In 1994 Jeff Bezos was 30 years old and working a stable job at a hedge fund. But he had a business idea that he wanted to try on the newly formed internet that was growing by 2300 % per year. He was faced with the dilemma to either take the risk and let his secure job go or forego his internet business idea. But he did not want to live with regret. He started an online bookstore that later became the world’s largest e-commerce marketplace with a market cap of $900 billion. In the early days, Jeff Bezos delivered packages himself.
Today, the e-commerce landscape has come such a long way. There are an estimated 12 to 24 million online retail stores across the world, with new ones being created every day. Selling online has become extremely convenient and swift. There is a gamut of services that completely automate the online selling process. Today, enabled by these new technologies, some successful online retailers have never even met their supplies or vendors. However, the most convenient way to sell online is dropshipping.
How Does Dropshipping Work
In the dropshipping business model, store owners do not have to hold inventory or pay for products. Retailers are only responsible for creating and maintaining an online shop front. Order fulfillment is carried out by third-party suppliers. For every sale, the store owner gets to decide and keep a margin over the wholesale price of the supplier and delivery charges.
This makes starting and running a dropshipping business low risk and low investment. Having said that, today there is a ton of competition when it comes to selling online. Therefore, let’s look at how to start a dropshipping business in a way to maximize your chances of success.
Key Steps of the Dropshipping Business
- Selecting a Niche & Products (Doing Competitor Analysis)
- Buying a Business or Starting from Scratch
- Selecting a Supplier
- Building your Brand (Marketing)
- Reviewing & Aligning (Analytics for long-term growth)
Selecting a Niche & Products (Doing Competitor Analysis)
This is perhaps the trickiest part of starting a dropshipping business. There are several factors to look at, for example, which product category to target, which regions to sell in, and what the competition is like for a given product.
Several resources list product ideas based on the things that are trending. The problem with this approach is that there is a large number of people who attempt to sell products that make it to such lists, oversaturating the product category, and squeezing any margins.
Therefore, the trick is to look for a niche product in a trending product category. This enables you to have some level of product differentiation or uniqueness. This also ensures that there is enough search volume for your product category, yet your specific product is still a niche.
To find trending product categories, visit major online marketplaces such as Amazon and Etsy and look for a list like hot, trending, most wished for, popular, and in demand. Furthermore, you can look at user reviews of products to gauge their popularity and authenticate their quality.
Essentially what you’re looking for is as low competition as possible for a given product. However, we all know that that unicorn is extremely rare. There is always some level of competition. But what you want to avoid is a product we’re only the top few vendors rake in all the business. A general rule of thumb here is, the higher the product in value, the more consideration consumers will give during the purchase process. Therefore, they will stick to a vendor that already has several fulfilled orders and a high rating as a result.
A way around all of this is branding as you will see later.
Buying a Dropshipping Business vs. Starting from Scratch
There are many exchanges where you could look for functioning dropshipping stores from any niche and of any size. Bebiggy, Flipa, Empireflippers, and Exchangemarketplace are just a few. Dropshipping businesses are listed along with essential analytics such as monthly traffic and revenue to make purchasing decisions easier.
However, if you choose to go the more budget-friendly route, which is also the lengthier of the two approaches— no surprise there— and build an online store from scratch you will require a lot less capital a lot more grind. The inherent and invaluable advantage in the “start-from-scratch” approach is that you get to thoroughly learn the business and your niche. This sets you up for success much better than simply buying a business off the shelf and then figuring out how to keep it profitable as you go.
Either way, starting from scratch or buying an existing dropshipping business you will have to work with a suppler, and in most cases with multiple to fulfill the orders your online dropshipping store will receive. Therefore, selecting a reliable and easy-to-work-with supplier to register with is crucial.
This is a critical step as the supplier needs to be dependable. Your end-customer will never know who the supplier is. So, it is the image of your store that will get tarnished in case of any bad user experiences.
While there are many options to look at, the biggest platforms offer the largest number of suppliers with enough history to aid decision making. You also get an extensive range of products to choose from. A few of the places to consider beginning your supplier hunt are;
Dropship Direct and Alibaba are e-commerce platforms where you can find and assess vendors directly. The latter two, Modalyst and Oberlo, are supplier directories that directly integrate with cloud-based online shop accounts on Wix and Shopify respectively. This method is far more convenient than then looking for vendors directly.
A common misconception when it comes to dropshipping is that it can be a side hustle. While it is true, as mentioned earlier, that it has become extremely convenient to set up a dropshipping business that delivers globally without the storeowner ever having to travel himself. However, this convenience factor in itself has attracted a lot of entrepreneurs to this business and made competition stiff.
Therefore, to understand this better, we need to break the time commitment down into two components. The initial phase of building up a dropshipping business requires a drastically different time commitment than running an already established business on a day to day basis.
The initial startup period has a lot of moving components that span several disciplines. For example, product selection, vendor selection, designing, marketing message, come up with a domain name to name a few. The majority of your time, when a store is new, will go towards marketing your online store and products within it. Heavy competition ensures that it is extremely hard to rank a dropshipping business in any given niche.
On the other hand, once a store has had time to run and bring in steady sales month in month out, storeowners usually have put in place their marketing calendars and automated most activities. That is the beauty of this business, monitoring it on a smartphone no matter where you are. It becomes passive to a great extent. The only major drain on your time, perhaps daily, is responding to customer queries.
Building your Brand (Marketing)
Building your Brand (Marketing)
Building up and maintaining a reputable brand of your dropshipping store is the singular most important thing you will do as a store owner — and it is often the difference between success and failure.
Branding is the best way to safeguard yourself against competition and build a lasting business. However, branding does come at a cost and will move you away from the low investment, low-risk model. Because when done right, branding needs to be done at the product level and not just at the online store level. That entails working with your supplier to create your brand and spending on printing and designing.
However, carrying out branding activities is highly recommended even if you can’t do it all at once right from the onset. You can incrementally and organically build up your brand through your marketing activities and then eventually, and gradually start incorporating branding on your products. This indicates to consumers that there is a commitment behind a product.
Having said that there is no way around marketing though. To sell, you simply have to market. Fortunately, digital marketing is not an extremely expensive, bank-breaking activity. You will have to invest in paid advertisements, social media marketing, content marketing, email marketing, landing page, etc. Successful marketing campaigns run an integrated omnichannel campaign. You will have to invest time and money in, first learning and then creating and maintaining your sales funnel for long term continued growth. This might sound exhausting, but once you master this skill it becomes second nature. After all, this is the business you are getting in once you decide to run a dropshipping business.
Reviewing & Aligning (Analytics for long-term growth)
Once your store is up and running and you have seen a few sales, it is now time for you to review and analyze how your business is doing. Whichever platform you chose to go with will offer valuable analytics and insights. You need to pay close attention to these insights to keep your business on track and growing. For example, you can look at which region has been the most profitable for you, which demographic is bringing in the most revenue, and even whether traffic to your online store was seasonal within a given year.
Things to keep an eye on in particular are things like waning demand for a product in your store that has been doing well. This will call for some investigation as to why the demand is dropping. Was the product simply trending and now isn’t as popular or there is some issue with some of the units being shipped out. You will have to be wary of these known pitfalls. Because the sooner you get the information the sooner you can act and remedy the situation. You can add a new product instead or talk to your supplier about quality control. But it will take a perpetual future-focused approach to keep your online store afloat and expanding.
You can also review your online drop shipping business in line with your long-term vision. You could consider expanding into other product categories, deliver to more regions, maybe offer affiliate commissions for influences sales, or partnering with someone for investment to grow even further.
You can even consider selling your business. Why would you want to sell it after putting in so much effort you might ask? The reason could be any. You might not feel like running your dropshipping business for eternity or might simply want to pursue a different path. But don’t think all the time and monetary investment you made in building up your business were in vain. A successfully running dropshipping business is an asset that can be sold at a certain multiple of its monthly earnings. It is easily possible that you make back what you put in, and more.
Dropshipping is the easiest and most convenient way to sell online and the segment is likely to become more mainstream and grown further. It is certainly profitable if done right with commitment and creativity. It’s an efficient supply chain system that creates and brings new and exciting products to the masses all the while creating adventurous entrepreneurs in the process.
The business model requires a lot of work upfront and then a moderate amount of work regularly to keep it running smoothly. This passive income element of dropshipping makes it extremely lucrative. So, have a passion product in mind? Why not look for a good supplier to sell it to the world.