What is dropshipping?

If you’re considering starting a new business or expanding your existing business, you might be worried about startup costs. Sourcing, storing, and shipping products can require a lot of capital, space, and other resources you may not have on hand. If that’s the case for you, dropshipping is a great option to consider. 

Dropshipping allows you to get your business up and running quickly with minimal time and financial investment. When you aren’t developing, manufacturing, and packaging products yourself, overhead costs can go down; you may not even need a dedicated office or warehouse to store your products. 

The dropshipping process itself is incredibly simple, and if you’re taking the right steps to do everything from choosing the right products to marketing them on the right platforms, your business can take off before you know it. 

If you’re not sure where to start, that’s okay! This guide will walk you through everything you need to know about dropshipping so that you can attract new customers, differentiate your business even when selling the same product as competitors, and keep costs low while boosting sales.

Dropshipping definition

Dropshipping is a retail model that allows businesses to ship a third-party product directly from a supplier to the customer, which the customer purchases from your business

Even if you have a brick-and-mortar store, you don’t keep these items in stock. Instead, when the customer purchases, you’ll order it directly from the manufacturer or a wholesale seller (called “the supplier”), and it will ship directly to the customer. The seller never actually handles the product at all, and only facilitates the order. 

Despite this, the seller will receive profit on the sale, especially since they can price the items however they see fit. 

As a result, plenty of businesses in most industries take advantage of some form of dropshipping. Some major companies, like Home Depot, have their own enormous brick-and-mortar stores and their own products but still dropship a small portion of items so they can offer more selection to their customers. Other businesses are built entirely on dropshipping, either from one or multiple suppliers. 

Drop shipping is a form of retail business wherein the seller accepts customer orders but does not keep goods sold in stock

The benefits of dropshipping

Dropshipping offers several benefits, and they include the following:

#1. There are fewer costs involved. Since your supplier handles manufacturing, storing, and shipping items, your startup costs are relatively low—you’ll likely just need some marketing and customer service expenses, which increases your profits more quickly. 

#2. There is a much smaller financial risk. If products don’t sell, your business doesn’t lose the money spent on inventory as you would when working with a wholesaler.

#3. You can offer more selection to your customers. If you’re manufacturing tea kettles to sell at your online tea shop, you might only be able to create one or two models. If you work with a wholesaler, you might be able to afford a few more. With dropshipping, you can offer as many as you’d like, increasing potential customer satisfaction and sales.

#4. Manage your business from anywhere. If you want to be one of those business owners who are answering customer emails and uploading new listings from Belize, Paris, and beaches in Greece, you can do so with dropshipping. You don’t need to be close to your inventory so you can ship it on time. 

#5. It’s scalable. Want to add more products to your store? Great! Just find them and add them, simple as that. And if you want to expand into a new niche, it’s a simple process compared to the alternatives of manufacturing or finding a wholesaler. 

#6. There’s more time for business decisions. When you aren’t managing a large inventory or needing to worry about tighter cash flow, there’s more time and money for you to make smart business decisions. Invest more time into strategy, marketing, and improving your business overall.

#7. You can test new products at no risk. Do you own a store for running shoes, and want to see if your customers would be interested in additional items like water bottles, athletic attire, or foam rollers? Offer these items on a dropshipping basis and see how well they perform.

#8. Get started faster. Wholesale selling and manufacturing your own products both take significantly more time with dropshipping. When you’re using a dropshipping model, you just need to get your website up and start driving sales; there’s no wait time based on product development and availability.

The disadvantages of dropshipping

While dropshipping is a positive experience overall for many businesses, there are some disadvantages that you’ll want to factor in, too. These drawbacks include:

#1. You’re not in full control of when the product ships; if there’s a delay, the customer will hold you responsible

#2. You don’t get to inspect the merchandise yourself, so there’s no opportunity for quality control on your end; if you’re selling low-quality items without realizing it, that can hurt your store

#3. If the manufacturer sells out of an item, it can cause stock shortages

#4. Dropshipping may increase the per-product price, because wholesale buying in bulk may yield discounts; you may be limited in how much you can reduce pricing to stay competitive while still maintaining profitability

Ultimately, the biggest drawback of dropshipping is the potential loss of control and resulting quality or customer service issues. In order to prevent this, only dropship high-quality goods from reliable manufacturers.

Is dropshipping profitable?

Despite there are some disadvantages, yes dropshipping can be profitable being built on a low-risk business model, which minimizes your personal and professional risks. There are a few specific circumstances where dropshipping is one of the best options you can consider. These include: 

  • If you are interested in starting a new business quickly but don’t want to invest a lot of capital or time into the startup process.
  • If you want to focus on e-commerce only but don’t have the funds or storage space to purchase, manage, store, and ship a large inventory.
  • If you are already selling goods and services, but want to expand your product offerings and branch out in new niches. 
  • If you want to test new products or niches without investing significant capital into a large bulk order first. 

Plenty of businesses incorporate at least some dropshipping into their retail fulfillment strategies, even if they also sell wholesale goods themselves or manufacture most of their own products.

The 9 steps process to building an online dropshipping business

Now that you understand how this particular business model opens up unparalleled opportunities for growth, it’s time to discover the nine key steps to starting your own dropshipping business.

Ready?

Let’s go …

#1. Define your value proposition

Your value proposition is what you bring that’s unique to your particular audience, and it’s what makes you superior (in the eyes of your customer) to your core audience. 

Common value propositions include “most affordable,” “cutting edge with unique features,” “organic/healthy,” “sustainably or ethically created,” or “best quality.”  

It’s essential that you understand and properly promote your value proposition for the following reasons:

  • You can differentiate yourself from the competition, which can give you a foothold in the industry
  • You can build a more loyal following
  • You make your business immediately more relevant to your target audience, almost allowing you to niche down or better define your niche 
  • Marketing campaigns that are centered around strong value propositions are most likely to be successful

Some businesses automatically try to go for a “most affordable” value proposition when dropshipping in an attempt to undercut their competition and make sales, but that’s not always the right course. Home decor retailer Under the Canopy, for example, has the following mission statement:

“We’re proud to be an original and even prouder that we’ve evolved into today’s most sustainable home brand. Our mission has always been the same: to create authentic, organic items that are beautiful in your home, easier on your wallet, and better for you and the earth.”

Their value proposition is one of creating high-quality organic items sustainably. This actually allows them to charge significantly more than many of their competitors, as approximately 73% of millennials alone are willing to spend more on ethical or sustainable products. 

When defining your value proposition, ask yourself the following questions:

  • Who is my audience? This is the most important question that you need to answer. What audience do you want to reach, and what pain points do you want to fulfill? If you just want to sell the most affordable pottery out there, you can do that, but keep in mind that this will impact your profit margins. 
  • What are my audience’s needs and pain points? Some people will choose nonstick pots because they’re easy to cook in and often affordable. But what about the amateur gourmet home chef who wants long-term, high-quality stainless steel? If you’re selling cookware, these are two very different needs and pain points. One wants convenience, the other will spend six hours to make a single pot of dumplings.
  • What promises can you realistically deliver on? If your marketing messaging and value propositions don’t line up with every action your business takes, customers will notice. You need to be able to back up any promises you make with your value proposition. If customers found out that one of their sustainable companies was treating workers poorly, they’d abandon ship quickly.

#2. Find a profitable dropshipping niche

As you’re considering your value proposition, it’s not a bad idea to determine what dropshipping niche you want to focus on. Even adding on additional niche products can increase your sales and average order value quickly.

When you’re choosing your niche, you’ll want to ask the following questions:

  • What products are you most excited about selling?
  • What do you think will be most profitable?
  • Is there a niche that isn’t being served that you could fill a need for?

Let’s take a look at a few different factors that should help you determine your ideal dropshipping niche.

Choosing a niche based on added value to your customers. Do you have something valuable to add to a specific niche

Let’s say that you sell comic books, for example. You have casual readers who enjoy coming to your site, finding the latest edition of their favorite superhero, and then purchasing. Comic book enthusiasts, however, might be more high-value, and if you can attract them with collector’s edition vintage comic books and action figures or signed memorabilia, you could be offering something much more unique.

If you can add value or offer something new, that’s a great place to start, even if the industry, in general, is heavily oversaturated. Think alternative bouquets for weddings, like paper flowers or wooden flowers: these are much more difficult to find for brides, but increasing in popularity. You can even sell matching wooden bowties to increase add-on purchases. 

Choosing a niche based on competition levels. If you’re able to find a niche that’s either underserved or isn’t being served at all, that could be a great place to start. This could simply be from high demand, or you could see that there’s a segment of an audience who may have trouble finding what they’re looking for. If a market is oversaturated, you either need a strong value proposition or unique products to stand out; it may be easier to simply choose another niche

Keyword research is typically a good way to research this. We’ll discuss this more in the next section. 

Choosing a niche based on prosperity. If you’re basing your entire business around a single niche, make sure you’re considering a niche’s long-term appeal. Sales of cloth masks, for example, are surging everywhere in the United States right now, but following the COVID pandemic this trend will likely die out quickly. You may also consider hiring a freelance market research analyst to get even more insights into potential dropshipping niches.

#3. Find high-demand products

When you’re looking for high-demand products that will sell well and at a high-profit margin, extensive research is typically involved, even if you’re familiar with an industry. 

Because of this, it’s often a good choice to hire an SEO expert to help you with this. 

An SEO expert can help you conduct keyword research, which we mentioned a little earlier. They can do thorough research, seeing which transactional keywords for your industry are driving the most traffic. 

High-competition keywords are often associated with high-competition industries. You can use keyword research to determine what are your target customers’ main pain points and then understand the types of products you are most likely to be successful in selling.

You can also drop your selected keywords within Google trends to ensure that your chosen products have steady or increasing interest over time, to be sure the market will last for a while. 

SEO experts can also help with competitor research. They can create a report showing you which competitors are ranking well, the volume of traffic their product pages are getting, and even which ones are getting the most backlinks. You can learn a great deal from your competitors, including what works for your audience and what doesn’t. You can also get some great insight into how to set yourself apart while still leveraging best practices in the industry.

#4. Become legally incorporated 

It’s typically recommended—if not required—that you become legally incorporated. If you’re expanding an existing business with dropshipping, you are likely already legally incorporated, but all new businesses will need to understand this critical step.

Legal incorporation is the simple act of registering your business and obtaining a business license. In the United States, you’ll register with your state. 

Incorporating has three key benefits:

  • It creates some separation between your personal assets and your business’s, protecting yourself. If someone sues your business, they can take everything the business is worth but it would be harder for them to go after assets like your home, car, or personal bank accounts.
  • It may be legally required. If it’s not required, it’s often recommended.
  • Many manufacturers may require you to have a business license, a tax identification number like an EIN, and a business address. 

Be sure to check local, state, and industry laws to ensure you are compliant in your area. If you aren’t sure where to get started, you can reach out to a local business lawyer. They can help you determine what licenses and permits you need to keep your business going. 

#5. Find reliable dropshipping suppliers

We mentioned earlier in this post that the biggest drawback to dropshipping is the fact that you as a business owner lose some control once the customer places the sale. If your drop shipper is unreliable or inconsistent in any way, that will directly impact your customer’s experience and your brand’s reputation.

Choosing reliable suppliers is essential in dropshipping. Here are a few methods you can use to do this.

You can contact the product manufacturer. The first step you should always take is to contact the product manufacturer as soon as you know which particular products that you want to sell. If they don’t sell the items directly themselves, they can put you in touch with trusted dropshipping suppliers. This can help you ensure that your customers aren’t receiving a knock-off, outdated, or fraudulent product. Look them up online, and search for contact information like an email address or phone number. 

If you’re interested in sourcing products from different manufacturers, you may notice that one or two sellers are listed again and again. These can be considered reputable, and you’re likely safe to purchase other products from them, too.

You can use dropshipping supplier directories. Dropshipping supplier directories typically charge a fee in order to access their information, but they come with valuable data on different reputable suppliers that will help you feel confident in who you’re working with. Wholesale Central, Worldwide Brands, and Inventory Source are all great examples.

You can use third-party tools. You can also use dropshipping marketplaces like Oberlo and Spocket, which come with a large catalog of products from thousands of reputable suppliers. This allows you to quickly source products while cutting back on some of the hassle and management. Many of these marketplaces also work seamlessly with e-commerce platforms like Shopify and WooCommerce for added convenience. 

Know the signs of non-reputable dropshipping suppliers 

While you’re looking for the best suppliers to work with, it’s helpful to know what signs may flag a less-than-stellar supplier.

These may include the following:

  • They’ll sell to anyone, including the general public, no application process needed
  • They charge ongoing, flat-rate fees just for establishing a partnership 
  • They won’t sign any contracts
  • It’s hard to find information about them online, or they have negative reviews

#6. Brand your dropshipping business

Even if you’re relying entirely on a dropshipping business model, it’s still important to brand your business as your own. If you don’t, you’ll end up blending in with everyone else. If you’re selling the same products as some of your competitors, you need to find a way to convince users that you’re the one they should purchase from.

Your branding should be closely tied to your key value proposition and should keep your niche in mind. It will include the messaging and copy you use, your product descriptions, the colors on your site, your logo, and your brand voice. Neglecting to create a distinct brand and promote it accordingly is one of the most common reasons dropshipping businesses struggle to succeed.

Here are a few steps you can take to create a strong brand quickly:

  • Create a mission statement and a brand story. These should be woven together if possible. A small jewelry store could talk about how their love of fashion was kicked off by working in a boutique, but they hated how expensive fashion jewelry was, so they wanted to start their own store to change that. Feature these prominently on your site, and center your copy around it.
  • Develop a dedicated website. You’ll want to choose a selling platform first, but once you do, create a website that’s uniquely yours, and easily displays your products to potential customers. A website developer can help you with this, and an SEO expert can help you optimize it for search.
  • Write your own product descriptions. Don’t just copy and paste what the manufacturer or wholesaler says on their own site. Add your own brand voice, and make it unique. You should, however, always include key information like product dimensions and care instructions. A freelance copywriter can help you tackle this
  • Create your business logo. Freelance graphic designers can do this quickly, giving you an image you can use to represent your brand on your site, on social media, and all other online platforms.
  • Set up social media. Consider using Facebook, Pinterest, and Instagram at the least to get started. Create valuable content that’s meant to engage your audience. A social media expert will likely be exceedingly valuable here

Take time to develop your brand and think over it carefully, because it will make a world of difference. A freelance branding strategist can be useful if you aren’t sure where to start or how to explain your brand to customers.

#7. Choose a sales platform

The right selling platforms can help your business significantly, and the best news is that you don’t have to choose just one! 

Here are some of the most popular options to consider:

  • Your own e-commerce store. Though you pay site hosting fees, these are relatively low-cost, and you’ll get full control over how your website and products are displayed. It’s easier to stand out from the competition on your own e-commerce website than on a third-party marketplace. It’s also easier to increase add-on purchases and drive up order value on your own site. 
  • Amazon. Amazon is commonly used by dropshipping businesses looking to drive sales quickly. It helps that plenty of users log straight onto marketplaces like Amazon to conduct research before buying and that conversions happen quickly here. You may need to pay listing and commission fees, however, and your competition will be all over your product page, too.
  • eBay. This platform isn’t just for reselling used products. Plenty of people drop ship brand new items on this platform, taking advantage of the built-in audience for a trusted site. Like Amazon, the expanded reach is great, but the additional fees can add up quickly. 

Many businesses choose to have their own site, trying to drive sales there, first. Some will also add on third-party marketplaces like Amazon, eBay, or Etsy to reach high-intent customers who were always going to make their purchases there, to begin with.

#8. Create a customer acquisition strategy

A customer acquisition strategy will focus on helping you find your target audience on different channels, show them the right messaging through the buyer’s journey, and drive conversions.

Customer acquisition strategies need to take your specific audience, your business, and even your competitors in mind. A qualified expert can help you determine which channels and marketing strategies will be most beneficial in creating a sales funnel that will nurture sales and increase purchases. 

#9. Create strong customer service processes 

Great customer service isn’t optional; it’s expected. If you aren’t able to deliver customer service excellence, your customers will find someone who will. 

Keep in mind that today, customer service heavily influences buying decisions. Customers will actively look for reviews mentioning the service standards at a brand, good or bad.

If you have strong customer service, you’ll retain more high-value clients for longer, creating happy customers who come back again and again to purchase. These customers will also tell their friends, who will jump ship from a competitor, especially if they’ve had a poor service experience elsewhere.

Customer service is actually so important to today’s customers that you can charge more for the same products and services if you have a proven history of great service.

Four best dropshipping suppliers to consider

Wondering where to find products that you can dropship and sell? Here’s a look at some of the leading dropshipping suppliers.

#1. Wholesale Central 

Designed for market vendors, online stores, and independent retailers, Wholesale Central provides a free directory of over 1,000 U.S.-based wholesale suppliers that offer more than 600,000 products. While you don’t need to register to search and shop the site, signing up (for free) gives you additional perks. 

Pros
  • Free for buyers
  • Wholesale Central reviews and screens all suppliers
  • 1000+ U.S.-based wholesale suppliers included in the directory
  • Over 400k products
  • Join the Wholesale Central Buyers Network for free and gain perks like preferred access to trusted suppliers and a product locator service
Cons
  • Some suppliers are suspected to be retailers, selling to the public at wholesale prices, so you’ll need to use discretion
  • Shipping terms depend on the supplier

Costs & Pricing: Free. It used to be a paid service but now suppliers pay to be listed so it’s free for buyers. 

#2. SaleHoo 

SaleHoo provides a paid directory of suppliers along with a powerful research tool and an online community. It serves the United States, UK, and Australian markets.

Pros
  • 8000+ suppliers in the directory
  • Over 2.5 million products
  • Award-winning customer support
  • All suppliers are vetted by the SaleHoo team
  • Get access to the Market Research Labs tools, a members forum, and personal email support
  • 60-day money-back guarantee
Cons
  • Fee for access
  • The learning curve can be steep
  • Not available in all markets

Costs & Pricing: To access the SaleHoo directory, you will either need to pay $67 per year or $127 for lifetime access. You can also automate your dropship store with SaleHoo’s Dropship offering which lets you add trending products from AliExpress into your Shopify store. However, the cost for this is a bit higher, ranging from $27 to $97 per month. 

#3. SupplyMeDirect 

SupplyMeDirect is a free app for Shopify stores that can help you scale your dropshipping business thanks to reliable sourcing and quick shipping. It serves US, UK, Canadian, and European markets.

Pros
  • 60% of stock housed in Europe, the UK, Canada, and the U.S.
  • Fast delivery time, averaging four to seven days
  • Wide range of products
  • Private labeling available
  • 24/7 dedicated support team
  • Enables auto-order processing
Cons
  • Only supports USD but does accept credit cards and PayPal
  • Not available in all markets

Costs & Pricing: Free Shopify app

#4. AliExpress

AliExpress is a marketplace based in China that mostly connects Chinese suppliers with international buyers in over 200 countries. 

Pros
  • Over 100 million products
  • Majority of merchants based in China sourcing products from the region
  • Ships to 200+ countries
  • Good for all levels from beginner to advanced
  • Product prices are competitive
Cons
  • Shipping time averages 15-45 working days because it’s coming from China
  • Premium shipping is available at a higher cost which still averages 7-15 working days
  • Most AliExpress suppliers don’t offer returns because the shipping turnaround is too long, so sellers have to cover returns
  • Must vet suppliers carefully to avoid scams and ensure quality

Costs & Pricing: Free

Conclusion

Dropshipping is an exceptional way to have your own business and work with great customers with minimal overhead and financial risk. 

It’s low cost, which minimizes your personal and professional risk. If something doesn’t quite work out, you can always pivot, changing up your entire product line or even starting a new business relatively quickly. Dropshipping is a great way to expand your overall product offerings, after all, so the sky is the limit. 

 Following the steps discussed in this post will help you create and elevate your brand to connect with your target audience, differentiate yourself from your competitors, and help your business to begin to thrive. It’s hard to say no to that! 

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Daniel

Daniel

Contributor @samcx.com. Passionate about everything Sales, Marketing and Account Management.

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