Dropshipping Made Easy: How to Start and Run a Profitable Dropshipping Business
Who hasn’t heard about Irwin Dominguez who within 8 months made $1,000,000 in profit as a dropshipper? Or Kate who makes $32,000+ monthly revenue from her dropshipping business? They are an inspiration for anyone who wants to start a dropshipping business. Perhaps, you too want to follow in their footsteps? If you do then you’re on the right track and place. In this blog, we will go through the nitty-gritty of profitable dropshipping business right from how to decide which products to sell, finding wholesale suppliers to marketing, promotion and so much more.
For those who aren’t sure what we’re talking about let’s go through the fundamentals. The rest of you can jump to this section.
What is Dropshipping?
Dropshipping is an order fulfillment method wherein you sell products that are stocked at a wholesale supplier’s facilities. When a customer buys a product from your website, the wholesaler ships it directly to them.
Why Run a Dropshipping Business?
1) You can start anywhere: Dropshipping is a brilliant business opportunity for people who want to earn money sitting at home or as a side hustle. A room, a laptop, and an internet connection – that’s all you need to manage everything online.
2) It requires minimum capital investment: You don’t need a warehouse or invest thousands of dollars to stock inventory. This also means low overhead expenses and minimum financial risk.
3) It saves your time: Since you aren’t doing the box-packing or shipping, you will have plenty of time in hand to do other important things such as improving your inventory or managing issues that you didn’t think dropshipping can result in!
Seems too good to be true? You’re right. Little as you might expect, dropshipping can be a nightmare if you don’t weigh in the cons. More about it in the next section.
You might be taking notes from the people making six-figures revenue but you also need their mental resilience to deal with the downsides of dropshipping.
First things first. The profit margins are low. Unlike selling to a bulk buyer, the dropshipper sells products one at a time or when the order flows in. Naturally, they charge you more and include the “dropship fee”, labor and packaging fee, etc. As a result, your profit margin comes down to under 20%. That’s probably not what you’d expected, right?
Then, the market is highly competitive. Since the prerequisites of starting a dropshipping business are minimum it means a lot of people are entering the market. There are people who are selling the same product as you at a competitive price.
Clearly, whoever told you that dropshipping business is a cakewalk was lying. Having said that, we must also add that there’s always a way to get around these, and other, problems. We discuss that later in the blog.
Determine your Business Structure
Is it a sole proprietorship, LLC, or Corporation? If you want some direction, read Steve Chou’s blog. You will definitely gain clarity about which way to go.
Next, get your “Employer Identification Number” to open a bank account as well as file your taxes. You can apply online. The process is super easy.
Finally, get your sales tax ID. This is what you provide to the wholesale distributor. Anyone who says they don’t need it, are seriously dodging an important step while signing a business deal.
How to Zero Down on Product Ideas and your Niche?
As an aspiring eCommerce entrepreneur, it’s normal to have cold feet finalizing what products to sell. Not to forget the COMPETITION! But, calm your horses down. We have you covered. Have a look at the following ways you can decide on product idea(s) and niche.
1) Search the depths of your heart:
What is it that you are most passionate about? To your surprise, you might be holding on to this business plan for years now! Perhaps, you can bring the dormant idea to life and make money out of it?
2) Look for inspiration in your own backyard:
Lucy and Zac, owners of Active Hound store did exactly that. Their business idea was a result of actively listening to pet owners in local parks. They figured that these dog owners wanted durable dog toys. Eventually, they started selling Active Hound dog toys that turned into the talk of the town. Now, imagine if you could resolve other people’s pain points. It could result in a booming business, no?
3) Evaluate the demand using Google Keyword Planner:
Figure out the search volume data for your product keyword. Use every possible keyword combination. Also, look at related keyword search terms and how much competition there is. One last thing: filter results based on location and language.
4) Find a gap in the market:
Basically, this gap is your golden opportunity to launch a product that will address the pain points that have either been completely overlooked or badly addressed. To identify it, research if the problem is real. What is it about the existing products that people find annoying? Are people looking out for options? Perhaps, you can tweak the product using a better technology? Or, market it in a way that your competitors aren’t? Think of all the possibilities that can fill this gap.
5) Look out for trends:
Remember the phrase “the early bird gets the worms”? That’s how it should be if you want the reward of being futuristic.
Stay on top of the trends using Google Trends. A fair warning though: some niches may fit the ‘upward trend’ category but may not have enough search volume evidence. In addition, follow some of the eCommerce trend publications such as Trend Hunter, PSFK.
6) Spend time on product review websites:
It will give you a fair understanding of the product categories and niches. You can also read what the actual consumers are talking about including what they ‘wish’ could be better.
7) Look for best-selling products on online marketplaces:
Whether it’s Amazon, AliExpress, or eBay, they all have a list of hot-selling products. You should get a fair idea about what people actually love buying.
How to Find a Wholesale Distributor/Supplier
The next big thing to address is finding a distributor. Let’s see how you can do that.
1) Google search: The easiest thing to do, right? Wrong. It will be tad-bit testing because not every wholesale distributor has a shiny website. In fact, they lack top-notch marketing or SEO skills. Your task is literally that of an archaeologist because you will have to dig them from under 100s of SERPs. After that, you might feel haunted by their nauseating and outdated designs. But, DO NOT JUDGE THEM for it!
2) Contact manufacturers: Ask them for a list of distributors they work with. The next step is to call them instead of sending emails because who knows if they are internet savvy?
3) Use third-party websites: For example, ImportGenius can help you evaluate potential suppliers and monitor your competitors. You can easily know where your competitors are sourcing their products from. The database is so strong that they also reveal product volumes, industry trends for US importers, and distribution companies.
4) Supplier’s directory: Checkout directories like Doba, Salehoo, and WholesaleCentral or Megagoods. They have a database of suppliers organized by the market, niche, and product. Some of them are subscription-based so don’t say we didn’t tell you!
5) Attend local trade shows: At trade shows, you can interact and get to know them better. You can see the products and make a preliminary evaluation of them. If you have time then do check Wholesale Central. They have a list of all the trade shows in the US. Select your niche/category and you will find an event to attend.
6) Explore Alibaba and other online marketplaces: Check out this video by Shopify where the prime focus is on how you can look for suppliers on Alibaba.
7) Talk to someone who already runs a dropshipping business: Nothing like reaching out to friends and family who are already running a successful business.
Once you finalize the suppliers, open a reseller account with them.
Quality-check the Suppliers
One of the worst nightmares of running a dropshipping business is partnering with untrustworthy suppliers. They can easily ruin your business. So don’t be in a rush to sign a deal. Take your time and consider the following points.
1) Stability: How long has the supplier been in the business? It is wise to go for the experienced distributors because had they not been reliable or doing their job, they would have exited long ago. Though, it’s important to know that the newbies too can surprise you. However, since you’re just starting out it’s better to spread out your safety net.
2) Location: If your supplier is located overseas then make sure there is no communication gap because of language or technology. If you finalize an overseas supplier based out of China then we recommend you watch this video for a few dos and don’ts.
3) Talk to their sales representative: Do this to understand their company culture and work ethics. Are they receptive to your queries? How long do they take to fulfill an order? How do they handle damaged and returned products?
4) Check supplier ratings: Do thorough research. Let’s assume, you are on AliExpress. Head to the supplier rating page. Read all the reviews about them. Focus on the number of orders they’ve fulfilled and their ratings as well. This should give you a rough idea about whether or not you should do business with them.
5) Shipping methods: The distributor should be able to ship products using fast shipping methods with online trackings such as DHL, UPS, or FedEx.
Open your Storefront
With the two major hurdles crossed, we will now focus on getting your eCommerce website ready. You have two options. Either hire someone to build a custom website or choose an eCommerce platform such as Shopify, BigCommerce, Magento. Since you are just starting out, we recommend the second option.
Advantages of using eCommerce platforms
1) You don’t need to have any technical background.
2) The eCommerce platforms are affordable. You don’t have to spend $$$ on website maintenance.
3) They take care of your hosting and server requirements. You just pick up a plan that suits you.
4) You can integrate apps and software that will help you increase sales.
5) Most major platforms have excellent customer services.
Here’s a video that compares two of the most popular eCommerce platforms.
SEO and Marketing
We do already know that you are a newbie and may not have a huge marketing budget. But that’s hardly a thing to be worried about. You can still do a lot with a lot of free resources available on the internet. How about we go over them one by one?
1) Ecommerce SEO: A Simple (But Complete) Guide for 2018 – This one’s a noob-friendly guide to eCommerce SEO to increase your online store’s Google traffic and drive more sales.
2) SEO Best Practices for Product Pages – You can learn how to optimize your product pages and boost quality traffic to your website.
3) The Beginner’s Guide to Ecommerce SEO– The guide covers keyword research, site structure and organization, and on-page SEO.
1) Neil Patel’s 101 Ecommerce SEO Tips (That Actually Work) – In this blog, the focus is to generate organic traffic.
2) How To Write Product Descriptions To Grow Sales – Learn how to use storytelling and psychology to write persuasive product descriptions.
E-commerce Marketing Resources:
A few weeks ago, we did a round-up of 26 eCommerce marketing resources. From company blogs, guides to podcasters, and YouTubers, we are sure you will have much to learn from each of them.
In addition, go through this blog where we talk about 10 FREE ways to market your e-store business. It should really pep you up!
Promote your E-store
With SEO and marketing sorted, next comes promotion. If you want people to notice you then you will have to do stuff to get noticed. We wrote an entire blog about it so you don’t have to go anywhere else! Read it here.
Finally, we will talk about how you can take the bull by the horns! In other words, let’s learn how to deal with some of the most common dropshipping problems. As they say, it’s better to be prepared with a combat strategy than cry yourself a river and give up midway!
Problem #1: Out-of-stock products
It’s best to use multiple suppliers that have an overlapping inventory. If your primary distributor is running out of stock, you have the option to choose another supplier to fulfill the order.
You can also personally get in touch with the customers and recommend a similar product. See if you can give a small discount in case they take your product upgrade offer.
Problem #2 Wrongly shipped items
This is a terrible situation for you to be in. Although it is the distributor’s mistake the blame will be on you because your customer doesn’t know the wrong order was delivered by the dropshipper. To get out of this situation, apologize upfront and go back to the distributor’s return policies. Next, tell the customer exactly what needs to be done. As a way to pacify your customer, you can give them a coupon or offer a shipping discount on their next order.
By the way, just so you know, a reputed distributor will actually bear the return shipping costs.
Problem #3: No control over packaging
What you can control is providing a brilliant customer service experience. It starts right from the moment they land on your website, browse products and checkout. In fact, even after that. Having happy customers is your chance of becoming their favorite and building your business with repeat purchases.
Problem #4 Not active on social media
It’s a huge mistake you’re making. People love to follow brands on social media (even if they don’t buy from them) and reach out to them, whether it’s to give a shout-out or complain about an order. Be alive and kicking there. Most importantly, unlearn talking in templates and connect with your customers, human-to-human.
Problem #5: Fraud orders
We hear about fraud order stories all the time but you can easily prevent them. It’s interesting that most frauds follow a pattern, so it’s not difficult to identify them.
1) Enable address verification services on your payment gateway service. This security measure will make sure that the billing address matches the card holder’s zip code. The transaction is declined if it is different.
2) Beware of different billing and shipping address. This is a huge sign of fraud in the process. So, screen every order that has a mismatch, especially bulk orders. Moreover, look for cases where the email address doesn’t match with the customer’s name or it is an unusual email address such as firstname.lastname@example.org.
3) Expedited shipping request. Naturally, since the data thief is buying off of someone else’s card, expedited shipping can be a red flag.
Ready to Start your Dropshipping Business?
Of course, you are!
Remember, your fears are real but you can conquer them by prepping yourself. There’s nothing like a trained warrior! Do your own research and make calculated decisions.
See you on the other side?