What is Dropshipping and how to start?

Dropshipping businesses are becoming more and more popular. Some estimates suggest that the industry will reach a market size of $557.9 billion by 2025.

This is because this retail strategy is one of the easiest ways to start and run a successful eCommerce business.

In this article, we’ll cover in more detail what dropshipping is, how it works, and why it’s a great way to start your own business .

What is Dropshipping?

Dropshipping is a retail business strategy . In short, it is about selling the products of another company under your own brand.

In other words, you only help the customer to buy the product. In the dropshipping business, there is no need to manage inventory, storage, shipping, and logistics management systems.

However, dropshippers have to calculate margin prices, do product marketing and come up with dropshipping business ideas. Also, if a customer runs into a shipping or product issue, she will contact them first.

How does a Dropshipping business work?

Before getting into the basics of setting up a dropshipping business, you need to understand how the dropshipping business model works.

As a dropshipper, you need to find suppliers that make the products you want to sell. The items will then be listed under your brand on a website or sales platform.

Customers will buy from your online store at a retail price. You then submit the order to the supplier and pay a wholesale price. The supplier will pack and ship the products directly to the customer.

Keep in mind that dropshipping is different from affiliate marketing . The latter consists of promoting the products or services of third parties by placing a link to them on your website. In this way, every time a user who has arrived from your page makes a purchase, you will receive a commission. Both systems work as intermediaries for sales, but they are very different from each other.

What are the advantages and disadvantages of dropshipping?

The dropshipping business has seen increasing popularity in recent times. Like any business model, it has positive and negative aspects that it is important to consider before starting our project. Let’s review what are the advantages and disadvantages of dropshipping.

Advantages

• Getting started is easy . Unlike other ventures that require you to follow some complex procedures and have certain resources, to create an online dropshipping business you only need to have a laptop and a stable Internet connection.
• Low cost . You don’t have to think about inventory costs or hire employees to take care of it. The only cost that you must take into account is that of the products that you will offer to the client.
• Sale of various products . As a drop shipper, you can sell the products of more than one supplier. This means that you can offer a variety of products to your customers and not limit yourself to just one type of product.
• Flexibility . Since you conduct business through a laptop, you can work from anywhere.
• High scalability . Since you have freedom in choosing products and can try different suppliers, a business of this type can grow quickly.

Disadvantages

• fierce competition . There are many people involved in the dropshipping business, so you will have to work hard to stand out, with more investment in your online store.
• Low profit margins . Because you’re up against a lot of sellers, there may be a price war going on. Which means you should set your price as low as possible to make your offers more attractive. But this can be avoided if you manage to find a low competition niche product to sell.
• Problems with providers . If you choose a provider with a dubious reputation, your business may fail. A bad provider can ruin your online presence with shipping errors, poor packaging, and delayed responses.
• Lack of control over shipments . If a customer orders products from different suppliers, he will have to pay for more than one shipment and the orders may arrive at different times. This can make things difficult when it comes to handling sales.
• Inventory difficult to manage . You need to keep an eye on and frequently track your supplier’s inventory to match the amount of available stock in your store. For this, you will need tools that help you synchronize inventories.
• Customer service . You are the one who is directly connected to the customer. So if there’s a problem, you’ll need to take care of it.
• Drawbacks to building an online brand . By shipping third-party products and not participating in the shipping, you will not be able to include any type of brand logo on the products, which is often an important factor in internet sales.

7 steps to start dropshipping

In the following sections, we will describe the main factors to consider when creating your dropshipping business plan.

1. choose a niche
2. Carry out a market analysis
3. Find a dropshipping provider
4. prepare finances
5. Build an online store
6. Register your dropshipping business
7. Marketing and optimization
8. Choose the niche for your business

When starting out in the world of dropshipping, it is important to decide who your target audience is and cover a niche market. Otherwise, it could be difficult to choose what to sell.

A niche market is a specific category of the business sector. It determines the type of products and services, the price range and the quality intended to satisfy the customer’s needs.

Here are some ways to choose your dropshipping niche:

• Determine your interest or passion . Choose a niche with which you are most familiar. Having prior knowledge of the products you sell can make the process of running a business easier and more enjoyable.
• Find a solution . If you have a problem, other people probably do too. Customers will discover your business naturally if you offer solutions to their problems.
• Research best-selling products . There is the possibility of making a lot of money by selling products that are fashionable. Use tools like Google Trends and TrendHunter or check the popular products section of selling platforms to see what people are currently buying.
• For example, in the image we can see how searches for smart watches have increased in 2020. This tool can give you an idea of ​​what products people are currently looking for the most and so you can focus on those that are popular.

In addition to product popularity, you should consider the region you want to offer your products to when choosing.

On the other hand, basic products such as sanitary ware and food ingredients are always in high demand. Bet on a niche with items that people need on a daily basis.

Keep in mind that you may find a lot of competition for popular dropshipping products, especially from big box retailers.

Once you’ve found a niche, brainstorm your dropshipping business ideas and make a list of the products you want to sell. Next, it’s time to research the market.

Do a market analysis

Market analysis is a comprehensive assessment of the business sector you are in. It includes an evaluation of the target market, the competition and the promotion strategy of your brand.

A good market analysis should answer these questions

• Who are my potential customers?
• What are their needs and buying habits?
• How big is the market and how much are they willing to pay for the product?
• Who are my main competitors? What are their strengths and weaknesses?

Market research is crucial because it will allow you to know the needs of your customers. It is also useful for advertising purposes, to estimate revenue and profit, and to predict the growth of your business.

Next, we explain how to carry out a good market analysis:

• Research the volume and value of the industry . This includes detailed statistics on size, trends, prospects, and growth rate. You have to know if there are enough customers interested in the products you plan to sell.
• Define your target audience . Start with demographic segmentation: age range, gender, income level, hobbies, and lifestyle preferences.
• Take note of the size of the market and the buying habits of customers . It is important to observe the purchasing patterns and behavior of people. In this way, you will also be able to see what motivates and drives their demands. By knowing your target market, it will be easier for you to reach them.
• Research and know your competitors . Use tools like Similarweb and Alexa to find competing sites and examine their performance.
• Do a SWOT analysis to see your strengths and weaknesses . Find out what you can learn from their mistakes and create a reference for your business. In addition, researching your competitors allows you to know the average sale price of a product and the price range.

Finding dropshipping providers won’t be difficult if there’s a solid list of products to sell based on the market research you’ve done.

Find a provider

It is essential to find a good dropshipping provider. Make sure the company or entrepreneur is trustworthy and meets your criteria.

Here are some tips when looking for a provider:

• Check that they are legitimate and legal . Work with trusted providers. Beware of scammers, as you don’t want to waste time and money dealing with them. Ask for the business license or supplier identification number and verify it on the local government website.
• Verify the phone number and address of the business . Make sure the data appears on Google Maps and is not registered to another business name. Check to see if they have a professional email address and not one made from a free email service.
• Find out if they have experienced and caring staff . Don’t be afraid to call them and ask them questions.
• Check that the product is of good quality . Order some samples and check them out. Do they look like the photos posted on the provider’s website? Does the description on the website correspond to the product?
• See if the packaging is presentable and safe . Try ordering a fragile item. See if suppliers are consistent with their packaging by sending some products to your friends.
• Make sure that the delivery and execution of the order meet your criteria . How long does it take to process an order and ship it? Do they manage returns well?

By working with a reliable dropshipping provider, you won’t have to worry about losing or not getting customers.

Prepare the finances

When running any type of business, it is essential to separate personal finances from those of the company. This is not only good for accounting and legal processes, but also makes it easier to manage investments and income.

In this section, we’ll cover the steps you need to take to get your dropshipping business finances in order.

• Open a business bank account . Open a bank account and create a business credit card registered in the name of your dropshipping store. Make sure you use it only for business transactions.
• Apply for local permits . Set aside some money and check with your local government office about the costs of a tax permit and the necessary paperwork.
• Collect sales tax from customers . In most countries, it is mandatory for companies to collect some form of consumption or sales tax from buyers.
• Pay taxes to suppliers . If your dropshipping provider is in another state or country, you have to take into account the tax on interstate commerce.
• Set aside money for maintenance . Consider factors like platform fees and marketing costs, as you’ll need these to maintain and grow your business.

Build an online store

Once you have established the dropshipping products and suppliers, it is time to create your online store . For this, you do not need previous knowledge in web development or programming. Just follow the following tutorial.

Register domain and hosting

Every website needs a domain name and web hosting. The domain name will function as the address of the website, while web hosting makes the site accessible on the Internet.

Use the name of your dropshipping business for the domain name. If you haven’t thought of one yet, keep it short and easy to remember. You can base it on a keyword related to your niche or on a new brand name that represents your business.

Check if the domain name is available using our web domain search engine . If it is, register it immediately or later during the web hosting signup process.

When choosing a web hosting plan , make sure it has enough features to build an online store and scale as your business grows.

If your budget is low, you can choose the most affordable plan first and upgrade when the dropshipping business expands.

Recommended readings

Install WordPress or an eCommerce CMS

To create a web page without programming, it is necessary to install a content management system (CMS) . It is a tool used to build, edit and manage a website for people with little technical knowledge.

One of the most popular CMS is WordPress . It is open source and free to use. In addition, WordPress has a beginner-friendly user interface and an intuitive drag-and-drop block editor for designing pages and posts.

To install WordPress with Hostinger ‘s auto-installer , follow these steps:

1. Log in to your hPanel .
2. Go to the Website section and select Auto Installer .
3. Click on the WordPress icon . Enter the title of the page  and the necessary administrative information .
4. Press Install .

If you have any problems, our customer support team is ready to help you 24 hours a day.

You can also try other popular eCommerce CMS for creating an online store, such as Prestashop and OpenCart .

Install an eCommerce plugin

With WordPress, you can turn your website into an online store. You can extend the functionality of the platform using a variety of plugins .

One of the most popular WordPress online store plugins is WooCommerce. It adds eCommerce features such as a customizable checkout page, payment gateways, and product pages.

Here’s how to install and configure WooCommerce :

1. Access your WordPress control panel and go to Plugins in the menu on the left.
2. Click Add New and type WooCommerce in the search bar.
3. Tap Install Now , and then tap Activate once the installation process is complete.
4. Once you access the setup wizard page , fill in the necessary information about your business.
5. Follow the five steps of the setup wizard to get your online store up and running.

When everything is in place, it’s time to customize the store and start adding products.

Customize your eCommerce store and upload products

WordPress has a wide variety of website themes , including themes made specifically for WooCommerce.

Follow the steps below to install a WordPress theme and customize it:

1. In your WordPress dashboard , head over to Appearance and select Themes .
2. Click Add New and type WooCommerce in the search bar.
3. Review the selection and pass the mouse over the topic you want. Click Install and then Activate .
4. Go to Appearance and hit Customize to edit the overall theme of the website.
5. Click Pages to add a new page or edit an existing page with the Gutenberg editor .

Please note that there are limitations when it comes to customizing a website with the built-in WordPress tools. If you need more editing options or a more user-friendly solution, you can try WordPress page builders .

You can design the online store however you want. However, remember that the overall design will represent your dropshipping business.

With WooCommerce, adding products couldn’t be easier:

1. In the WooCommerce dashboard , hover over Products and select Add New .
2. Fill in the product name, data, description and upload a high quality photo.
3. Click Post .
4. Register your dropshipping business as a legal structure

Important! Hostinger does not provide legal advice. This section simply provides an overview of factors to consider. Do your research and consult the appropriate legal entities.

When starting a business, it is essential to clarify the legal aspects and to know if any license is needed for dropshipping.

You don’t need a business license to start dropshipping. Often beginners starting a small-scale online dropshipping store skip this step entirely.

However, properly registering your business as a legitimate entity not only protects you from legal infringement, but can also open the doors to working with good vendors and business partners.

To know the specificities of your country, you will have to consult with the competent legal authorities in your area.

Although we cannot – and do not wish to – offer legal advice, we can review the three most common business structures:

• Sole proprietorship . Think of it as a one person, one store business. In a sole proprietorship, the profits from your dropshipping business are counted and taxed as your personal income.

Although it seems like the easiest option to register your business, it can also be quite risky. Since your business is legally tied to you as an entity, you do not have any personal liability protection. In short, if the company has legal problems, so will you and your assets.

• Limited Liability Company (SRL) . This option establishes your business as a separate legal entity, which means that you have more protection against possible risks. Keep in mind that registering an LLC means that you have to meet different legal requirements when it comes to filing and paying taxes as the owner of the business.
• Limited company . Most large companies are incorporated. Like an LLC, this means that the company is registered as a separate legal entity. However, while an LLC is owned by one or more owners of the business, corporations are typically owned by shareholders, run by managers, and supervised by directors.

Keep in mind that converting your business to a corporation is expensive, as this option offers the most personal liability protection. Corporations can also earn profits, pay taxes, and be held legally liable as separate entities.

Other ways to protect your dropshipping business

Here are some other things to do to increase your business credibility and stay legal:

• Create a refund policy . While this isn’t technically a requirement, having a good refund policy helps build trust with your customers. It also presents your business as a safe place to shop.
• Create terms and conditions . Have a legal document that clearly outlines the rights and responsibilities of both your clients and your business. This not only helps manage expectations, but also helps protect your business.
• Create a privacy policy . Explain how your company collects, uses and discloses customer information. It is an important document to communicate that your company takes its responsibilities seriously.

Marketing and SEO for your Dropshipping business

After creating the website, it’s time to work on promoting your business. Here are some options to consider:

• Create a landing page or “coming soon” page . This page builds anticipation before the official launch of your store. Keep it simple, as it should primarily display your brand name, logo, and a short description of your dropshipping business. Feel free to add a couple of product photos.
• Create social media profiles to drive traffic to your website . Instagram and Pinterest are great platforms for sharing high-quality product photos.
• Implement search engine optimization (SEO) practices . If you do it right, your products will rank high on search engine results pages, increasing the chances that people will click through and buy them.

Researching the most important keywords related to your niche is an essential step when it comes to SEO. There are online tools like Google’s Keyword Planner and Ahrefs’ Keyword Explorer that can help with the process. Include keywords in product names, descriptions, tags, and alt text for images.

• Do content marketing . Start by creating a blog page. Writing niche related content and articles around your business will boost SEO and site traffic.
• If you don’t have new products, add blog posts. This will keep your website active and updated.
• Use the email list for email marketing . Send regular emails to your subscribers about new products, content, events and offers. Not only will you drive traffic to your site, but you will convert your subscribers into customers.
• If you have a budget, invest in advertising . Show product ads through Google Ads and Facebook Ads . You will get a greater reach and higher conversion rates.
• Take advantage of influencer marketing . Approach experts in your niche who have a social profile with a large following and propose a deal to promote each other.
• Find other ways to promote your website . For example, search Reddit or Facebook groups for people who discuss topics related to your dropshipping business. Don’t forget to check the group rules to see if promotions are allowed.

Conclusion

You must take into account the advantages and disadvantages before starting the adventure of having a dropshipping business. However, if you are willing to work, you will surely succeed with this business model.

In this article, you’ve learned a few steps to building your own dropshipping business, let’s quickly recap:

1. Choose the niche for your dropshipping business.
2. Do a market analysis.
3. Find a provider.
4. Build an online store.
5. Apply marketing and SEO to your business.

And ready! Good luck building your own successful dropshipping business!