How-to-start-drop-shipping-business
Posted Sep 2, 2020 by Vlad Falin

How to Start a Profitable Dropshipping Business in 2020

The present generation is constantly expanding the paradigm of “entrepreneurship” by transforming traditional businesses with new-age solutions.

New entrepreneurs are coming up with projects that are not only generating fairly quick profits (in comparison to traditional businesses) but also focusing on sustainability.

In addition to that, COVID-19 forced us to stay home and think about possibilities on how to substitute the income from our employment.

The “work from home” culture has also urged us to explore online platforms. No wonder the dropshipping market is expected to have a 28% annual growth rate by 2025.

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What is Dropshipping?

Dropshipping is a process when a seller takes orders from customers and forwards orders to the manufacturer who then fulfills them.

Basically, the process of dropshipping looks like this:

  1. You find a wholesaler who sells bikes for $300.
  2. You list the bikes for $400 on your website.
  3. A customer buys a bike from your store.
  4. You buy the bike from the wholesaler for $300 and email them the customer’s shipping information.
  5. The wholesaler sends the bike to the customer.
  6. You just made $100.

In the last couple of years, dropshipping is gaining in popularity as it allows you to start your own e-commerce business just in a couple of days.

All the tools that you need are online, most of them priced on the same level as a lunch. That means that you can immediately test new ideas and keep testing until you find one that works.

Dropshipping vs Traditional Models

Traditional retail models require you to hold a sizable inventory for every product you are offering.

The beauty of the dropshipping model is that you do not need to produce or store something. You identify a product that might be in demand, search for appropriate suppliers that can provide that product and sell it to customers.

This completely cuts off the need to manufacture. Even if you are fully outsourcing your manufacturing to somebody else, there are many obstacles that you have to consider. Blueprints, planning and actually making sure that the items are produced, etc.

The costs and the associated risk is always high when you plan to manufacture something of your own. This all goes away with dropshipping. You just choose a product you like and start selling. With the existing tools, you can be up and running in a couple of days!

Find the suppliers for dropshipping on Alibaba


You can find suppliers for your products on websites like Alibaba

Starting a Dropshipping Business

While dropshipping may be done by anybody, the low barrier of entry allows a significant competition to enter the market.

You do not have to sign long term agreements or invest high sums of money. Sure, the money will move you forward quicker, but you can invest your time. A lot of tools that you will use are free or offer a trial period, so starting to dropship has never been easier.

It is not a big surprise when there are predictions saying that dropshipping will reach $557 billion by 2025.

Benefits of starting a dropshipping business:

  • Easy setup as you are not required to own a factory or employ anybody to get started. All of the tools are online, and most of them offer trials and grace periods.
  • Limited capital needed, minimizing the risk.
  • Possibility to test new ideas constantly, not being fixated in the business if you can’t get it up and running.

How to Start a Dropshipping Business?

Dropshipping is a business that goes beyond the traditional idea of e-commerce or “brick and mortar” stores.

It takes the meaning of outsourcing to a new level. There are several main steps to start a dropshipping business. Let’s have a look at them.

Step 1: Decide where you’re going to sell

Dropshippers have to decide where they want to sell their products. A number of online marketplaces like eBay and Amazon come to mind when you are starting out as a dropshipper.

Sure, the setup is very easy, but the store is not really yours. You are building it on somebody else’s platform. Let’s have a look at the pros and cons of these options.

Amazon

Amazon provides a number of options that businesses can run on its platform. Producers can opt for dropshipping, wholesaling, or go with private/white labeling.

Let’s make a quick stop to clarify what private labeling is and how it is different from white labeling.

Private label means that you sell something under your brand, but it is manufactured by somebody else. With a private label, you would provide the specs/design of the product and the manufacturer (a 3rd party) would produce it, putting your logo on it.

White labeling is similar with a small twist. White label means that the manufacturer already has a range of goods where you can make various adjustments, but it is not really your design. Otherwise, the logic remains the same.

Pros of dropshipping on Amazon:

  • Access to a large customer base: More than 197 million people go on Amazon each month to shop or check for interesting products.
  • Quick research: Amazon has many tools to analyze the marketplace and choose the best product for further research.

Cons of dropshipping on Amazon:

  • High listing charges: If you are dealing with a product that has a very low margin, then the listing charges can be quite tough. Amazon’s listing charges depend upon the type of product (fees range from $1-$3 to an average of 13% — depending on the account type.) and can sometimes result in low to negative margins for dropshipper. (Amazon has a history of changing its fees, last time they significantly decreased the commissions for affiliates, running many affiliate marketers out of business).

Amazon account types for sellers


Amazon account types on Amazon

  • Unsustainable repeated sales: Amazon’s prime focus is the product and not the seller. The platform works to expand the product offering to their customers. In some dropshipping models, repeated sales are a great thing. People buy something that will run out in a month, they come back to you and buy more. This is difficult to do with Amazon as visitors do not tend to buy from the same seller.
  • Lack of customization: Dropshippers can not decide on the user interface, branding, template, etc. It can be difficult for brands to reflect their marketing vision on Amazon. Sure, there are some settings available, but you are still on the Amazon platform.

eBay

While not the obvious choice, eBay is a very popular platform to dropship from. In eBay terms, it is called product sourcing.

Advantages of dropshipping on eBay:

  • Easy start: On eBay, you can easily start by creating an account, listing the products. There are no extra formalities that have to be completed to get you started.
  • Large audience: eBay is one of the largest online platforms (as Amazon is) and you can have a lot of potential customers searching for products. eBay has incorporated strict customer protection policies which ensure that sellers do not turn a blind eye to their issues.

Disadvantages of dropshipping on eBay:

  • High listing fees: The listing charges include a success fee which can be 10% of the sale price or sometimes even more than that.

eBay Listing Fees


eBay listing fees

  • Constant re-listing: eBay works on an auction model, hence you will have to constantly analyze and relist your products.
  • Strict eBay templates: Creating a professional page for your product will require you to follow eBay templates, hence there is very limited customization available.
  • No long term business value: When you list products on eBay, you limit yourself to one or two sales of your product. You’re less likely to get repeated sales because of increased competition on the platform. So, your business is most likely to run on a limited scale. Again, you are building your business in somebody else’s “house”.

Your own store

Nowadays there are so many options to create your own store in a couple of clicks, that it truly seems like one of the best choices that you can make.

Advantages of dropshipping on your own store:

  • Independence. The first and most important point — it is truly yours. Amazon can ban you, eBay may change its policy tomorrow but your own store will remain yours. You can edit, optimize, and evolve it however you like without any limitation. Being on somebody else’s platform is always a risk, though of course, it has its advantages.

Disadvantages of dropshipping via your own store:

  • Independence. You are reading right. The biggest advantage is also its biggest disadvantage. You are on your own. You have to set up everything from zero. In case something goes wrong, you have only yourself to rely on.

While starting your own shop may seem overwhelming, it is the only way to ensure that you are free from third parties dictating you what you can and can not do.

For example, with Ecwid you can get started with your online shop on WordPress or any other website in no time. Or you can set up an e-commerce website yourself — no experience or coding skills needed.

Ecwid free e-commerce site example


An example of a free e-commerce website you can make yourself with Ecwid

Step 2: Register your business

This is a key decision that revolves around whether you want to present yourself as an individual or as a business entity.

So, should you sell as an individual or a company?

It is preferable to work as a business when going into dropshipping.

Business accounts, as opposed to personal accounts, have a stronger and more legitimate presence which makes them trustable for both online e-commerce websites as well as manufacturers and most importantly customers.

Having that said, there is no problem in branding and marketing your shop with your own name (or any other personal name). Personalization and the feel of an individual approach always attract interest from customers.

No matter which country you are in, taxes will be an issue that you will have to keep in order. It makes sense to be represented with the legal entity as you can lower your income with the costs you had (but that is another topic).

Sales tax is a norm in most countries. In some states/countries, you also have to file for an EIN number to get started online. Also, contact your local accountant to get yourself acquainted with all the legal formalities to support your business.

Sure, you can start your store on your personal name if you are just testing the waters, or there are other reasons why you have to do so. But if you are being serious about it and plan to scale, having a legal entity right from the start will help.

Step 3: Find a Product for dropshipping

The most important thing about a successful dropshipping business is the product you want to sell. Some sellers decide to go on an extensive manual search to find their product. This can not only consume a lot of time, but it can also be tough to analyze the market trend and conduct competitor analysis.

This is when product research tools come into the picture. Product research tools can help you find the “perfect item” to sell online by conducting competitor research and market analysis.

Why do dropshippers need product research tools?

  • Competitor research. Product research tools help you understand the strength of competition in your product category. This will save you from investing in products that could end up bringing zero profit.
  • Estimate revenue and expenses. These tools can help you make an estimate of your profit which can act as a base for future decisions.
  • Examine various marketplaces. You can get an idea for the product to sell by scanning international markets and understanding customer choices.
  • Simplified product sourcing. A product research tool helps you to easily examine multiple items at once. This helps you generate a quick list of products that are worth it and start searching for a supplier.

There are a number of product research tools available on the market. The best research tools are the ones that can provide a complete picture of the marketplace, its participants, and products. Here is a quick comparison of some popular research tools amongst dropshippers.

Popular product research tools

Jungle Scout

Jungle Scout comes with a lot of features to make the product search more viable. It can help you evaluate the demand for any product, with the use of advanced criteria. Assess the demand for your own product over time. Or help you find keywords that are being searched by potential buyers.

  • Pricing: The basic monthly plan starts from $39 and goes up to $129 which opens more professional features. The annual plan can cost around $19 per month for a basic one and $84 for more advanced features.
  • Preciseness of sales estimates: Jungle Scout uses an “accusales algorithm” that goes through 1 billion data points on a daily basis. They claim to do zero guesswork when it comes to statistics. Sometimes, their estimates can be misleading though. For instance, products may be having a very high demand in a certain month. The merchant sells a large number of quantities for a week but then goes out of stock. In this case, the sales estimate will show a reduced number and give a false picture.
  • Popularity amongst users: Jungle Scout doesn’t come with a free trial period and can be a bit expensive. This is one of the reasons why a lot of new dropshippers can have second thoughts regarding using this product.

searching for qualified suppliers


You can also use Jungle Scout to find qualified suppliers based on your search criteria. Image source: junglescout.com

Helium 10

This tool will sort over 450+ million products available. Help you to understand the demand, trends, and user preferences for a specific product. Calculate potential profitability or create targeted ads for popular products.

  • Pricing: Helium 10 comes with a free trial period with access to Helium 10 suite. Other plans include the platinum plan which starts at $97 per month and the elite plan which starts at $397 per month.
  • Preciseness of sales estimates: Helium 10 uses “X-ray tools” to analyze various key statistics ranging from sales estimates to sponsored ads. In this case, there isn’t a clear answer on how precise the data are. Helium 10 explains that they have a proprietary algorithm and assure the users that the data provided are very accurate. 
  • Popularity amongst users: While Helium 10 is praised by many, in comparison to other tools, having access to all the features may sum up to a quite hefty price. There are cheaper options.

AMZScout

The keyword search tool ensures that you can find keywords that have high search volume and low competition. It can help you rank higher on search pages, reverse lookup ASIN to check on the competitors, compare prices with eBay or estimate sales.

  • Pricing: AMZScout can cost around $44.99 per month. You can also buy a lifetime membership by paying a one time sum of $199. Free trial available.
  • Preciseness of sales estimates: The sales estimator tool of AMZScout is free for use. You can thereby try and check it for your own product to see if it works, without paying. (Or compare it to other tools that you use.)
  • Popularity amongst users: Over 50000 sellers are using AmazonScout, free trial allows you to check how you like the interface and compare it to other solutions.

exploring amazon product catalog


You can search Amazon’s product catalog with advanced filters to find the most successful products. Image source: amzscout.net

Unicorn smasher

This tool will help you to reveal the gaps in the market and has a special “discreet” sharing option allowing you to forward your research (to internal/external colleagues for example) without sharing the details of the product or niche (so nobody can steal your research).

  • Pricing: Unicorn smasher is free for anyone to download and use.
  • Preciseness of sales estimates: According to certain reports, Unicorn smasher tends to underestimate sales and revenue. This is slightly better than overestimating but it can still cause a lot of deviations in decision-making.
  • Popularity amongst users: Unicorn smasher is used by an enormous number of people globally. When starting out, every dollar counts, and having a free tool to start testing products is immensely valuable.

Manual research

Though we went through the main research tools, here are a few manual ways to check to see if something sells or not.

Reddit

Have no idea where to start at all? Want to try out your hand in dropshipping but never did it before? You may draw a lot of inspiration in a subreddit where people discuss what they would buy if it was for sale.

I would not base my whole business on that subreddit, but there are some interesting niches.

Social media platforms

We are all tired from seeing ads on our favorite social media, usually, we just ignore them, but in this case, they can help you. Under every promoted post/ad you can see the number of likes, shares, and comments. If those numbers are around 100, that is a product to consider and further research.

SmartOnlineShoppers video ad


SmartOnlineShoppers ran a video ad for a posture corrector which has over 4k likes and 600 comments. This is a great opportunity to further analyze the product and their dropshipping store.

If they are around 500 you may be assured that the product is a success so the dropshipper is putting more and more money into it.

In most cases, if you click the link, you will be sent to a dropshipping store. You can easily recognize that by page format as most of them use a format heavily optimized for mobile and also the platform that the page is powered with.

Trends

Another great suggestion is to research trends, to predict which products will work in the upcoming season. Check out our detailed guide on finding trending products online.

Step 4: Find dropshipping suppliers

At this point, you already decided if you will go with Amazon, eBay, or your own platform. You should have your product analysis done. You decided on the product that seems to be interesting both from the perspective of the market size and potential margin.

Now you have to find a supplier for your product.

As we discussed in the introduction, dropshipping is about taking orders from customers and shipping products to them from manufacturers.

Why manufacturers and not other online shops? To maximize your profits. You have to go directly to the production of the item you are looking for.

More: Where to Find a Wholesale Supplier for Your Online Store

We will cover popular options, particularly paying attention to Aliexpress, which is a platform of choice for dropshipping.

Free Wholesale Directory: 100 Suppliers from All Around the World

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Some popular suppliers are:

Alibaba

Alibaba offers products in many categories and mainly deals with Chinese manufacturers and wholesalers. You can sign up for free and use their services. The choice of products is also limitless.

(Keep in mind that Alibaba is predominantly B2B, meaning bigger volumes will be expected by the sellers).

Aliexpress

While Alibaba primarily deals with B2B customers, AliExpress deals with B2C. It is a popular choice for dropshippers because it has a huge variety of products and manufacturers it also allows to order small (or single) items.

Everything you will find advertised and sold online can be found on AliExpress. The choice is staggering.

Wholesale2B

Another popular option for dropshippers. This platform is a directory of various suppliers. They have over 100 dropship companies from the USA and China with over 1 million products. Access to the directory is free. Learn more about connecting your Ecwid store to Wholesale2b.

Printful

Perfect if you want to sell merch with your design. You upload your prints/designs and Printful prints them on clothes and accessories of your choice. They will take care of packaging and shipment and are ready to work with dropshippers. A great choice if you want to be in the print-on-demand niche. Learn more about connecting your Ecwid store to Printful.

Manufacturers

In the beginning, this will not be your main choice. But in later stages, you may decide that you want to take the manufacturing of your product under control.

You can talk directly to your local or foreign manufacturers, but these are reserved for some very special cases and niches.

As mentioned, the dropshipping field is heavily dominated by Aliexpress. The process goes like this:

  1. You will choose a product on Aliexpress
  2. Create a store to sell your products.
  3. Start your marketing campaigns and fulfill the orders from Aliexpress.

More: Checklist: How to Find the Right Supplier on AliExpress

So, you’ve found a supplier, what’s next?

Contact all the suppliers that you chose and get to know the cost of buying from them. Ask them about the minimum order quantity, delivery time, and the packaging charges.

You can learn a lot from a number of orders and ratings. That way you know that the supplier can work bigger volumes and not skimp on quality or delivery time. The last thing you want is to strike a golden niche and have problems with getting the product delivered or delivered in bad quality.

Things to pay attention to:

  • Chat quickly with the chosen suppliers to make sure that their reaction time is acceptable. This would also be a great opportunity to make sure you get all your questions answered.
  • Check with them how fast they can deliver, if they can go lower on pricing, who would be your contact person, and so on. A lot is already automated by platforms like Aliexpress but if you are really sure that this might be the winner, it’s worth checking directly with the manufacturer.
  • Make sure products look and work as promised. Sure, you can send the product to buyers directly without seeing it even once. But it’s better to check out the products yourself.

You will not be doing it for every testing store that you will launch. Usually, this is done when you found a niche that works particularly well and you plan to further expand in that particular niche.

After you are done with choosing your suppliers you can proceed to:

Step 5: Plan your product page

A good product page is essential. The traffic that you will be getting is usually cold or semi-cold — meaning that you have to persuade visitors that your store can be trusted. The right product page will turn a visitor into a potential customer and a potential customer into a repeated customer.

We will go over some main aspects that you should research further as there is much more to each part of the topic. Find more about converting visitors into buyers in this extensive guide.

effective product and category page with simple design


This simple design is bringing Inspireuplift several million dollars in sales each month. Image source: inspireuplift.com.

Price

When pricing the product there are a lot of things that you should take into consideration:

  • Shipping cost. You can include the shipping price in the cost of the product and offer free shipping on the product page.
  • Marketing cost. It should be included in the final pricing to account for the costs involved. You can not know the exact price for conversion for a product from the start. Figuring it out requires some testing of your ads and overall marketing approach.

There are several ways to approach pricing products. Mostly it will depend on the margin that you plan to achieve.

Low margin products should be sold at big volumes. For beginners it is easier to start with a high margin because of several reasons:

  • Wider margin for testing and failures. Bigger margin allows you to experiment more. You will be targeting a smaller market, but each sale will bring good profit that allows you to test more items, ads, etc.
  • Smaller orders. In this case, it is not a bad thing. You will have to deal with a much smaller number of orders so you can be sure to set your order processing correctly.
  • Easier to deal with returns. You might have to deal with returns. This is much easier to do with a high-margin product as there will not be too many of them and there is space for error already calculated into the price.

I would suggest trying out your hand at products with a 25-50% margin. Meaning that the price that you see it being sold for (on Amazon, eBay, Facebook, etc.) is for example $50, while the price on Aliexpress is under $25.

More on how to price your products can be found here.

Product description

Customers can’t touch or test a product when shopping online. That’s why you need to write a detailed product description that will answer all customers’ questions. Here’s how to do that:

  • Include all the essential details like material, size, brand, instructions for use, and so on
  • Explain how your product solves customer’s pain points
  • Add customer reviews to the product description for social proof.

Read how to write product descriptions that sell in our detailed guide.

Photos

Photos are the key. It is the only way your customer may see how the product looks to decide whether to buy it. You can go with simple photos with a plain background. In most cases, you will be able to get all the pictures that you need from a supplier. But if you decide to go with your own, avoid these mistakes:

  • Avoid blurry images, they are a big turn off for the customer.
  • Do not use filters too much. At the end of the day, you have to show the true picture of the product.
  • Focus on the product.
  • Make sure the lighting helps to emphasize the quality of the product and its looks.
  • Go with multiple pictures. Choose 3-5 to use on your product page.

show product in use


While the first image lists products nicely, it is always a good idea to show the product in use. Image resource: aliexpress.com

Check out this post for a more detailed guide on how to take quality pictures for your product.

Videos

While you can use photos for some simple products, videos will do much better for the ones that you need to see being used in real life.

One of the most sold dropshipping products is posture correctors and teeth whitening products. Those would be very difficult to promote through photos only. What makes the marketing campaigns so successful are the simple videos which show people how to use the product and what it could do for them.

In many cases, you will have some video samples from your supplier, but if you are going to make your own, it is as easy as making it with your smartphone.

Step 6: Set up payment methods

Platforms like Amazon or eBay will force you to use their payment methods (of course) but if you go with a more independent route of creating your own store you will need to accept payments somehow. Of course, the easiest way to accept payments is through a service that is connected to your online store.

Ecwid makes this very easy. Connecting to your payment solution is a question of a couple of clicks.

Ecwid provides more than 50 payment gateways. While Ecwid will not charge you for that, you have to check if a particular provider takes any fees.

Catalog, inventory, and customer/transaction information remain in sync with your Ecwid store. So you just have to worry about bringing more customers in.

Step 7: Plan your marketing efforts

Since dropshipping has a very low barrier of entry, competition is strong. Pushing on price, delivery, marketing tactics is all part of fair game.

But before your customers will impulsively purchase or start comparing the prices, you have to get them to your product page. So how do you do it?

Organic search

You may take a longer but more profitable road of making your store rank organically on Google. Take note that ranking your site organically will require a lot of work. One of the ways to rank quickly is to start building links to your site but even if executed successfully it takes up to a year before you start seeing results.

When you are just establishing your store, this is not the main method you should go for. Only when you established that your dropshipping product sells, you may think of digging deeper into SEO and keyword research.

If you really want to go deep into SEO, it is good to start thinking of it right at the beginning of your dropshipping project. Research the niche, keywords, and see if your site is optimized well for Google.

As I said in the beginning, SEO will not be your first pick of promotion for dropshipping. When you will start out, you may want to go with paid ads or social promotions to get a quick test of your product viability.

Paid ads

Paid ads are your go-to option. They allow for the quickest test of your store and also the quickest results. You can set up your store, put some ads in motion, and the next day you already know if your product/ads/store is working.

Google, Amazon, eBay, Facebook, Instagram, Twitter, Pinterest, Youtube — all of those platforms offer paid ads.

You might want to check out these resources:

Giveaways and contests 

One of the ways to quickly (and for a fairly low price) create a viral promotion of your store are various contests and giveaways.

This is something that you should do only after you have already established that your product sells, your site works, and payment systems are properly set. Contests can bring a lot of sudden traffic that you should better be prepared for.

Also: 25 Social Media Contest Ideas to Promote Your Online Business

Run creative contests for customers


Get creative with contests, for example, asks followers to come up with the best caption

Influencers

Get in touch with influencers in your niche and ask them to advertise your product. It can start as simple as contacting somebody on Instagram with enough followers and paying them for a shoutout, that can range from $xx to $xx, xxx depending on their reach.

Learn more: How to Use Micro-Influencers on Instagram to Boost E-Commerce Sales

But it does not stop there. You can reach out to bloggers, YouTubers, or webmasters of various related sites — with a proposal of a product review, guest post, or other forms of promotion.

Get Ready to Start a Dropshipping Business

Dropshipping business is a good option for people who are passionate about starting an e-commerce business but lack the investment. It is a level playing field for people coming from various backgrounds. Everyone starts from scratch. The result will hugely depend on the time and energy that you are going to invest in it.

While the start might be slow since you will be learning a lot and making mistakes (so learning even more) you will quickly pick up the speed and your following stores will be built quicker and will perform better.

Do not get discouraged if your first, second, third store does not go through. The key to dropshipping is to constantly test. Some stores will perform okay, some will perform great and some will fail.

Keep moving forward.

Start a Profitable Dropshipping Business with Ecwid

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About the author
Vlad Falin is the founder of CostofIncome.com, where he writes about e-commerce, email marketing services, and other digital business tools.
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