How to Start a Dropshipping Business in 4 Steps

Article Summary:

• Dropshipping is a way to have an e-commerce business with little upfront investment.
• Dropshippers work with suppliers to take care of order fulfillment and shipping.
• Learn how to start a dropshipping business.

If you want to start an online business and sell new products, you may be turned off by high costs and inventory management. An appealing way to start an e-commerce store without much of an upfront investment is getting into the dropshipping niche. In this dropshipping guide, we’ll share how this business model works and how to start a dropshipping business step-by-step to help you get started. Plus, learn about the different financing options available to help you launch and grow your business.

What is Dropshipping?

Through the dropshipping business model, business owners can create an online store and sell a range of products. When a customer makes a purchase on your specific e-commerce website, the order fulfillment is outsourced to a third-party entity.

Dropshipping business owners are often called “dropshippers,” while third-party entities are suppliers that help you fulfill and ship orders. So, unlike a traditional e-commerce store where you need to purchase and store inventory, dropshipping allows you to have reliable suppliers take care of that part.

This type of business model is appealing as you need little more than an e-commerce platform and an internet connection. It’s low risk because you don’t need to invest tons of money in products that may sit there until you get sales coming through. This frees up more time to focus on marketing and attracting new customers.

How Does Dropshipping Work?

If you start a dropshipping business, you can select the types of products you want to sell on your online store. You get to set the price and market the product. When a customer buys one of your dropshipping products, you then pay your supplier to fulfill the order and ship directly to your customer.

You typically pay the wholesale price for the product and shipping costs. The difference between what you pay and the retail price you charge is the profit for your business.

What Are the Benefits of Dropshipping?

The dropshipping business model can be appealing as it removes many of the hurdles that new business owners face. It’s a virtual business that doesn’t require you to invest in a ton of inventory and store it in your garage or the corner of your bedroom. You don’t need to make daily trips to the post office or manage any of the shipping logistics.

It can be a low-cost, relatively hands-off way to run an online business. You’ll still have some upfront costs setting up an e-commerce store and marketing your products. However, many other online and retail businesses have far greater startup costs.

Dropshipping also allows for more flexibility. Since you don’t have tons of inventory keeping you bogged down, if you want to try out something new, you can. This allows you to test new products and do market research without as much pressure or the need to sell your current inventory first.

Of course, if you want to start a dropshipping business there are downsides as well. The dropshipping business model has lower profit margins.

Additionally, you must find the right supplier to make sure your business runs smoothly, and your customers are happy. While it’s convenient to have your supplier do much of the work, it means that you have less control over many of the variables, like product quality and shipping.

Step-By-Step Guide: How to Start a Dropshipping Business

If you want to get into e-commerce and pursue this particular path, here’s how to start a dropshipping business.

1. Determine the Types of Products

The backbone of any dropshipping business is the product the company sells. Before getting started, take your time to consider what types of products you want to sell in your e-commerce store. Whether it’s phone accessories, supplements, or handbags, make sure it’s something you feel good about selling.

What you decide to sell will impact your branding and marketing, which are key aspects of running a successful dropshipping business.

2. Research Competitors

Once you’ve identified the products you want to sell, do market research. See what the average price point is for the type of product you want to sell, how successful brands are marketing, and read different product descriptions. Look on Google and various marketplaces to get started.

3. Confirm Your Supplier

Your dropshipping business will need a supplier to help with order fulfillment and shipping. You can choose to work with wholesale suppliers directly, such as AliExpress, or use a directory like Wholesale Central to find your supplier. If you have a Shopify store, you can also look into their partners as they integrate with various dropshipping suppliers.

Do your research so you know you’re working with a company that has high-quality products and shipping times that work for your business.

4. Create Your Dropshipping Store

After deciding on the types of products you want to sell and confirming the supplier, you need to set up your digital storefront. You can use the e-commerce platform of your choosing, such as WooCommerce or Shopify. Enable online payments and post your digital products.

While that may sound easy enough, the toughest part is getting people to your store and converting them into buyers. To do that you need to build trust and have a solid marketing strategy. Some things that can help include:

• Optimize each product description for search engine optimization (SEO)
• Create social media handles for your business and post regularly
• Consider Facebook Ads and working with influencers
• Have enticing brand images and logos with product listings
• Get online reviews

Since you’re outsourcing the products and shipping to a supplier, the main part of your job is to market, advertise, and keep customers happy. A successful dropshipping business requires you to find your target audience and focus on customer acquisition and retention. As you learn and grow, you can test different effective marketing strategies.

Financing Options for Dropshipping Businesses

One of the attractive aspects of a dropshipping business is that it doesn’t require a ton of money to get started. Since you outsource the inventory and shipping, you don’t need to invest a huge amount upfront. However, after you start a dropshipping business and scale, you might experience growing pains and need funding to smooth out your daily operations.

Some financing options for dropshipping businesses include:

• Term loans: Through this financing option, business owners can receive a lump sum upfront to help grow their enterprise or manage cash flow issues. So, if you need a higher marketing budget to attract customers or funds to manage supplies and operations, term loans can help. They may have fixed interest rates and a specific repayment schedule which can mean predictable payments to help you budget. Loan amounts, repayment terms, and eligibility requirements vary depending on where you get the term loan from. Term loans are typically available from banks, your local credit union, and online lenders.
• Business line of credit: If you want more flexibility and don’t necessarily need a lump sum, a business line of credit could be an attractive option. A business line of credit extends a set amount of credit that business owners can draw from. Interest charges only accrue on the amount you use. Similar to the revolving credit you get with a credit card, as you repay what you owe, you have more available credit to use up to the limit.
• Merchant cash advance: Once your dropshipping business is up and running with consistent transactions, you may qualify for a merchant cash advance. You get a cash advance in the form of a lump sum. Unlike repaying a traditional loan, you repay a merchant cash advance through a percentage of your future sales in your business, based on debit and credit card transactions.
• Business credit cards: If you have a business bank account, you can consider getting a business credit card through the same institution. Business credit cards help cover short-term gaps in funding and can also help you build your business credit history. While this financing tool is convenient, it comes with steeper interest rates. If you carry a balance, you could pay more than you might with other financing options.

Lenders generally look at your credit score, business history, and annual revenue. If these options aren’t a good fit or you don’t qualify quite yet, you can always look into support from friends, family, and the wider community through crowdfunding.

Final Thoughts

If you want a legitimate way to make money online, you can start a dropshipping business. However, it’s not as easy as it sounds.

Entrepreneurs in this space need to reach potential customers, become an expert in email marketing, and manage successful relationships with their suppliers.

Using these steps, you can learn how to start a dropshipping business and learn from the best teacher: hands-on experience.

FAQs about How to Start Dropshipping Business

If you’re curious about how to start dropshipping businesses, here are some answers to frequently asked questions.

Is Dropshipping Allowed on Amazon?

Dropshipping is allowed on Amazon so long as you follow their rules, terms, and conditions as a seller. To start a dropshipping business, look into the marketplace guidelines before you start selling.

Is TikTok Good for Dropshipping?

If you start a dropshipping business, TikTok can be a good marketing tool to reach a large audience across different demographic segments. If you’re creative and know how to make fun videos, you can get more views on your products.

Can I Borrow Money to Start a Dropshipping Business?

You may be able to borrow money to start a dropshipping business, though it can be challenging if you have no revenue or business history. You can look into business credit cards or business loans from online lenders. Established dropshipping businesses may have more opportunities for financing.

How Do You Find Dropshipping Suppliers?

If you want to start a dropshipping business, you must find the right suppliers to execute your plan. The best way to find dropshipping suppliers is through places like AliExpress and WholeSale2B.

What Mistakes Should I Avoid with a Dropshipping Business?

Common mistakes that dropshipping business owners make are not researching the right suppliers or failing to build a strong relationship with the suppliers they use. In addition, new businesses may not focus on marketing and customer acquisition and may not have a solid return policy in place.