?

Here, we have listed out some reasons why Dropshipping is a great business idea for new entrepreneurs.

You should start Dropshipping business as it is a low-risk business model.

Herein, you only need to pay for products that you go on to sell to the paying customers. Moreover, you do not have to incur the cost of creating products. You don’t have to maintain inventory nor have you to pay the employees for packaging and shipping products.

Its low cost to entry makes it a great entrepreneurship idea. Although it requires daily work of processing orders, however, most of it is automated and require a click of a button.

Here, we share some more reasons why you should start Dropshipping:

  • It’s a lucrative “make money” opportunity and better than your 9 to 5 job. It offers the opportunity to set your pricing. You have control over how much you can make. Moreover, the more you will market your business, the more likely it’ll succeed.
  • Dropshipping offers you the opportunity to maximize your creativity. It can be very exciting. You can make use of your new ideas.
  • In Dropshipping, the manufacturer ships the products to your customers on your behalf. So, you don’t need to pack boxes all by yourself.
  • You don’t need to carry inventory. You don’t need to hold boxes of products either at your house or in a warehouse. So, you don’t need to pay any warehouse fees. You save a lot of money as there are no unsold inventory costs.
  • Dropshipping offers you an opportunity to build your own career. You can decide the work you do, your title, and how you manage your day. Moreover, your only boss is your customers.

Here, we provide you some statistics that hopefully can provide you a sense of excitement about Dropshipping:

  • As much as 33% of online retailers have taken up to Dropshipping as their primary business model
  • There were as much as $14.2 billion of drop-shipped products sold on Amazon in 2011 itself which is 34% of products sold on Amazon.
  • Global eCommerce sales stand at USD 2.3 trillion.
  • In fact, Google Trends shows a massive increase in interest in Dropshipping over recent years.

What you need to starting a Dropshipping Business?

There are only a few essentials for starting a Dropshipping business. These are as follows:

  • You will need a product to sell
  • A manufacturer or supplier of that product
  • A platform (such as a website) for selling the product
  • A Sales Tax ID

However, to make your Dropshipping business a success, you need to possess a positive attitude, a good work ethic, and a sincere commitment to your new business venture.

How to Start a Dropshipping Business

Here, we share with you the Dropshipping business plan. It’s a step-by-step guide for starting a Dropshipping business.

Step #1: Finalize a Dropshipping Business Idea

First and foremost, you need to finalize and pick the best Dropshipping business ideas. It is all about picking a niche that you’re passionate about. Plus, it has to be a profitable one too.

Some of the evergreen niches that might sound interesting to you include beauty, fashion, jewelry, fitness, tech, and backpacks.

Dropshipping Business Idea

We need to stress here that your niche matters. So, spend a good time analyzing different Dropshipping business ideas and select the one that you’re passionate about and which holds profit for you.

Here, we list out some pointers that will prove helpful to you when you pick your Dropshipping business idea:

  • You can use Google Trends to know whether a niche has an upward or downward trend.
  • Google’s Keyword Planner helps you to figure out the potential of your Dropshipping business ideas. For example, you can know the search volume for a keyword.
  • Social media is another viable channel to look for Dropshipping business ideas. For example, you can browse social media pages for top brands. You can come to know how they market their brand.

While most products are suitable for Dropshipping right from toothpicks to the kitchen sink, some products are especially suitable for Dropshipping.

Here, we list down some characteristics of a perfect Dropshipping product:

  • Major brands do not dominate a good Dropshipping product. It means that you get a greater chance of capturing a portion of the market.
  • It is small and lightweight. Typically, a good Dropshipping product should fit inside a shoebox. It should weigh less than 2kg.
  • A good Dropshipping product should be non-seasonal and in demand all year round.
  • It should retail for in the range of $15 to $200. This price range is known as the “sweet spot” in the eCommerce world. Anything cheaper than $15 will not fetch you much of a profit margin, and anything which is over $200 will be difficult to sell. While there are exceptions to this rule, following it will ease out your Dropshipping journey.

The above guideline will help you to choose a good Dropshipping niche and have a few product ideas that are considered viable.

If you have got at least one product idea at this stage, you can move to the next level.

Step #2: Find a Dropshipping Supplier

In Dropshipping business, the supplier is your most important business partner. So, you need to find a reliable supplier, who can keep your product in stock, upholding product quality, and ensures that the orders are shipped to your customers promptly.

Dropshipping Supplier

Here, we list out the essential features that you should look out in a dropship supplier:

  • You need to make sure that the supplier can drop ship. Moreover, you should know that not all product suppliers offer Dropshipping as a service.
  • The supplier should hold years of experience with Dropshipping. A dropshipping supplier assumes a lot of responsibility with Dropshipping. So, you need to make sure that the dropship supplier has experience & helpful staff so that you can depend or rely on them at all times.
  • The dropship supplier should charge a small fee for their services. Typically, the fees should range from $2 to $5. If it is more than that, then you should let them go.
  • The dropship supplier should offer fast shipping so that your customers will get their items as fast as possible. You should check the shipping timings to the countries that you service. One to two weeks delivery time is acceptable in Dropshipping. However, if they take more time than that, then you should let them go as it could result in negative customer feedback.
  • You should request product samples and check the quality before committing to a supplier. Plus, the supplier should offer high-quality images that you can use in your product listings.

You can look for dropship suppliers online or use a wholesale directory.

Step #3: Procure a Sales Tax ID

You’ll need a sales tax ID if you’re setting up a business in the United States or Canada. It is also known as a tax ID, resale certificate, or vendor’s license.

It is a tax that is levied on the sale of physical goods to consumers. Sales Tax can be of about 6-22% (Depending on the country) of the sale price. Businesses add the sale tax to the retail price and pass this expense on to the consumers.

However, there are some states where it is an exception such as Alaska Delaware, Oregon, New Hampshire, and Montana.

It is easy and inexpensive to apply for a tax ID.

You can do it online (simply Google “your state + sales tax ID”) or visit your local county clerk’s office.

A business entity, or a company, or even a sole proprietor can apply for a sales tax ID.

Sales Tax ID

Step #4: Choose a Selling Platform

After finalizing a product and lining up a supplier, it’s time when you start selling and making money.

However, you need to choose the right selling platform to succeed in the Dropshipping business.

Well, you can choose to sell on an established platform. You can also start your independent online store.

It’s easy to get started with a well-established online marketplace such as Amazon or eBay. You need to set up an account and start selling. They already have a huge amount of traffic. Moreover, consumers trust these platforms. So, you can make good money with these online marketplaces.

Selling Platform

However, these online marketplaces charge fees for every sale you make. Moreover, you need to compete with other sellers on these platforms. Plus, you have limited control concerning branding, customer service, product photography, etc.

Amazon is regarded as the most popular online marketplace for Dropshipping business. It has over 300 million active users, more than 100,000 sellers made more than $100,000 on Amazon. Sellers need to pay about 15% of their sale price to Amazon.

However, you can even start your online store. You can make use of online tools (such as Shopify) to get started. You get complete control over branding, design, and layout. There are no fees to be paid and higher profit margins for you. That said it takes time to rank on Google. Plus, you need to invest in SEO and marketing.

Step #5: Implement a Customer Acquisition Strategy

Once you have chosen the selling platform for your Dropshipping business, it’s time to attract customers to your store. This can be achieved by building and following a customer acquisition strategy.

Customer acquisition is nothing but advertising and marketing for gaining new customers.

Customer Acquisition

Well, there are two approaches to customer acquisition:

  • Fast path (paid)
  • Slow path (free)

Here, we point out both the methods of customer acquisition.

Fast Path (Paid, Paid Ads)

  • You can advertise your products with Facebook ads and into a huge audience.
  • One can buy Google Ads for your online store
  • You can do social media influencer marketing

Slow Path (Free Promotion)

  • Participate actively in blogs and forums that are related to your blog/niche
  • You can do content marketing in the form of a blog on your store website. You can even come up with a YouTube Channel, Twitter posts, or Instagram posts. Content marketing serves your audience who can then convert into customers.
  • You can build a following by sharing great content on your social media channels
  • Build an email list and reach out to a large group of people

Well, we have shared several strategies with you for attracting customers. You can use a mix of these strategies for growing your new dropship business.

So, these were the steps for starting a Dropshipping business from scratch.

How much it cost to start a Dropshipping Business?

The Dropshipping business model is one of the cheapest ways of selling goods online.

The minimum investment that you need to make to start a dropshipped online store is as follows (It’s the cost that you have a bear for starting a Dropshipping business on a free open source shopping cart platform):

  • Sign up for a web host – $3.95/month
  • Installing an open source shopping cart – Free
  • Sign up for an SSL Certificate – $1.50/month
  • Sign up for a Credit Card Processor – 2 to 3% fee per transaction
  • Purchasing a template for your website (Optional) – $20 – $50

If we add up everything up above, the cost of starting a Dropshipping business comes to be between $5.45 and $76.45.

If we consider the minimum cost, then $5.45 isn’t a big sum of money at all.

You can even go for a fully hosted platform like Shopify wherein you don’t need to handle the setup, payment processing, security, etc.

Cost of running a Dropshipping business on the Shopify platform:

  • Shopify: $29/month
  • Cost of purchasing a template for your website: $50 to $200

The best part with Dropshipping business is that you can run it from anywhere. You just need to procure an Internet connection.

Is Dropshipping Legal?

Yes, Dropshipping is legal. It’s a form of order fulfillment in which the supplier handles shipping. So, there is nothing illegal about it.

Is Dropshipping Profitable?

Yes, Dropshipping is profitable. Here, you only need to pay for the products you sell. You don’t need to maintain inventory. The supplier handles the fulfillment for the orders received.

How much can you earn from Dropshipping?

Here, we offer you a calculation that would make it easy for you to understand how much can you earn from Dropshipping.

Suppose, you get a product of $15 and sell it for $30. After deducting shipping costs and the cost of advertisements, your actual profit for the product is $10.

So, to make $10,000 per month, you need to sell 1000 products per month.

$10 profit x 1000 orders = $10,000 per month
$10,000 per month x 12 = $120,000 per year

So, you need to sell at least 34 orders/day.

Do you need a business license for Dropshipping?

Well, you do not need any business license to start Dropshipping business. However, you do need to procure a “Sales Tax ID” number to do business with a real wholesale distributor. Plus, you should register your LLC in the USA and pay taxes.

Well, that’s all we have for you in this post on Dropshipping business. We hope that you now have a clear understanding of Dropshipping business. We wish you good luck with your Dropshipping business. Thanks for Reading.

 

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