What is the Dropshipping Business Model? 

Dropshipping is a business model where a company or individual sells products without holding any inventory. When a customer places an order, the company lets the supplier know, who then ships the product straight to the customer on the company's behalf. The customer pays the dropshipping company for the products, which then pays the supplier—often in an automatic transaction—and the products are shipped directly to the customer. 

Sounds pretty straightforward, doesn't it? In a nutshell, the dropshipper is a marketer. They don't handle orders or shipping directly, but they're in charge of advertising their shop and products and dealing with customer service. 

Pros and Cons of Dropshipping

Naturally, there are lots of benefits to starting dropshipping, which has made it the popular business model it is today. However, there are also some drawbacks to be aware of before you delve into your dropshipping venture. 

Pros 

• Low startup costs: One of the best parts about dropshipping is that you don't need tons of cash or resources to get the ball rolling. For instance, you won’t have to shell out for your stock upfront or rent a place to keep it.
• Flexible: Dropshipping is a great way to work from anywhere in the world on your own time and still promote your business globally. All you need is a device connecting you to the Internet. 
• Manageable workload: One of the great things about dropshipping is that it can often feel much more manageable than running your own store from scratch because you're not dealing with the operational side of things. 
• Scalable: If your marketing and advertising really takes off and your store becomes a huge success, it's easy to scale up with dropshipping. You can simply add more products to your inventory, and the supplier will handle the rest. 
• Potential for high earnings: The average dropshipper makes a pretty good living—about $40,970 per year, or $20 an hour - while the top dropshippers can earn between 6 and 7 figures. 
• Ability to set your own prices: You will be able to set your prices for your items, allowing you to mark them competitively, and run promos and sales as part of your marketing campaigns. 

Cons

• Highly competitive: On the other hand, since dropshipping is so straightforward to get into, it's also very competitive, which makes it tough to stand out. 
• Reduced control over inventory including quality: While not handling the inventory is a plus in many ways, it also means that you don't have any control over the quantity or quality of the stock. As such, if the supplier runs out of your product, you'll have to adapt. 
• Refunds and returns: If a customer wants to return an item, it can get pretty complicated, especially if your supplier is overseas. You might have to put in a lot more work from a customer service standpoint, and the customer might be charged additional customs fees. 
• Lack of cohesive branding: Dropshipping is all about marketing your shop and brand. The thing is, though, you won't have any control over the packaging or branding of your products, which can make it harder to build a brand. 
• Shipping delays: If your supplier is overseas, there can be some pretty long delays in shipping, which might mean you have to put in a bit more customer service work to keep your buyers happy. 
• Overall supplier dependency: At the end of the day, if your supplier can't deliver, it’s your business at risk. 

Source: www.pexels.com

Start-Up Costs to Start Dropshipping

While dropshipping is definitely one of the lower-cost options when starting a hustle or business, there will likely be some costs you will encounter when you start. We’ve listed them here so you don’t get any surprises! 

• Setting Up Your Shop: you'll probably have to buy a domain name or pay a monthly fee to an eCommerce platform to host your store. When you're setting up your store, you might also want to invest in some premium themes and designs to attract customers. 
• Sampling Products: before deciding on your product, it may be helpful to purchase some samples to see if it is of high enough quality and is something you want to sell. 
• Marketing Costs: to promote your store, you might want to think about using paid ads through Google or Facebook. Similarly, spending a little money on an email marketing campaign or investing in SEO and engine optimization could be really worthwhile in the long run to attract visitors to your store organically.  

To get your dropshipping business off the ground, you'll need anywhere between $150 and $300 to start, based on whether you want to splash out on multiple different ads, buy a flashy theme for your store, or test out multiple different products before stocking your store.  

Step-by-Step Guide to Dropshipping 

Choose Your Product 

One of the most fundamental aspects of dropshipping is choosing your market and product niche. If you choose a product that's already flooded with competition or one that nobody wants, you're setting yourself up for low sales right from the start. We’ve put together a few key steps to help you choose your market with high profit margins, but minimal competition: 

1. Start your research and assess the market to find products that are in high demand by doing some keyword research using tools like Ahrefs or Google Keyword Planner to see what words come up the most and what products people are searching for the most. Checking Google Trends can also help you determine this.
2. Once you've nailed down your niche, it's time to take a look at what the competition is up to. This could mean looking into other dropshipping stores to see what prices they're using, whether any products are sold out, or how saturated the market is. If most of the dropshipping stores you see are selling the same product, it's probably best to avoid selling it yourself.
3. Decide on a target audience and make sure you keep them in mind when choosing your product: always ask yourself if the product is something you know will be popular with your chosen demographic. 

Source: www.ahrefs.com

Find Your Supplier 

Now that you have your product in mind, it’s time to find a dropshipping supplier that offers it. There are tons of different suppliers out there, such as: 

• AliExpress is one of the largest suppliers, offering millions of different products at affordable prices. 
• Spocket has a wide range of suppliers and offers easy integration with numerous e-commerce platforms. 
• WholesaleB2B is a supplier directory with many tools for seamless transactions between wholesalers and retailers. 
• Salehoo is a popular supplier directory with an easy-to-use product search tool. 
• Zendrop offers a variety of suppliers and even allows for custom branding on packaging and invoices. 
• SourcinBox hosts a curated list of suppliers with a focus on quality and reliability.  
• Doba is another dropshipping platform where you can find tons of verified suppliers and products. 

When you're looking for a product on these platforms, the first thing you should do is check how profitable it is. Picking the product with the lowest cost from the supplier could mean you make more profit down the road, but just make sure you don't sacrifice quality. If customers are unhappy with your products and store, and word gets around, it'll hurt your sales. 

Also, keep in mind that many suppliers don't actually have a return policy, so be sure to check before you decide. Without a return policy, it could mean that you end up footing the bill if a customer wants to return an item. So it's a good idea to take a look at the reviews for each supplier and see what other retailers have to say. You may even want to buy a sample of the product to try out for yourself so you can be sure it's a product you want to put your name on. 

Source: www.aliexpress.com

Build Your eCommerce Store 

Once you've got your product and supplier lined up, you can start building your eCommerce store to start selling. Before you get started, though, you'll need to choose an eCommerce platform to host it. Fortunately, there are plenty of options out there, and most of them have built-in dropshipping integrations, making it simple for you to manage your business between your chosen supplier and your store. However, keep in mind that the majority of these platforms charge a fee to host, so factor this in when you’re making your decision. 

Having considered all the pros and cons of each eCommerce platform out there, you can sign up for your chosen one and start creating. Different platforms have different levels of customization: for example, Big Cartel is quite limited, but AdobeCommerce is completely customizable. However, with all platforms, you can always create your own store name and start adding your product listings. 

To give yourself the best chance of making sales, you will need to take some high-quality photos and write clear and grammatically correct product descriptions. You can also add your competitive prices, taking into account the competitor prices you researched earlier as well as shipping costs. As a general rule, having a smooth, user-friendly, and well-designed storefront is one of the most crucial steps toward attracting potential customers. 

Source: www.squarespace.com

Work Out the Financial Aspects

To start making money with your dropshipping business, you will need to make sure you are set up from a financial perspective, too. This can include the following: 

1. Opening up a new bank account for your business: opening a specific bank account or PayPal account for your business can really help keep track of your income and expenses. 
2. Consider a payment processor: think about setting up an account with additional payment processors so you can offer this to your customers, such as PayPal or Stripe. 
3. Tax-identification number: like any other business, you will be required to pay taxes to the state, so make sure you obtain a tax identification number or employer identification number from your state’s tax authority.*
4. Business insurance: consider investing in business insurance so you will be covered for any damages or liabilities. 
5. Business credit card: this could be a good way to help you pay for essential expenses like your eCommerce store, resources, or ad fees. 
6. Work out your budgets and financial plan: establishing your financial goals, as well as outlining your spending budgets is essential for your dropshipping business to stay afloat. Using tools like QuickBooks or FreshBooks can assist you with this. 

*Always make sure to check the rules and regulations regarding taxation for your specific state and area before you start any business activities. 

Source: www.freshbooks.com

Register Your Business

Registering your dropshipping business formally is an important step to make sure that you are above board, as many states in the USA require dropshipping companies to have a valid business license and a sales tax permit. Like many other businesses, you’ll have to decide whether you want to register as a ‘Sole Proprietorship’ or a ‘Limited Liability Company’ (LLC). After you’ve made this decision, you will need to register at your Secretary of State’s office.  

Market Your Business 

Once you've got everything in order, it's time to start marketing your dropshipping business. This is probably one of the most important things you can do to make sure your store has a high earning potential and makes a lot of sales. You’ll be more likely to succeed if you create an overall marketing strategy and use many different advertising methods and channels. 

Source: www.google.com

Track Your Sales Data

With your store up and running, and sales hopefully flowing, keeping an eye on your sales data is a vital ongoing step for your dropshipping business to ensure its continued success. Key details you should be monitoring include: 

1. Profit: Of course, for any successful business, it's important to keep an eye on how much money you're making from your products. If you've got products that aren't selling and aren't contributing to your profits, it might be time to replace them with something else. 
2. Demand: You can also use sales tracking to get a feel for what the future demand for your products might be. For instance, if lots of people are searching for woolly gloves because winter is coming, you can make sure you have enough stock for your customers. 
3. Taxes: You'll also need to keep an eye on your sales data for your tax reports and to make sure you're up to date with the regulations in your state. 
4. Budgeting: You need to keep an eye on your profits so you can plan out your annual budget and make sure you're not overspending in certain areas.
5. Quality Control: If you're getting a lot of complaints or returns on specific products, it might be time to switch up your supplier or the product to ensure your customers are happy and want to come back to purchase more. 

Fortunately, there are lots of great tools out there to help you keep an eye on your sales data:  many eCommerce platforms, such as Shopify or BigCommerce, can even help you track your store's performance. You can also hook up Google Analytics with your store to get the full scoop on your sales, use inventory management tools like cin7 and Zoho Inventory, and get transaction data from PayPal straight to your inbox. If you want to take a more traditional approach, you could also use Excel sheets to help you track any other information to keep you on top of things. 

Source: www.google.com

The Bottom Line

As we have seen, dropshipping is an accessible and affordable way to start a hustle that can scale and grow into a full-time business. However, don't think of it as an easy way to make money, because to be successful you need to invest time in thoroughly researching your market, niche, products, and suppliers before you get started.

Once you're up and running, staying on top of your marketing strategies, monitoring sales, and promoting your business will take a lot of commitment, but you can certainly reap the rewards and perhaps join the top tier of dropshippers earning a six-figure salary each year. Good luck and happy dropshipping.