How to Start A Dropshipping Business
Ranked #2,079 in Business & Work, #86,138 overall
How to Start A Dropshipping Business
Researching the realm of dropshipping? This page makes it all easy to understand for any newbie.
Regardless if you're an affiliate marketer looking to make more, or if you're starting from scratch: my dropshipping guide will help you understand it quickly and easily!
Regardless if you're an affiliate marketer looking to make more, or if you're starting from scratch: my dropshipping guide will help you understand it quickly and easily!
Loading poll. Please Wait...
Intro to Dropshipping
What this page is all about
The prospect of starting a dropshipping business is an option for the "work from home" crowd. It seems simple enough, but there are pros and cons to running a dropship business versus using affiliate marketing or other means of selling or referring products online. This page was devised to let you understand the entire process from someone who has actually been involved in it (that's me). I hope this helps clear most of your questions, concerns or fears about dropshipping and whole sale!
The 3 Methods of Selling Products Online
Affiliate marketing, bulk wholesale and dropshipping
Dropshipping is a method you can use to sell products online. It isn't the only way, though. Here's a list of the three ways that products are sold:
- Affiliate Marketing
Affiliate marketing is the practice of "suggesting" goods or services. You start by joining an affiliate program. The program provides you with special product links that contain your account ID within them. A website visitor clicks on these affiliate links to view the product or service on the affiliate program's online storefront, and the affiliate program drops a 'cookie' on their system. That cookie tracks their purchases, and gives you the proper commission for each one sold for a given date range. Commissions are usually a percentage of a seller's fee on an auction site, or a set percentage of a sale on an item. You never have to see or store products in affiliate marketing. You also have no contact whatsoever with the affiliate program administrators, unless you choose to contact them yourself. - Bulk Wholesale
This method involves joining a bulk wholesale program so that you can purchase products in "lots" (i.e., lots of 25, 50, 100, etc.) at wholesale prices from a distributor. You then re-sell these products at markup. Your earnings are the difference between the wholesale price and the mark-up price that you set per item. You are also responsible for order fulfillment, which includes packaging and shipping the items, from your home or office. You are also responsible for regularly re-stocking the items you are selling, so that your customers aren't being subject to backorders. - Dropshipping
Dropshipping requires you to apply to a dropshipping program being managed by a supplier, who ships products that you sell online. It requires a relationship to exist between you and your supplier, as you'll both benefit from sales: you earn money from sales, and they reduce inventory and also earn from dropshipping fees that are charged to you. In a dropshipping program, you never see or store the products you're selling, and you also don't ship them or have to deal with any shipping costs. Your earnings are similar to that of bulk wholesale: the difference between the supplier's price and the mark-up price that you set per item.
Dropshipping vs. Affiliate Marketing
Is affiliate marketing a step up or down from dropshipping?
Pros:
With dropshipping, you're making more of a profit than you would be with affiliate marketing. Your online storefront has more credibility, as you will no longer be sending purchasers off of your website and on to a third-party site. Instead, you'll be using a shopping cart system. On that same note, your customers will have to jump through less hoops to buy a product than they would have through an affiliate sale.
Cons:
Dropshipping does involve some manual processes. You will receive payment verifications, then log in to your distributor's site and "order" the product for your customer, paying the dropshipper and submitting the shipping address for each item that was sold, each day. With affiliate marketing, you have no involvement whatsoever in regard to packaging, shipping or customer service. However, with dropshipping, you will have to provide customer service if your supplier is not sending items out in a timely fashion, or if the customer did not receive their product...or received it damaged.
With dropshipping, you're making more of a profit than you would be with affiliate marketing. Your online storefront has more credibility, as you will no longer be sending purchasers off of your website and on to a third-party site. Instead, you'll be using a shopping cart system. On that same note, your customers will have to jump through less hoops to buy a product than they would have through an affiliate sale.
Cons:
Dropshipping does involve some manual processes. You will receive payment verifications, then log in to your distributor's site and "order" the product for your customer, paying the dropshipper and submitting the shipping address for each item that was sold, each day. With affiliate marketing, you have no involvement whatsoever in regard to packaging, shipping or customer service. However, with dropshipping, you will have to provide customer service if your supplier is not sending items out in a timely fashion, or if the customer did not receive their product...or received it damaged.
Dropshipping vs. Bulk Wholesale
Seeing or never seeing products...is convenience worth it?
Pros:
With dropshipping, your supplier packages and ships products to your customers. This is opposed to the bulk wholesale method, where you have to purchase products with your own money, store them at home, and package/ship them as they are sold. In turn, you also have to make sure that your inventory is sufficient at all times, so that you don't sell 3 items when only 2 are left.
Cons:
Dropshipping has a lower profit margin than bulk wholesale, because the cost per item is higher on a dropshipping list than on a wholesale list. Also, dropshipping requires a dropshipping fee that is charged to you by the supplier. In wholesale, there are no fees. You're also able to offer free shipping as an incentive with wholesale, whereas this feature is only available via dropshipping if your supplier provides it.
With dropshipping, your supplier packages and ships products to your customers. This is opposed to the bulk wholesale method, where you have to purchase products with your own money, store them at home, and package/ship them as they are sold. In turn, you also have to make sure that your inventory is sufficient at all times, so that you don't sell 3 items when only 2 are left.
Cons:
Dropshipping has a lower profit margin than bulk wholesale, because the cost per item is higher on a dropshipping list than on a wholesale list. Also, dropshipping requires a dropshipping fee that is charged to you by the supplier. In wholesale, there are no fees. You're also able to offer free shipping as an incentive with wholesale, whereas this feature is only available via dropshipping if your supplier provides it.
Example: Dropshipping, From Day One
A case study from start to finish
Here's a fabricated scenario I've written up to help you understand the day in a life of a webmaster who runs a dropshipping eCommerce store:
- I find a legitimate dropshipping program through a verification service like Worldwide Brands. I find a dropshipping supplier that sells Product X on there, and I apply to them. My application is accepted. They ask for information including but not limited to my full name, address, phone number, email, Tax ID#, and the bank routing number for my small business bank account. They need this because they take the wholesale cost of the items I sell directly from my account, and I keep the rest.
- I register for a service like Authorize.net, which allows me to accept credit card payments online.
- I build a website using an eCommerce content management system, like Wordpress, Magento or OScommerce. My dropshipping company gave me a database of their products, and I upload it into the CMS, populating the site with their products. I spend time visiting every individual page, making sure everything looks and sounds right, and I re-write some of the copy so that it looks more unique. I install a shopping cart plugin. I finish building the site, and launch it to the public.
- Someone buys something on my site. They buy Product X, using a Visa card. An automatic email is sent to me, notifying me of the transaction. Another email comes in, telling me the details of the person who purchased it: their name, address and the final price of the transaction.
- I visit the dropshipping supplier's site and go to the "shipping" section. I "buy" the product that was just sold at wholesale price, but I enter the purchaser's name and address for shipping. The dropshipping supplier deducts the wholesale price of that item from my bank account. The rest of the customer's payment (the difference between the wholesale and markup price) is mine to keep.
- The supplier ships the item to the customer. The supplier sends me an email notifying me about this, and attaches the tracking information. I forward this message to the customer* so that they can keep it for their records. (* this varies from program to program: some suppliers auto-generate the tracking information and send it directly to the customer)
- Unless the product is on backorder or is lost in transit, the transaction is complete. Otherwise, it is up to me to do "damage control" to explain what has happened to the customer, and it is also up to me to do whatever it takes to get the product to the customer as fast as possible.
What Must I Have to Start Dropshipping?
Requirements that you need to take care of first
Since we're technically talking about starting a "real" business and not simply referring people somewhere else with tagged links, a little more is involved in taking things to the next level as a dropshipping retailer.
- A business bank account (also called a "merchant account"): it's a must have, or else, you will not be able to accept payments online via credit card. An alternative is to accept payments via PayPal.
- A payment gateway account: services like "Authorize.net" will enable you to accept credit card payments online. Your gateway will have a one-time setup fee, a monthly fee, and a per-transaction fee.
- A means of being seen online: You technically do not need your own website to be in dropshipping. Many dropshippers simply do all of their business on sites like eBay and Amazon. Note that the competition of being on these sites are extraordinarily high.
What *Should* I Have to Start Dropshipping?
The "nice to have" options that aren't required
You technically do not need the measures listed below. However, if you want to be seen as a fully functional business, it would be foolish not to acquire any of them!
- An established business entity: Most eCommerce webmasters establish themselves as a business, such as an LLC or an S-Corp. There are pros and cons to each. However, they will prevent anyone from suing you and taking your personal assets. Only your company's assets (whatever's in your business bank account, business-owned equipment and real estate) would be at risk, rather than your house, car and personal savings account. Learn more about starting an LLC.
- A trademark: Serious business owners always trademark their company name and logo. It prevents anyone else from using either in commerce. Otherwise, they will suffer the consequences, as you will have full backing from U.S. law.
- A website: As mentioned before, it's not necessary to have a website for dropshipping. If you want to be taken seriously, however, it's necessary. Websites also open the door to more sales due to the greater level of search engine visibility they get, over simply using sites like Amazon.
About Dropshipping From Multiple Sources
The dangers of diversification
Most who pursue dropshipping tend to choose as few suppliers as possible. The more suppliers you go with, the "messier" it will get. For instance, if your site sells products from multiple suppliers, that means your customer will be paying multiple shipping bills for the items in their shopping cart. That definitely is NOT a good user experience.
Also, it becomes difficult to manage transactions that come from more than one supplier. Therefore, it would be best to use one supplier for each site. Or, just one supplier in all, if the service is good.
Also, it becomes difficult to manage transactions that come from more than one supplier. Therefore, it would be best to use one supplier for each site. Or, just one supplier in all, if the service is good.
Read Up on Dropshipping
More resources explaining the process
Free resources for dropshipping and eCommerce that might help in taking the first steps toward being a dropshipping retailer
- Starting Your Internet Business Right
- Dropshipping expert Chris Malta describes typical pitfalls, traps and scams involved in choosing dropship suppliers.
- Finding Real Products to Sell Online
- This free e-book touches on the process involved in identifying and researching a niche to pursue as an eCommerce venture.
- Understanding the Internet for Home Business
- Beginners only: a back-to-basics guide about the technical terms, buzzwords and processes of ecommerce and starting a storefront website.
by Pixelrage
Hi, I'm Mark, and I go by the screenname "Pixelrage" - thanks so much for checking out my work here on Squidoo! If you need to get in touch with me,... more »
- 213 featured lenses
- Winner of 18 trophies!
- Top lens » The Best HDTVs for 2012
Feeling creative?
Create a Lens!
