Starting a dropshipping business is not easy.
But dropshipping is one of the best ways to make money online in 2022.
You don’t need to pay for products upfront, and you can sell to customers without managing any inventory. If you put in the work and hours, you can even build a dropshipping store into a sustainable source of income.
So if you want to learn how to start a dropshipping ecommerce store, read further.
In this guide, we break down everything you should know to start a successful dropshipping ecommerce store. We’ll discuss:
- What dropshipping is
- How dropshipping works
- Pros and cons of dropshipping
- How to start a lucrative dropshipping store
Let’s dive in.
What is dropshipping?
Dropshipping is an order fulfillment method that allows store owners to sell products directly to customers without owning or managing any inventory. Instead, store owners purchase the products from manufacturers, wholesalers, or dropshipping suppliers, who handle the shipping of customers’ orders.
The fact that store owners don’t need to maintain inventory and shipping allows anybody to open their own online store and get a percentage of all the sales they generate when they market their products.
How does dropshipping work?
With dropshipping, the store owner doesn’t actually see, hold or ship the product. Instead, they just increase the wholesale price of the product and advertise it through their store for the supplier to turn a profit.
The dropshipping business model has three key players: you (the retailer or store owner), the supplier (or manufacturer), and the customer.
The dropshipping process looks like this:
- You, the retailer, stocks some products on your website or online store.
You don’t actually have these products in a warehouse. Instead, they are held by the wholesaler or supplier. The products may cost $5 per unit from the supplier, but you can sell at $10 per unit, making a $5 profit per unit sale.
- When a customer orders a product from your ecommerce store, you get a notification.
- You send the order information to your supplier, either manually or automatically.
- The supplier fulfills the order and ships the product directly to the customer under your name.
Pros of dropshipping
Here are the advantages of dropshipping:
1) Low startup costs
A traditional ecommerce store often requires you to invest a hefty amount of money. This money is used to source products, establish your inventory, purchase a warehouse, and invest in marketing channels.
On the other hand, a dropshipping business cuts down most of these upfront startup costs.
With dropshipping, all you need is a website, a good eCommerce platform, reliable suppliers, and marketing campaigns to reach customers.
You don’t have to worry about manufacturing your own products, buying a warehouse, managing inventory, or hiring supply chain experts. Instead, you can spend your capital on things like website design and branding.
2) Low order fulfillment costs
Order fulfillment is not free.
It costs time because it requires you to go to your warehouse, organize, track, label, package, and ship products to your customer. Packaging resources and shipping materials like boxes and tapes cost money, especially when the products are large.
With dropshipping, you don’t need to pick and pack products. Your third-party supplier will take care of order fulfillment for you.
This means that you won’t be burdened by the process and fulfillment costs.
You can manage a dropshipping business from anywhere in the world. This gives you flexibility in where you work and where your team members are located.
You also have flexibility over the products you sell. You can choose to sell whatever product you like as long as you’re sure it’s helpful and in demand in your chosen niche. You’re simply listing what suppliers sell, which allows you to experiment and see what works (and doesn’t work) for your market.
4) Easily scalable
It’s easy to scale your dropshipping business at any stage of development because you don’t need to save up money to buy new goods or look for other partners.
In a traditional business, if your sales increase, you and your team have to do more work to satisfy your customers. But with a dropshipping business, your suppliers bear the brunt of order fulfillment.
So you don’t have to hire more people to help out. Instead, you can continue to function as you normally would while your suppliers do the hard work in the background.
This system ensures that you can market a wider variety of products to your customers and increase revenue without being afraid that your business will crash.
5) Test new products with low risk
To keep your customers engaged, you need to be innovative with the products you sell. But it’s hard to be innovative when you’re managing your own inventory because investing money into new products is a huge risk that might not pay off.
If your customers aren’t interested in the new products and don’t buy them, you will end up losing a lot of money.
With a dropshipping business, you only pay for what you sell so you can become more innovative with the products you sell without the risk of losing your money.
Dropshipping lets you test new products without investing too much money. So if you see a new product that’s selling really well for another retailer in your niche, you can offer it to your customer immediately.
If your customers don’t respond well to a new item, you can simply remove it from your store and add a new one.
It’s that easy.
6) Create passive income
Although passive income requires upfront work and constant monitoring, you typically earn it with little to no daily effort.
With a traditional retail business, products can’t be shipped to customers without your direct involvement. But with dropshipping, it’s easy to earn money while you’re working on a different part of your business (or even when you’re asleep) because customers’ orders are being fulfilled automatically.
Cons of dropshipping
1) Highly competitive
Dropshipping businesses have low startup costs, which is very attractive to many entrepreneurs. However, because of the low barrier to entry, you’ll likely have more competitors with dropshipping than with a traditional ecommerce business model.
This happens because other stores aren’t just selling similar products to yours — they’re selling the same products from the same third-party suppliers you use. So you’ll need to find inventive ways to stand out in the market so that you can beat your competitors.
2) Lack of control over the supply chain
Because you don’t monitor the inventory of your dropshipping business, you cannot ensure that the products are in top condition before and after the supplier ships them to your customers.
Your third-party supplier is in charge of the inventory.
Simply put, the reputation of your business is in the hands of your supplier. But your customers most likely won’t know that you dropship. So if you fail to satisfy your customers because of broken products or late shipping (which are out of your control), your customers won’t blame your suppliers. They’ll blame you. And if things are not salvaged quickly, they will buy from your competitors next time.
That’s why it’s important to work with high-quality suppliers as a dropshipper.
They will try all they can to satisfy your customers and rectify botched purchases. You can also cut a special deal with them to create unique packaging, customize boxes, add thank you notes, and set up coupons to drive purchases and encourage customer loyalty.
As your business grows, you can negotiate higher profit margins with your suppliers.
3) Low-profit margins
Because of how competitive the dropshipping space is, businesses often get low-profit margins.
When you have a traditional e-commerce store and manage your inventory, you have to buy your products wholesale. This means that you get discounts when you buy in bulk. When you get discounts, your cost per product is usually low, so the profit margin becomes higher, resulting in more profit.
However, when you run a dropshipping business, your supplier handles order fulfillment, so that supplier actually gets high-profit margins.
You have to negotiate your margins with your suppliers, and it’s usually a small percentage of the amount your customers pay for that product.
It’s not until you’ve scaled your business and built customer loyalty that you can increase prices enough to see impressive financial gains.
4) Hard to build brand loyalty
It’s very convenient to have suppliers pick and pack customer orders, but this setup offers limited opportunities to establish your brand. This is because your suppliers—not you—could get credit for your customers’ products.
For instance, if a customer loves one of the products you’re selling, they’re more likely to focus on the company that manufactured the product than the dropshipping business that served as middle man between the customer and the manufacturer.
This makes building brand loyalty difficult.
How to start a dropshipping e-commerce store
1) Find a lucrative dropshipping niche
With dropshipping, your competitors work with the same suppliers and have access to the same products as you have. So to differentiate your business from the competition, you need to identify a target audience and sell products that are useful and relevant to them.
That’s why you need to pick a niche. Connor Shelefontiuk has devised a method for finding the right products. If you are interested, consider signing up for his course. Here’s a detailed review of the Project Pioneer course.
Niche products often have more dedicated customers than generic products. This makes it easier to increase awareness for your products and sell to a specific crowd.
Contrary to what you might’ve heard, picking a niche takes time and deep thought. It’s not enough to just pick something you’re passionate about. You also need to pick a profitable niche. It is, after all, easier to be passionate about something when it’s making you money.
Passion + Profitability + Customer Demand = Ideal Dropshipping Niche
Examples of niche dropshipping stores include:
- Beard oils and creams for people with beards
- Cat toys for cat owners
- Accessorized phone cases for iPhone owners
- Gym wear for people who exercise
Here are some great ways to find lucrative dropshipping niches
This is where passion comes in.
What are your interests? What do you specialize in? What do you like?
It’s easier to sell products in a niche that you know well, so consider your personal interests and specialties when looking for a niche. If you like it, chances are other people do, too.
Shopify and Oberlo are two of the most common e-commerce marketplaces in the world, and they save you time by creating lists of trending niches and products. These lists are based on the top-selling product categories on the platforms.
In Oberlo, you can also check the order volume of products to know the profitability potential of a niche.
You can also look at the ‘Bestselling’ lists on Amazon and eBay for niche ideas.
When you sell trending products, you can gain traction and get your customers’ attention without competing with bigger businesses.
Google Trends can help you determine if a niche is trending upward or downward, as well as the months or seasons they generally trend in.
On its own, Google Trends is not enough to determine whether you should pick a niche or not because it doesn’t provide search volume data. So if you use it, cross-reference your findings with a keyword tool to ascertain a niche’s popularity in search.
Keyword research tools give you the monthly search volume for a particular keyword or niche. This helps you determine if people really search for products in a certain niche and just how competitive a niche is.
You can use Keywords Everywhere or Ubersuggest’s Keyword Tool to do this.
The higher the search volume, the higher the demand for that niche or product.
Browse popular websites in your niche
When you pick a broad niche—say, fashion—you should visit the website of a popular fashion retailer. They often organize their online store into categories, e.g., women’s pants, men’s footwear, hats, etc.
This helps you understand the kinds of products you should add to your store. Their bestselling section can also help you find the best products to stock up on.
When you eventually find a niche for your dropshipping store, try to niche down. When you’re just starting out, you want to sell products for a subset of people.
Selling beauty products is great, but selling beauty products that specifically cater to people with acne is better. You know exactly who your target demographic is, so you can market directly to them.
As you build your reputation, you can sell more products in your chosen niche.
2) Conduct competitor research
There’s a lot of competition in dropshipping because of its low barrier to entry.
That’s why you’ll need to conduct competitor research before starting your dropshipping business. Now that you’ve identified your niche and the products you’ll sell, you need to find your competitors and understand how they market their products.
This will give you an idea of which marketing channels work so you can build a stronger marketing strategy for your business.
Here are some ways to conduct competitor research:
Use spying tools
Tools like Alexa and SimilarWeb are great for finding and spying on your competitors’ web activity. These tools give you information about your competitors, including their social media profiles, the ads they are running, top traffic sources, number of web visitors, and their own competitors.
Browse through social media platforms like Facebook, Twitter, and Instagram to find Facebook ads in your chosen niche and the social profiles for top brands.
Look at how many followers these brands have. Study how they communicate with their customers, how they market their products, and how much engagement they get. You can even follow their accounts to keep track of their social activities.
Then, try to figure out what you can do differently to distinguish yourself from them. See what they’re doing right and replicate it.
Identify what they’re slacking at and do it better.
Whatever your findings are, use them to improve your social media marketing strategy.
Buzzsumo is a tool that can show you the content that your competitors’ put out and how it’s working for them. With Buzzsumo, you’ll be able to see which content gets the most traffic and social shares. This way, you can get new blog post ideas.
You could also sign up for your competitors’ email lists so that you can get their updates straight into your inbox. This gives you a peek into their marketing strategy and helps you keep up with the content they share on their websites.
Competitor research requires you to learn all that you can about your top competitors–their website, marketing methods, prices, product descriptions, etc. Organize your research in a spreadsheet you can easily pull up when making decisions for your dropshipping business.
3) Choose your dropshipping supplier
Choosing a dropshipping supplier is vital to creating a lucrative dropshipping business.
Suppliers are the ones who provide you with the products, manage the inventory and handle order fulfillment. So you want to pick a high-quality supplier that can make or mar your business.
When trying to choose a supplier, you have two options: dropshipping marketplaces and manufacturers.
The easiest way to find suppliers is to find suppliers if you’re new to dropshipping marketplaces. Most of these marketplaces sell millions of different products that they buy wholesale from manufacturers and sell to retailers (you) at a low price.
Major dropshipping marketplaces have special plugins that help you integrate your ecommerce website easily. These marketplaces include:
- Dropship Direct
Oberlo is a favorite with dropshippers. Not only does it integrate with your Shopify store, but the Oberlo app also uses AliExpress, another favorite, to help you find and add products to your store.
Whether it’s fashion, beauty, electronics, or other trending niches, you can use Oberlo to find products with good profit margins from dropshipping suppliers worldwide and add them to your ecommerce store with one click. And it’s completely free to use.
On the Oberlo app, you just find a supplier and click their link, and it will take you to the supplier’s AliExpress page, where you can find reviews, ratings, top-selling products, and how long the supplier has been using the platform. This information will influence your decision on which supplier to use.
When you’ve compiled a list of five potential suppliers to choose from, you can contact them and ask questions about their shipping times/countries and minimum order quantities. Then, place a sample order with them for the product you want.
Compare shipping times, packaging, and product quality. This gives you an idea of how the service will be when a customer orders the product through your store.
Manufacturers and importers
While dropshipping marketplaces are an easy way for dropshippers to start their business, working directly with manufacturers and importers can increase your profits greatly. That’s because the middle man (dropshipping marketplaces) is cut out, and you’re buying wholesale directly from the source.
Manufacturers, however, often have average order volume thresholds that you might not be able to meet if you’re new. They also don’t offer integration with your e-commerce platform, which means that you have to put in more work when adding products to your store and managing inventory.
So before you start working with manufacturers and importers, you should have built a reputation and dedicated customer base.
Whichever route you choose to follow, your supplier should meet these criteria:
- Experience: Your supplier should have years of experience in the dropshipping business. Visit review websites like TrustPilot and Yelp to see what other dropshippers have said about their order fulfillment and customer service quality.
- Fees: Profit margins in dropshipping are generally low, so you want to pick a supplier that won’t charge you unreasonable fees to stock products. Some suppliers charge dropshippers monthly to work with them, while others charge per item for stocking, packaging, and shipping. Compare your supplier fees with your profit potential and decide if it’s worth it.
- Fast shipping: Most suppliers are located in China, so customers expect to get their products within 1-2 weeks. If it takes longer, they will not be satisfied.
- Product samples: Many suppliers sell low-quality products, so before contracting with a supplier, request samples of the products you want to sell.
- Referrals: You can know a good supplier when they give you referrals to other businesses they work with. If they refuse to give you referrals, don’t contract with them.
4) Build your eCommerce store
Now, it’s time to build your eCommerce store. This is where you’d sell your products, direct traffic to, and process payments.
Some drop shippers like to set up shop on eCommerce marketplaces like Amazon and eBay.
With Amazon and eBay, you can easily set up your store and get access to a large audience, but you’ll have limited control over your business’s design, branding, and marketing. These platforms will also charge you a fee for every sale you make, and they have terms of service that you must adhere to.
That’s why I recommend that you build your own eCommerce website. This helps you have more control over how you present your business.
Most drop shippers like to create their websites from scratch with platforms like Shopify and Woocommerce to build and launch their dropshipping eCommerce store.
If you’re new and are working with a limited budget, opt for the latter.
When deciding on the platform to use, consider the kind of store you want. If you want a product-focused store, use Shopify or BigCommerce to integrate with Oberlo. If you want a content-focused store, WooCommerce works well because it integrates with WordPress, a popular content management system (CMS).
You don’t need to be a web designer to use these platforms. Shopify and BigCommerce have tools that suggest domain names and logo designs. There are also themes and store builders to help you change the look and vibe of your store.
5) Market your store
Once you create and launch your dropshipping ecommerce store, the next thing you have to do is market your store with everything you’ve got.
The only way you can get sales is to put yourself out there. Fortunately, there are many ways to do that. You just have to pick two or three methods that work for you.
Here are some of the best ways to market your store.
Facebook advertising is great because it satisfies people’s buying impulses. Facebook is used by over 2 billion people worldwide, and there are bound to be people interested in the products you sell.
At the start, you don’t want to blow too much money on ads. Start small, between 5 – 20 cents per click, to test the waters. Create several small ads for each product to figure out which one sells best.
As your business grows and your budget increases, you can invest more money into it.
As a new dropshipper, you don’t have access to a large audience, so hiring an influencer to market your products to their audience makes sense.
You can find these influencers on social media platforms like YouTube, TikTok, and Instagram. People tend to trust influencers more than traditional ads.
Influencers are generally affordable, but you can offer them an affiliate commission if you cannot pay their rates. This is a win-win situation because they’ll make money off each sale (so they have to make sure your product sells), and the cost reduces for you.
Most ecommerce platforms have a plugin for an email marketing platform like MailChimp and MailerLite. These platforms are affordable (some even start free), so sign up and begin collecting your customers’ emails.
You can reach out to your customers every week, highlighting new products, content, and sales in your store.
If you want to build a long-term traffic stream for your store, content’s the way to go.
Start a blog about your niche and create entertaining and useful content for your audience. Depending on your niche, you can also start a YouTube channel, podcast, or create infographics to help spread the word about your ecommerce store.
Communities are great places to interact with people interested in your niche. You can find these people in online forums, Facebook Groups, or subreddits.
Make conversations and answer questions genuinely. Don’t get involved just for the purpose of selling. Instead, offer them help and build relationships so that they can trust your brand and want to purchase from you.
Just like any successful online business, study the marketing channels that work (and don’t work) for you, especially if you’re paying for them, e.g., ads. Then, as your business grows, you can always streamline your marketing strategy to reduce costs and maximize revenue.
Start your dropshipping eCommerce store today
Dropshipping is a great business model for entrepreneurs looking to start a low-cost, low-risk eCommerce store. It does take a few months for dropshipping eCommerce stores to gain traction and become profitable, but third-party tools make the process easier.
Hopefully, this guide helps you set up your dropshipping store easily so that you can earn a steady stream of income online.