How to Start a Dropshipping Business

How to Start a Dropshipping Business 

 By John Philip Espiloy | 5 March 2022

Online business is the trend of today’s world. Young professionals and ordinary people are looking for ways to earn money online and more and more are jumping on the online business caravan. One of the many popular and proven ways to make money online is dropshipping. Many of us heard that dropshipping businesses make a lot of money. That is true! But not everyone. Like any other business, there are pros and cons that one should weigh before you start a dropshipping business.

How to Start a Dropshipping Business

Before you dip your fingers into the dropshipping business, better first prepare and equip yourself to start it right and be a success in this venture.

Here’s everything you need to know before you start your dropshipping business.

 

  1. What is Dropshipping Business?
  2. Is dropshipping business legitimate?
  3. Benefits and disadvantages of dropshipping
  4. How does it work and how do I make money?
  5. Right approaches to dropshipping
  6. How do choose the best dropshipping suppliers?
  7. Is Dropshipping worth it?

 1. What is Dropshipping Business

Dropshipping business is a retail order fulfillment method where a store doesn’t keep the products it sells in stock. Instead, the store sells the product and passes the sales order to a third-party supplier, who then ships the order to the customer.

The third-party supplier is the dropshipper which is usually a manufacturer or a wholesaler. That is the main difference between dropshipping and the traditional retail store.

Dropshipping allows you to sell products to your customers without incurring huge running costs as a wholesaler would have. Because of this, dropshipping is a lot faster and more profitable than other types of businesses. 

However, before entering the dropshipping business model, you need to have a few stocks of the products you are selling just in case your supplier ran into problems.

Contrary to popular belief, in the dropshipping business, it is not a get-rich-quick scheme. Sure, it may sound like it is easy to get money. Why not? You sell other people’s goods and take a cut for yourself but when you think about it, the obstacles, the challenges and the day-to-day management, you’ll need to work hard on it. But with the right approach, dropshipping pays off.

2.  Is Dropshipping Business Legitimate?

The dropshipping business is perfectly legal. It is an order fulfillment type of business used by many retailers. You may run into other legal issues depending on what you are selling or who your supplier is but dropshipping on its own is legitimate.

The key to long-term success is satisfying customer expectations and building a brand that resonates with the right audience.

There are, of course, other fundamental requirements before you start and run a business legally. Have a Dropshipping Agreement Contract with your dropshipper to protect yourself, just in case. Also, it is advisable to consult a lawyer who specializes in these matters to ensure compliance with the legal requirements in your region.

 

3.  Benefits and Disadvantages of Dropshipping

The Benefits

The dropshipping business is a great way for aspiring entrepreneurs to start a business with. It’s very accessible and not too complicated to understand. Here are some of the benefits and reasons why dropshipping business is popular.

Minimum capital is required

Compared with the traditional stores that keep huge inventories in their warehouses, you can start your dropshipping business with less amount of capital.

You may either send your stock or have your supplier dropship their stocks to your customer. That is how simple it is.

Easy to get started

Running a dropshipping business is much easier when you don’t have to deal with inventories of products. With a dropshipping business, you don’t have to worry about:

  • Ordering and managing products
  • Tracking inventory
  • Managing a warehouse
  • Leasing a space
  • Packing and shipping your orders
  • Handling returns and inbound shipments

Low overhead costs

Most dropshipping businesses are run inside the comforts of their homes. It only requires an electronic gadget, namely, a laptop or a smartphone and an internet connection. 

Flexible location

The location of your dropshipping business doesn’t matter as long as your laptop or smartphone and an internet connection with you, you can run and manage your business anywhere.

Wide selection of products to sell

You can offer a wide array of trending products to your potential customers. As long as your suppliers have stocks with them, you may list their products on your online store.

The Disadvantages 

Low-profit margins

Since the overhead is low and so does the profit. To keep a dropshipping business afloat a lot of sales effort is required to become profitable. You will also need to consider marketing and advertising cost, maintaining your online store and managing your sales orders. Depending on your industry or target customers, you need to understand how much your profit margins are and the conversion rate of turning potential customers into buying customers.

Tough and highly competitive

Since a dropshipping business doesn’t need huge capital, many wanted to try it. This makes the dropshipping business very tough and highly competitive.

There is also a chance that you won’t get exclusive deals with your suppliers. This means several competitors could also be selling the same products. If you’re just starting your small dropshipping business, you may need to undercut your prices.

The biggest question that you need to answer is, why would a potential customer buy from you?

No control over the supply chain

You rely on your supplier to deliver a good quality product promptly. However, if you don’t keep stocks on your own, you will always be, more or less at the mercy of the supplier.

As the one who takes the orders from your customers, you are always hoping that the supplier fulfills their commitment. 

4. How does it work and how do I make money?

 A dropshipping business acts as a product custodian that selects the best dropshipping products to market to customers. You are helping potential customers find, evaluate, and buy the right product.

 The most common approach for dropshipping is to seek out a supplier located anywhere else in the world.

 Once a customer buys a product, you’ll be able to fulfill their order by passing it to a third-party – usually a manufacturer or a wholesaler. All you have to do is check that the details are correct before sending it to a third party. The product is then sent directly from the dropshipping supplier to the customer—wherever in the world they may be.

 Your profit will come from the difference in the initial item cost and whatever price your supplier sells it at. Keep in mind that you have to make sure that the price of the product you sell is higher than the original price given by your supplier. 

 However, marketing is a cost you also incur, in both time and money, helping potential customers find, evaluate, and buy the right product. So before you price a product, you’ll have to include the cost of providing customer support if there will be a product or shipping issue. 

 Dropshipping is a low-risk business and all you have to focus on this type of business is mostly marketing, advertising, and managing your store’s online presence.

 

5. Right Approaches to Dropshipping Business

 There is no single approach to becoming a successful entrepreneur. Everyone who started a business took their time researching and finding the right approach to it.  Before you start your dropshipping business, consider these four approaches:

Extensive Product Market Research

You should use dropshipping first for yourself. Try ordering and testing the product from a supplier to know more about the product and the time it takes to deliver it to you.

 You’ll have to estimate how much it sells including the marketing cost and the cost of customer support if there will be a product or shipping issue. 

 Also, you need to check if the product would sell. It will give you a more accurate number of what quantity to buy for your initial stock. You may want to try and check trending products from www.trendhunter.com.

 Try dropshipping a few products and see how it goes.

Defend yourself from overselling

 Now and then the market and trends change. There should be a balance between your stocks and the quantity of stock you have to avoid losing a sale. Rather than increasing your inventory and overstock, get a dropshipping supplier as your backup. 

 It is a good safeguard against seasonal uncertainties that most seller faces. Having dropshipping supplies makes great insurance against extreme circumstances.

6. How to Choose the Best Dropshipping Suppliers

Selecting suppliers is a crucial step that every dropshipping business needs to do. There are a lot of factors to consider when looking for dropshipping suppliers. As the seller, you are often at the mercy of your dropshipper for product quality, timeliness shipping, or even legal compliance.

Even if you already know which products you want to sell, you need to find dropshipping suppliers that can provide high-quality service for your business. It goes without saying that you must choose with the utmost care. That’s why it is important to find dropshipping suppliers that will help your business to succeed.

You need to make sure that the products are what they advertised and should also meet your shipping criteria. Aside from these, there are still a lot of concerns about how your supplier conducts business.

You may find a checklist of questions you may want to ask yourself before signing on to do business with a supplier:

  • How do they handle their products and the returns of damaged ones?
  • Do they have customer support and how do they handle complaints?
  • How long does it take them to fulfill an order? (from order to delivery)
  • Do they insure the orders?
  • How is their online presence?
  • Do they have online reviews or references?
  • Do they offer fraud protection?

To protect business, ask them to sign a Dropshipping Agreement Contract with you.

7. Is Dropshipping still worth it?

 Yes. Dropshipping is definitely worth it. Though it is not perfect like any other business, you need to work hard to become successful. The dropshipping business has lots of benefits but you also need to address the disadvantages. With careful planning and the right business strategies, you can make it.

You need to exert a lot of time on research for products and suppliers. Also, you need to work on marketing strategies. Dropshipping is a very tough and highly competitive sector of online businesses so you need to be ready to face the challenges to succeed.

John Philip Espiloy

John Philip Espiloy is a researcher, writer, speaker, lecturer  and an author of several scientific and engineering journals.  He is now a  full-time writer  together with his partner. 

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