Dropshipping has become a popular business model thanks to its low startup costs, lack of overhead, and straightforward approach. With an initial investment as low as $100, it’s an attractive option for those eager to bootstrap a new venture. What’s more, dropshippers can offer a wide variety of products without ever purchasing or storing inventory.

In this guide, we’ll walk you through the process of launching a dropshipping business from the ground up. We’ll cover essential steps, useful tools, and key considerations.

Understanding dropshipping

Dropshipping is a business model that enables companies to sell products without holding inventory. When a customer places an order, the company notifies the product’s manufacturer or distributor, who then ships the product directly to the customer on behalf of the dropshipping company.

The dropshipper essentially acts as a marketer in this process: the consumer pays the dropshipper, the dropshipper pays the manufacturer or distributor, and the manufacturer or distributor sends the product to the customer.

Since inventory management isn’t necessary, dropshipping is an economical way for new entrepreneurs to sell products without significant overhead. It also avoids the risk of unsold inventory.

Here’s a six-step guide to starting a dropshipping business.

Develop a business concept

Your business concept defines what you’re selling and to whom. With the numerous options available in dropshipping, it’s wise to start with a select range of products targeting a specific demographic.

For instance, you might decide to sell graphic T-shirts aimed at skateboarders, featuring designs that resonate with this group and are of the style and quality they prefer.

The concept serves as the cornerstone for your product selection, website design, and marketing strategy. Devote time to refining this, but remember that the minimal cost of launching a dropshipping line allows flexibility if you need to pivot or if your interests evolve.

Source products

A well-defined business concept doesn’t automatically ensure you can source the right products for your demographic. Before launching a website, invest time in researching products. Identify multiple distributors offering the same products to secure the best wholesale prices.

Some popular marketplaces include:

1. AliExpress.
2. SaleHoo.
3. Worldwide Brands.
4. Doba.
5. Megagoods.
6. Wholesale Central.

Additionally, explore print-on-demand options for apparel, home goods, or books. These services print custom designs on various clothing brands and styles, such as T-shirts, socks, and jackets.

Choose products that excite you, offer a healthy profit margin, and present well in online images. Many suppliers provide data on popular items, helping you select products with proven demand.

Select suppliers

After identifying the products you wish to offer, selecting the right supplier is crucial. This supplier will handle the shipping directly to your customers. Consider the following when choosing a supplier:

1. Quality: Opt for a supplier whose product quality aligns with your brand’s image. Decide whether you want to position yourself as a premium provider charging more for superior quality or as a budget-friendly option with lesser quality.
2. Profitability: Ensure you can achieve a reasonable profit margin, typically aiming for 15% to 20%. Account for shipping and transaction costs in your calculations. Higher margins are, of course, preferable.
3. Reliability: Choose a supplier that delivers timely shipments at reasonable costs. If your supplier is overseas, consider the impact of potential delays on customer satisfaction. It’s also important that your supplier maintains adequate stock levels to avoid unfulfilled orders. Test their reliability by ordering a few products and assessing the process.
4. Return policy: If possible, choose a supplier with a return policy, as many do not offer one. This will influence how you establish your own return policies.

Most dropshippers utilize online marketplaces due to their extensive product inventories and dependable suppliers. However, if you have a specific product in mind, finding a direct source supplier is an option, although this may require meeting minimum sales thresholds.

Build an online store

Creating an e-commerce store is essential for selling your products. This platform should effectively display your products and facilitate seamless purchase transactions. For beginners, this process can be complex due to several moving parts.

To build a website, you will need:

1. A content management system (CMS) like WordPress, Shopify, or Squarespace.
2. A domain name.
3. Web hosting (if using WordPress).
4. Integrations with your chosen dropshippers.
5. A payment gateway to process online transactions.

The best e-commerce sites automate order processing with suppliers, avoiding the cumbersome task of manual order entry. Shopify is a popular choice for dropshipping businesses, but exploring other e-commerce platforms is advisable.

Consider expanding your sales through additional platforms like Etsy, Amazon, or social media channels (e.g., Facebook, Instagram). Multi-channel selling can enhance your business’s visibility and increase sales, provided you can manage multiple platforms.

Register your business

Establish your company as a separate legal entity to protect your personal assets. This involves selecting a business name (often your domain name) and registering as an LLC or corporation with your state’s secretary of state.

Upon successful registration, you will receive a tax identification number (TIN) from the IRS. Use this TIN to open a business bank account linked to your payment gateway. This account will handle all deposits and expenses, including web hosting and supplier payments.

Additionally, obtain a sales TIN or reseller’s permit from the state tax office. Most states require the collection of sales tax on goods sold, and you may need to pay sales taxes in the states where your products are sold.

Market your business

Setting up a website is just the beginning; attracting an audience requires strategic marketing efforts. As an online business, your marketing will extend beyond traditional word-of-mouth strategies used in local businesses.

Engage with social media groups relevant to your industry and participate meaningfully. Focus on assisting others with their queries rather than just selling. Establish yourself as an expert within the community, positioning your business as a trusted resource.

Create dedicated business pages on platforms like Facebook, Instagram, and TikTok, and post consistently about new products, promotions, or industry tips.

Beyond social media, consider investing in paid advertising. With platforms like Facebook Ads, you can target specific demographics even on a modest budget. Starting with a daily budget of $10 can drive significant traffic to your e-commerce store.

Additionally, consider launching a blog to enhance your visibility through search engine optimization (SEO) techniques. For new e-commerce ventures, employing a combination of these marketing strategies is often crucial for attracting and converting potential customers.

Test products to gauge market interest

The advantage of dropshipping lies in the ability to test new products with minimal risk, allowing you to gauge market interest. Collaborate with suppliers to identify upcoming products that align with your target audience.

Introduce one product at a time, and if you believe strongly in its potential, allocate a marketing budget specifically for it. Launch targeted ad campaigns to compare the new product’s performance against your existing offerings.

Continuously testing new products can expand your sales to loyal customers who already trust your brand. This practice is both cost-effective and straightforward, making it an essential aspect of ongoing business development.

Bottom line

Launching a dropshipping business is accessible to virtually anyone through the use of marketplace suppliers and template-based websites. With minimal startup costs, you can quickly transition a side hustle into a full-time business by selecting products that resonate with a specific audience. You can become a business owner with an investment as low as $100 and build from there.