According to the U.S. Small Business Administration Office of Advocacy, there are more than 30 million small businesses in the United States. When you consider how tempting the idea of being your own boss can be, it’s no surprise that millions of Americans choose to strike out on their own.
However, starting your own business isn’t an easy feat. When you consider potentially high startup costs and the fact that roughly 50% of businesses fail within five years, putting money into a business idea might seem like too great a risk.
Thankfully, due to the rise of e-commerce, it’s possible to start an online business without investing much capital or having to quit your day job. In fact, if you rely on dropshipping, you can create your own e-commerce business without handling inventory, employees, and order fulfilment.
Like any business model, there are steps you can follow if you want to start your own dropshipping business. This process is difficult, but if you’re willing to test several store ideas and have patience, you can start a new side hustle by running a dropshipping business from home.
What Is Dropshipping?
Traditional e-commerce businesses operate similarly to brick-and-mortar retailers because they store their own inventory and are responsible for shipping and logistics whenever customers order.
Dropshipping is different. With dropshipping, you never handle physical inventory or shipping. Rather, dropshipping businesses work directly with manufacturers to sell and ship products.
When a customer orders from your dropshipping business, the manufacturer ships it directly to the customer. This lets you focus on selling and developing a brand without having to worry about the fulfillment process.
Dropshipping also saves business owners from renting expensive warehouse space to store their inventory and hiring employees to help with fulfillment. Dropshipping businesses that use comprehensive inventory management systems can manage complex product lines without many of the headaches that come with physical storage.
Almost one-third of online stores use dropshipping. In fact, you’ve probably shopped online at a dropshipping business before without realizing it.
Ultimately, the simplicity of the business model makes it appealing for anyone looking to start a simple home business that doesn’t require startup funding or employees.
How to Start a Dropshipping Business
Dropshipping seems simple on paper. However, like any business idea, you need an action plan if you want any chance of success.
1. Pick a Niche
It doesn’t matter whether you want to start a dropshipping store, a blog, or another online money-making enterprise; niche selection is critical to ensure you know your target audience.
For dropshipping, niche selection can make or break your store. In the early days of e-commerce, it was possible to create a profitable dropshipping business with dozens of cheap, trending products and to sell without having a substantial brand identity.
These days, e-commerce is more competitive. Although there are dropshipping success stories of people selling one-off products, nowadays, successful dropshipping businesses need to build a comprehensive brand and cohesive store that’s inviting to customers.
All this boils down to picking a niche you understand and one that sells online easily. Common examples of dropshipping niches include:
- Clothing and accessories
- Garden products
- Home goods
- Sports and toys
- Technology and gadgets
- Jewelry and watches
- Kitchenware
However, these are still broad niches. If you choose to sell kitchenware, there’s little reason for a customer to choose your brand over goliaths like KitchenAid or general retailers like Walmart.
“Niching down” into a specific product category is the best way to create a strong brand and to focus on a product you truly understand.
For example, rather than creating a store that sells women’s clothing, you could create a store that only sells rompers or a narrow category of women’s fashion to be more unique.
2. Find Potential Suppliers and Products
A dropshipping niche is necessary to build a brand identity. To maintain your brand reputation, however, it’s important to find reputable suppliers with quality products, affordable prices, and reliable shipping times.
Traditionally, dropshipping businesses use AliExpress and Alibaba to source products. This is largely because both platforms have a wide selection of products and low prices.
Additionally, shipping times have steadily improved over the years, meaning you can sell cheaper Chinese goods to a global audience without having to worry about month-long shipping times.
Granted, some dropshipping businesses have moved away from Chinese suppliers to improve product quality and shipping times. Spocket is one popular option that lets you sell products from U.S. and EU manufacturers on your dropshipping store.
Whatever the case, some common requirements to look for in your products and suppliers include:
- Product Reviews. Avoid selling products with low customer ratings or a lack of customer feedback.
- Shipping Times. Find products that ship within a few business days and take under a month to reach the customer.
- Cost. In dropshipping, you pay the manufacturer for the product cost and shipping fees. Your own store has to mark up product prices to turn a profit. Ideally, you should be able to mark up products by two to four times without being too expensive for consumers.
- Quality. If you’re serious about dropshipping, order product samples from the manufacturer to inspect quality yourself. This is an easy way to test shipping times and to ensure the product you’re reselling isn’t faulty.
Ultimately, this stage in starting your dropshipping business is purely for research purposes. Ideally, you should find several suppliers and enough products in your niche that will let you create a robust storefront.
If you can’t find several products or products with positive reviews, it might be a sign to find a new niche.
3. Create Your Store
You need to create a website for your dropshipping store, but don’t let this step scare you. One advantage of dropshipping is the low startup cost, and it’s incredibly easy to set up your own storefront without much technical knowledge.
Shopify is a popular choice for dropshipping businesses, and it’s perfect for beginners and experienced sellers alike. Beginner stores cost $29 per month, and Shopify has a number of features that make running an e-commerce business easier, such as:
- Secure payment processing
- Unlimited product listings
- 24/7 support
- Discount codes for products
- Fraud analysis to flag suspicious orders
Plus, Shopify offers a diverse range of free and paid themes you can use to create a beautiful storefront. You can also customize your storefront with Shopify’s intuitive design features, making it easy to upload your own logo and craft a unique website.
Because Shopify is built for e-commerce, themes are typically designed like popular e-commerce websites. You can create featured product slideshows, product categories, and insert newsletter sign-up boxes to capture customer information.
Of course, some sellers choose Shopify alternatives, such as WooCommerce for WordPress stores or other software like 3dCart. However, these require slightly more technical knowledge than Shopify and aren’t as popular for dropshipping businesses.
4. Import Products
One advantage of dropshipping is that stocking your store with products is easy. Because you’re selling someone else’s products, you don’t have to take product photos or hire a photographer because you can import existing product images to your website.
To find and import products, many dropshipping stores use the Shopify app Oberlo. With Oberlo, you can browse millions of products across dozens of niches to add to your store.
You can also import products directly from AliExpress, which is useful if you identified several products you want to sell during your niche research.
When Oberlo imports a product, you also choose which product photos to include and set the product description. You should manually review each product you sell, choosing the most enticing pictures and writing a detailed product description.
Thankfully, Oberlo’s free version has enough functionality for a beginner dropshipping store. With the starter plan, you can:
- Import 500 products
- Fulfill unlimited orders
- Set prices automatically or manually
- View product statistics for potential products, such as sales trend data, total imports to other dropshipping stores, and customer ratings
You can upgrade your Oberlo plan for $29.90 per month if you want to sell more products and have real-time order tracking and fulfillment monitoring. However, this isn’t necessary when starting. A beginner dropshipping store has few sales, if any.
If you generate a sale, you use Oberlo to fulfill the Shopify order by processing the order through Oberlo and then manually adding a shipping tracking number to Oberlo.
5. Finalize Your Store
It might be tempting to start promoting your store once you import products. However, many beginner dropshipping stores fail because they start selling too early.
A successful e-commerce store is more than a product catalog. Your store needs to look professional and inspire trust in buyers. To help accomplish this, your store should have the following pages:
- About. Create a page that describes your brand’s mission, when your store began, and why customers should shop at your store. Are you an expert in your niche and source the best products? If so, describe this to customers.
- Shipping. Write a detailed shipping page that explains any costs, shipping restrictions, and expected delivery times.
- FAQs and Returns Policy. Create a page that answers commonly asked questions, such as payment options you accept, how customers get updates on their orders, and your cancellation and return policy.
- Contact. As a beginner store owner, you are the customer service department. Create a contact page that lets customers email you if they have questions or concerns. You can also integrate Shopify Chat to let customers message you directly.
- Blog. Creating a blog is an easy way to add content to your store that demonstrates your expertise. For example, if your store sells hiking boots, you can create buying guides for consumers or articles on the best hiking trails. This helps solidify trust in consumers, and a blog can also generate additional traffic from search engines over time, resulting in more sales.
It’s also important to focus on broader design elements for your store before focusing on sales. For starters, create a store logo with a free tool like Canva or hire a designer on a website like Fiverr.
Ideally, your logo and website colors should complement one another. You should also take time to test new font types and sizes and the overall layout of your store to find a design you like.
If you ever need design inspiration, visit other e-commerce websites for ideas. The leaders in your niche have found success selling online for a reason, and you don’t need to reinvent the wheel.
6. Promote Your Store
If you want to generate sales, you need to attract website visitors. As a new dropshipping store, you’re starting from square one, and you can’t rely on word of mouth or existing brand recognition to help spur sales.
However, there are free or affordable promotion options. Typically, dropshipping store owners create social media accounts for their store.
Instagram and Facebook are easy places to start. You can upload product photos to both platforms, make store announcements, and engage with page visitors if they comment or send you a message.
Plus, with Instagram, you can add relevant hashtags to your posts to have posts appear in hashtag search results and increase exposure. If you learn how to use hashtags properly, this can result in thousands of free visits to your profile page, more followers, and free website traffic.
Another common promotional strategy is using Facebook Ads. This is one of the fastest and cheapest ways to test whether your products can actually sell online, and getting started is simple.
The 15-minute Facebook Blueprint course is a free Facebook course that teaches you how to create Facebook ads, set business objectives, and monitor your campaigns.
If you take this course and watch Facebook Ads for dropshipping videos on YouTube, you can gain a basic understanding of how to use Facebook to drive visitors to your website.
Online advertising might seem overwhelming at first. Additionally, it takes time to get comfortable with spending your own money without having a guaranteed return.
Unfortunately, this is the nature of e-commerce advertising. Before you advertise, decide on a budget you’re comfortable spending to test out a few of the products in your store.
There’s no concrete rule for how much you have to spend on a product to test its viability. Some store owners might spend hundreds of dollars, while others might stick with a simple rule of $50 per product test.
Ultimately, you should view your advertising budget as a way to collect data. How much data you need to decide whether customers like your product or not is up to you.
7. Restart or Scale
If you test several products with Facebook ads and don’t get any sales after spending a few hundred dollars, you might feel discouraged.
However, this is part of the process for creating a successful dropshipping store. After all, for every successful store, there are scores of failed ideas and unsuccessful niches.
Some common reasons for a lack of sales include:
- Not Spending Enough. If you only spend $5 per product and get a few people to visit your website, this isn’t enough data to make a verdict.
- Poor Ad Targeting. Facebook lets you target groups of people based on their interests and demographics. For example, a dropshipping store selling weightlifting shoes could target younger men and women who like powerlifting. Often, targeting makes or breaks an advertising campaign. Consider testing more than one targeting concept with ads to see if different groups of people are more interested in your products.
- Ugly Ads. Creating Facebook ads is simple thanks to Facebook’s ad creation tool. You can use free stock images from Facebook or your own product photos, and keeping things simple is best. Unappealing or confusing ads discourage users from clicking, losing potential customers before they ever see your store. Spend time learning about how to create compelling Facebook ads and ask your friends to give feedback on the ads you want to run for an outside opinion.
- Website Problems. If your website loads slowly or looks unfinished, it’s hard to generate sales regardless of your advertising efforts. In reality, most dropshipping optimization should focus on your store, not your ads. Are your product images enticing? Do your product descriptions give buyers a reason to spend? Is there any element of your store that looks suspicious or unprofessional? Consider questions like these and conduct your own e-commerce store audit.
If your store isn’t suffering from these problems, your niche might be the limiting factor. Although this is a tough pill to swallow, the fact is that some niches are too saturated and competitive to survive in, while others are too narrow to generate sufficient traffic and sales.
Part of successful dropshipping involves knowing when to call it quits and when to scale your efforts. If you aren’t generating sales after months of work, consider restarting with a new niche or focusing on free social media promotion instead of paid ads to cut costs.
If you’re generating sales, reinvest profits back into advertising and store improvements. Gradually increase your Facebook budget, test new products and customer audiences, and continue to learn more about online advertising.
Additionally, don’t be afraid to invest in your website. Shopify has a range of apps that can help improve your store’s performance, including ones for collecting customer emails, creating your own affiliate program for brand ambassadors, and promoting sales on your store with pop-ups to drive purchases.
There’s no formula for creating the perfect store. However, by testing new products and ideas, you can improve your e-commerce skills and ultimately your profits.
8. Consider Legal and Financial Implications
As a beginner, you don’t have to worry about incorporating your business or hiring an accountant. The reality is most dropshipping stores don’t make any money, and the ones that do generally take time to scale.
Considering the high failure rate of dropshipping, there’s also a chance your store doesn’t last more than a few months.
However, if you begin generating revenue, it’s important to consider the tax implications and your legal structure.
For dropshipping, registering as a limited liability company (LLC) or S corporation (S-Corp) are common choices because they provide liability protection and have profits and losses from the business pass through to the owner.
Ultimately, this helps you claim more small-business tax deductions, such as expenses for your website and home office. You can quickly set up an LLC through Rocket Lawyer.
You should still speak with an accountant before making legal decisions for your business. Additionally, you should learn how to organize your finances if you start to generate serious revenue and begin hiring employees or managing multiple stores.
For starters, invest in accounting and bookkeeping software to track revenue and expenses. Quickbooks and Freshbooks are two popular, affordable options you can consider, and starter plans are less than $30 per month.
Keeping track of your business’ finances is critical for tax season, and the more expenses you record, the higher chance you can find tax deductions.
Finally, consider opening a small-business checking account and business credit card if it’s clear that you’ll be dropshipping for the foreseeable future.
Business credit cards are especially useful because they generally have higher spending limits and more lucrative rewards, which can be helpful if you’re spending a considerable amount on your store per month or can’t qualify for a small-business loan.
These steps aren’t required for launching a dropshipping store, so don’t let the legal structure and tax implications prevent you from starting. They become more important after you’ve started making a significant income from a successful dropshipping store.
Final Word
Most side business ideas require a decent amount of startup capital to get started. Similarly, online jobs like becoming an English teacher or freelance writer generally require experience, or even a degree, to find work.
Dropshipping is beautiful because it’s one of the cheapest and most accessible money-making ideas around. All you need is an idea and a website to get started.
Plus, thanks to social media, you can promote your store to buyers around the world for free or dabble with inexpensive online advertising platforms.
The caveat of dropshipping is that it’s often promoted as a get-rich-quick scheme or borderline scam because of how easy it is to start.
Unfortunately, this means that dropshipping has a slightly negative reputation, especially because expensive dropshipping courses often mislead people into starting a store with unrealistic expectations of riches.
In reality, most dropshipping stores fail. It takes time to find winning products, and you need to learn the ropes of building an e-commerce brand from scratch.
However, if you stick with it and are willing to test multiple stores, there’s no reason why you can’t turn a dropshipping business into a lucrative side hustle. Besides, you never know; your next store idea could turn into a fully-fledged business if sales take off.
