How to Start a Dropshipping Business – Step By Step Guide

If you want to make money online, then you probably want to know how to start dropshipping. And for good reason – dropshipping is an awesome way to make serious cash with minimal investment.

That’s not to say starting a dropshipping business is easy. You’ll need to follow the right steps, and be very careful about how you set up your business for success. 

Get it right, and a sustainable source of passive income will reward you. It really is one of the best ways for new entrepreneurs to enter the world of eCommerce. 

This guide will break down how to start dropshipping step by step. These steps will help you create a successful dropshipping business as quickly as possible. 

How Does the Dropshipping Business Model Work?

Dropshipping is a form of eCommerce where the seller accepts and fulfills orders without holding any inventory.

In the dropshipping business model, customers order through the dropshipping store, and then a third-party supplier ships the order to them.

When you sell a product through dropshipping, the customer pays you the retail price that you choose. You pay the third-party supplier the wholesale price, and the difference is pure profit. 

In the dropshipping business model, you are responsible for managing a website that markets the products and accepts orders. You choose what products you want to sell, and you are responsible for covering shipping costs and setting prices that deliver a good margin.

The major benefit of dropshipping is that you don’t have to hold any inventory or handle any products. All you need to do is register an account with a supplier and set up a dropshipping website. You also don’t have to worry about product fulfillment and managing deliveries. 

Because dropshipping has such a low barrier to entry, it’s an excellent way to make a passive income online. It’s a great way to start your first online business if you have minimal capital available. Dropshipping is also a great way to expand the product offering of your current online business, without needing to scale up production or warehousing.

Why Start Dropshipping?

Unlike traditional eCommerce, dropshipping doesn’t involve managing any inventory or fulfilling orders. This means dropshipping takes a lot of the hard work out of running an online store. 

Because you don’t have to buy any stock upfront, dropshipping is also a more affordable and lower-risk way to start selling online. All you need is an eCommerce website, and you can start to sell products.

It’s the perfect business model for a side-hustle or anyone wanting to take their first plunge into entrepreneurship. You can also do dropshipping from anywhere in the world, as long as you have an internet connection.

There are unlimited dropshipping business ideas that you can tap into. Once you start your own online store and find a dropshipping partner, you will see just how wide of a variety of products are available. This means you can use dropshipping to fulfill just about any niche. 

How to Find Dropshipping Suppliers

When figuring out how to start dropshipping, the first thing you’ll need to do is find a supplier. There are two ways to do this.

  • You can go through a dropshipping supplier database, like Alibaba or AliExpress.
  • Access an integrated dropshipping supplier directory at the backend of your store. You can use a platform like Oberlo for this.

We’ll cover this in more detail later on, but choosing a reliable, quality supplier is essential for a profitable business model. 

How to Start Dropshipping: Step By Step

There are nine basic steps to start a profitable dropshipping business. Follow these steps, and anyone can start making money through dropshipping.

Here’s what you’ve got to do.

  1. Commit to Your Dropshipping Business
  2. Choose a Dropshipping Niche
  3. Competitor Research
  4. Find a Dropshipping Supplier
  5. Create Your eCommerce Store
  6. Structure Your Business
  7. Set Up Your Finances Correctly
  8. Marketing Your Dropshipping Store
  9. Analyze and Improve Your Dropshipping Business

1. Commit to Your Dropshipping Business

There’s a lot of noise online about how easy it is to start making six figures through dropshipping without doing any work. 

Here’s the truth – dropshipping requires a serious commitment, and it’s a long-term game before you can start making real money.

That’s not to say you can’t make serious cash through dropshipping, but it will take time and effort before you can relax on your yacht while thousands of dollars roll into your bank account.

So, when figuring out how to start dropshipping, the first step is to set realistic expectations for your business and approach it with a long-term attitude. 

To do this, you’ll need to be realistic about the investment you’re going to put into your dropshipping business. This can take one of two forms: time or money.

Let’s break these two down.

Investing Time Into Dropshipping

One of the most appealing reasons to get into dropshipping is that it costs nearly nothing to get started. However, to bootstrap your dropshipping business, you’ve got to be prepared to put a lot of time into it. 

Time should be the major investment for first-time dropshipping entrepreneurs. 

Most people get started with dropshipping while they’re still working a 9 – 5 job. This is a good approach because taking six months off to set up your online store isn’t always possible. 

While each business is unique, you can start to earn about $1000 to $2000 per month within a year, after putting around 10 – 15 hours a week into the business. 

Focusing on dropshipping full-time will help you reach more success faster. Successful dropshipping requires a heavy focus on marketing, especially in the early days. This can take up a lot of time. 

If you want to start making an average $50,000 income through dropshipping, it will take at least 12 months of full-time work.

While this may seem like a lot of effort for a relatively small payoff, remember this – dropshipping requires much less time once you’ve set up your site. As soon as your website is up and running and churning a profit, you can quickly scale it without putting in hours of extra work.

It’s also important to think about the equity value you’re building when you set up your dropshipping business. You’re not just creating an extra income stream, but you’re building a website that you can sell in the future. 

Why is it Important to Invest Time Into Your Dropshipping Business

Growing your dropshipping business through a time investment is best because:

  • You’ll have a thorough understanding of how your business works
  • You’ll have a very intimate knowledge of your customer and market to help you make better business decisions
  • Bootstrapping your dropshipping business will teach you loads of valuable new skills
  • You’ll avoid spending unnecessary money on vanity projects that don’t help the success of your business

Investing Money Into Dropshipping

If you don’t have the time, the other option is to invest a bunch of money into your dropshipping business. Money may get you started faster, but it isn’t the best approach.

When you’re starting up your dropshipping business, you need to have someone who’s deeply invested in the business’s success. This person should be getting their hands dirty, building the business from the ground up. This mentality applies to any small business. 

If you pay too many other people to do it, you’ll be throwing money at agencies, developers, and programmers. Doing this will quickly deplete any profits you’re making.

And besides losing money, you’ll miss out on a lot of the skills and knowledge you’ll need to run your business and make better business decisions. 

In saying that, you don’t have to do everything when starting your dropshipping store. You can always hire a specialist to do a task you’re uncomfortable with, but try not to outsource all the work for your dropshipping store, especially if you’re a first-timer. Using a service like Wishpond makes it easy to outsource your marketing tasks affordably. 

How Much Money Do You Need to Start Dropshipping?

While you should try to do everything yourself, you will need a small cash reserve when getting your dropshipping business off the ground. Something in the $200 – $1000 range will be good. 

This cash will cover small operating expenses, like web hosting and dropshipping suppliers. You’ll also need to pay incorporation fees (we’ll discuss this below). 

Even if you’re willing to do it yourself and put in the hard work, you’ll still need some cash to get your dropshipping business started.

2. Choose a Dropshipping Niche

The next step in learning how to start dropshipping is to choose a niche.

Coming up with ideas for what products to sell is one of the most important and most difficult parts of starting a dropshipping business. 

This involves thorough market research, understanding the competition, trends, and investigating how profitable your niche is. 

It’s always a good idea to focus on a niche you understand and have some genuine interest in. This will make putting in all of those long hours working on your dropshipping site much easier. 

You also need to make sure there’s an actual demand for your products and that the competition isn’t too tough. Being as specific as possible is always a good idea. This lets you narrow down your audience, making marketing much easier to do. 

Focusing on trending products is also a good idea. This way, you’ll find an audience more efficiently and gain traction without competing with large, well-established businesses. 

Some examples of niche ideas could include:

  • Yoga accessories
  • Cute outfits for dogs
  • Exercise equipment for fitness fanatics
  • Surfing accessories
  • Baby products for new parents

How to Find a Dropshipping Niche

There are a couple of different tools and techniques to help you find and validate your dropshipping idea.

  • Google Trends: This is a great way to understand whether a topic is trending upwards or downwards. It also shows you the seasons that the product is most popular. Just type in your product idea to see how much people are looking at it online.
  • Keyword Research: Free keyword research tools like Wordstream or Ubersuggest let you see the monthly search volume of the keyword you’re targeting. Just type in your product or niche to see how popular this is online. Remember that high-volume searches mean a lot of potential customers, but this also means a lot of competition. If you find a keyword with low difficulty, your audience is smaller, but it will also be far less competitive.

Ecommerce has hugely grown in popularity. This gives you a lot of opportunities for dropshipping, but it also means there’s a lot more competition.

Always do thorough competitor research before deciding on a dropshipping idea. You should look at what the leading competitors are doing and what you can do better to win over the audience.

3. Competitor Research

Once you’ve decided what to sell, the next step in learning how to start a dropshipping business is to do thorough competitor research. 

You need to know who your competitors are and what they’re doing. This will help you create a more successful marketing strategy to make your dropshipping business stand out. 

An area with a lot of competition is generally a good thing in dropshipping because it shows demand. Narrow your competitor list down to about five other dropshipping businesses and two major players – like Amazon.

Learn everything you can about these businesses. Understand their prices, how their website works, how they do marketing, how they describe their products, and what customers say about them. 

A good approach is keeping all of your competitor research organized into a spreadsheet. This way, you can make fast strategic decisions by referencing the spreadsheet.

For example, if you want to use email marketing to promote your business (which you should), you can quickly check which competitors use email and how they do it. This will help you create your email marketing strategy that makes an impact.

How to do Competitor Research for Dropshipping

There are a couple of ways to research your competition in dropshipping effectively:

  • Google search: Start by simply Googling your products and niche. If you sell yoga mats, start with a simple search term like “yoga mats.” Take note of the top 10 competitors and what they’re doing to rank for that search term. 
  • Social media: Stalk your competitors and see what they’re doing. Notice which platforms they have the most followers and engagement on and what type of content they’re posting. Also, search for Facebook ads in your niche and check out the top brands. Use this information to see how your business can tap into opportunities and stand out from the rest.
  • Subscribe to email lists: Sign up to your competitors’ email lists to get direct updates from these businesses. See how their marketing strategies work, what kind of deals they offer, what content they promote, and how frequently they do this.
  • Competitor spy tools: There are tools available that allow you to discover and monitor your competitors’ online activity. This is a great way to access a detailed insight into your competitors’ different online channels, their top traffic sources, and what they’re doing to make sales.

4. Find a Dropshipping Supplier

When learning how to start dropshipping, choosing a supplier is possibly the most critical decision to make. 

Your supplier provides the products and ships them to customers. Without a supplier, your dropshipping business won’t exist.

Finding a reliable supplier that offers high-quality products and ships them efficiently is essential. Working with the wrong supplier will damage your business’s reputation. This means bad reviews, which will quickly scare any potential customers away.

No matter how good your marketing strategy is, having a bad supplier will hold your dropshipping business back from success.

Ecommerce platforms can connect Oberlo to your online store to make it easier to find suppliers.

Oberlo is a marketplace to help you find products that you can sell online. This covers all kinds of products with high-profit potential, available worldwide. Just find the product you want and instantly add it to your store. 

Oberlo automatically forwards all orders to your supplier, so you don’t have to do anything. You just set up the products and watch your orders roll in. 

The Oberlo app uses AliExpress to find products. A good strategy is always to find products that offer ePacket shipping. This option makes it much faster and easier to ship products from China to countries like the US, Canada, or the UK. 

5. Create Your eCommerce Store

You’ve chosen your products, you’ve researched the market, and you’re set up with a supplier. Now it’s time to start making sales. 

The right eCommerce platform is the next thing you need to start a dropshipping business. This is where you send your traffic, sell products, and process payments. 

There are many different options for eCommerce store builders. It’s important to choose one that matches the needs of your business, as well as your technical knowledge. 

Check out this guide to help you find the best eCommerce tools and platforms

6. Structure Your Business

Now you’re all set to start selling products and making money through dropshipping. Well, almost. When starting dropshipping, setting up a legal business entity is always a good idea. 

While we can’t offer any legal advice, here’s a breakdown of three common business structures.

Sole Proprietor 

This is the most accessible business model to implement. A sole proprietor is when the individual represents the business.

As a sole proprietor, you have no personal liability protection. This means if your business is sued, your personal assets aren’t protected.

Sole proprietor filing requirements are easy, and you report your business earnings on your personal taxes.

Limited Liability Company (LLC)

An LLC established your dropshipping business as a separate legal entity, which helps to protect your personal assets. This gives you more protection than a sole proprietorship.

As an LLC, you might need to pay incorporation and ongoing fees, as well as comply with additional filing requirements. 

Different states have different LLC guidelines, so it’s important to understand the relevant guidelines that apply to you.

C Corporation

C Corporations offer the most liability protection. Most major corporations are set up this way.

They are more expensive to set up and are subject to double taxation because income doesn’t pass directly to shareholders. 

What business structure is best for dropshipping? While we can’t give any legal advice, most small entrepreneurs go with a sole proprietorship or an LLC. An LLC is generally a good choice for a dropshipping business as it offers a good blend of personal liability protection, autonomy from personal finances, and cost.

EIN Number

The IRS will require your dropshipping business to have an employer identification number (EIN). This is a social security number for your business.

You’ll need an EIN to file taxes, apply for a wholesale dropshipping account, open a bank account, and do other business tasks. Simply apply for an EIN number here.

7. Set Up Your Finances Correctly

Even if you’re just starting dropshipping as a side hustle, you’ve got to get your finances in order. So many entrepreneurs blend their personal and business finances when starting a business. This is a big mistake. 

It makes it much more difficult to keep up with accounting. It can lead to the personal assumption of business liabilities, and it’s not a good sign for the IRS if you’re audited.

The best approach is to open separate accounts in your business name. You’ll need a:

  • Business checking account: to run all of your business finances through one account. You should withdraw all expenses from this account and deposit all revenue into it. This makes accounting much more manageable.
  • Credit card: It’s a good idea to have a credit card that you only use for business expenses and dropshipping inventory purchases. With the right credit card, it’s possible to build up some great rewards because you’ll be buying a lot of merchandise from suppliers.

Then there are a couple of other important things to consider, such as:

  • Collecting sales tax
  • Applying for local business licenses
  • Incorporating a business outside the US

These apply to different people and dropshipping businesses in different places. Make sure you understand your local business laws and guidelines so that you have all the necessary paperwork covered before you start selling.

8. Marketing Your Dropshipping Store

At this point, your dropshipping store is set up and ready to go. There’s just one problem – you need customers. 

A strong dropshipping marketing strategy is essential for your dropshipping store to succeed. You need to stand out from the competition and make sure that you’re reaching your potential customers. 

The good news is that so much of dropshipping is automated. The time you save from managing inventory and fulfilling orders can be spent building a high-impact marketing strategy.

Here are a few ways you can do this.

Content Marketing

Where’s the first place customers will go when they’re looking for a new product? Google. If you get your content highly visible on search engines, you’ll direct a lot more traffic to your dropshipping store. 

Content marketing allows you to create a long-term stream of traffic to your online store. This traffic has a high purchasing intent, and you don’t have to pay for it. This is the best long-term strategy to keep reaching new customers. 

Start a blog about your dropshipping niche and publish helpful, relevant, and exciting content that your target audience will be interested in. Make sure you have a basic understanding of SEO when doing this. 

You can also create a YouTube channel, focus on social media content, start a podcast, and more. 

Paid Ads

This is the fastest way to reach new customers and send a lot of traffic to your store. The only catch is that you have to pay for it.

Facebook ads and Google ads are the best ways to reach a specific audience without spending too much. These ads are easily scalable and can help you tap into people’s desire to impulse buy.

Google is a great place to try out shopping ads targeting specific long tail keywords. When you’re starting out, it’s important to run ads. Otherwise, your store will probably be hidden far below the already established competition.

Communities

As a dropshipping business, you’ll be targeting a particular niche. Luckily, this means there will be already established communities around this niche. 

Places like Reddit, Facebook groups, LinkedIn groups, and online forums will have plenty of conversation happening around your niche. Join these conversations. Add value and strategically promote your products. 

Don’t be too sales-y, build relationships and gain positive awareness around your brand instead. These communities are full of your target customers, so a bit of engagement can go a long way.

Influencers

Influencer marketing is huge right now. It can have a fantastic ROI for B2C brands. Working with the right influencers can also be a more affordable option than traditional advertising.

Find influencers within your niche and negotiate a deal for them to promote your products. Offering an affiliate partnership is a great option because this means you won’t have to spend any money upfront.

Of course, make sure you choose the right influencer that your target audience is interested in. And when choosing an influencer, high engagement rates are generally better than the number of followers.

Email

Email marketing is one of the best ways to market your dropshipping store. You can use email to send out discounts and special offers, promote your content, and recover abandoned carts. 

You’ll need a good email marketing platform and an email list to do email marketing. To build up an email list, you should offer something of value to subscribers – like quality content or a first-time discount. 

These are just a few possible channels for digital marketing. Make sure you continuously monitor their performance to see which channel works best for you. You should constantly be adjusting your marketing strategy to help you lower marketing costs while maximizing revenue.

9. Analyze and Improve Your Dropshipping Business

As automated as the whole dropshipping business model is, it’s still not a set-it-and-forget-it approach.

You should always look back at the performance of your dropshipping business, monitor key metrics, and see how you can improve performance. Consistently monitoring and tweaking your site will help you grow your business and revenue over the long run.

Use tools like Google Analytics and Google Search Console to monitor your site’s performance. See how much traffic you’re getting, where it’s coming from, and how well your SEO efforts are doing.

You should also use your social media platforms to maintain social media performance and how much traffic these channels are driving to your site. 

Set clear KPIs for your dropshipping store and continually monitor these. This will allow you to make data-backed decisions for your dropshipping business. Eventually, these decisions will help you take your small dropshipping business to the next level.

Some important areas to monitor include:

  • Sales: What are your best-performing products, who are your best-performing customers, and what channels are driving most of your sales. This will help you figure out where to put your ad budget for better ROI.
  • Profits: What products are the most profitable? How are your sales and profit margins performing each month?
  • Shopper behavior: How are shoppers converting on different pages? Where are they shopping from? What devices are they using?

Start Your Dropshipping Store

So many entrepreneurs love dropshipping because it’s a low-risk, low-cost business to get off the ground. You can start dropshipping from anywhere in the world and make some serious money from it if you do it correctly.

Follow the steps above, put in the hours, and soon you might have a steady passive income rolling in from dropshipping. Get it right, and it could mean total financial freedom through one of the easiest ways to make money online.

How to Start Dropshipping FAQs

How much money can you make from dropshipping?

There’s no limit. High-ticket dropshippers can make anywhere from $200 – $3000 in their first month. Many dropshippers make up to $100,000 per year with their dropshipping store. If you set your store up correctly and find the right niche, you can make a lot of money from dropshipping.

How much does it cost to start a dropshipping business?

Technically, you can start a successful dropshipping business with $0. However, it’s more realistic to start a dropshipping with around $280 – $1000. This is necessary for web hosting, getting a domain, marketing, etc.

Is dropshipping easy to start?

Anyone can indeed start a dropshipping business with minimal investment, but it will take some time and effort to get your dropshipping business off the ground. You will also need some technical knowledge to set up an online store and create digital marketing campaigns. Overall, dropshipping is probably the easiest way to get started with eCommerce.

How do I start a dropshipping business?

  1. Commit to your dropshipping business idea
  2. Choose a dropshipping niche
  3. Do competitor research
  4. Find a dropshipping supplier
  5. Create an online store
  6. Structure your business
  7. Set up your finances
  8. Market your dropshipping store
  9. Analyze and improve your dropshipping business

How do I find the best products for dropshipping?

Successful dropshipping relies on the niche you choose. You want to find a niche with low competition but a high interest and demand. This will help you find profitable products that you can quickly sell.

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