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Dropshipping Business: How They Work & Steps to Get Started Interested in a ecommerce dropping business? Learn how dropshipping works and the six essential steps to build a successful online dropshipping business.

By Jonathan Long

Opinions expressed by Entrepreneur contributors are their own.

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Dropshipping is an extremely popular business model for new entrepreneurs, especially Gen Zers and Millennials, due to internet marketing skills far outweighing financial capacity. Since you don't need to stock or handle the items you are selling, it's possible to start a dropshipping business with limited funds.

What is dropshipping?

Dropshipping is a method that allows an eCommerce business to operate strictly online. The online business does not have its own manufacturing or warehouse locations. Instead, a third party handles the manufacturing, storing inventory and fulfilling orders, most of which are at a wholesale price.

There are two different types of dropshipping order fulfillment methods.

The first is to seek out suppliers on a supplier database personally. These suppliers can be in the United States or anywhere that fits your preferences.

Popular supplier databases are:

  • AliExpress
  • SaleHoo
  • Worldwide Brands

Another method for dropshipping fulfillment is to use an app that can connect your store with numerous options for suppliers. This takes the search portion out of the process for you.

DSers is an excellent option because it is a Shopify app, which means it is tailored to easy-to-use methods for eCommerce stores. DSers can automate much of the process for you, so all you have to do is check for updates that everything is running smoothly.

With DSers, dropshipping works in a step-by-step process:

  1. Customer orders from your Shopify store.
  2. Your store automatically sends the order to the dropshipping store for order fulfillment.
  3. The dropshipping supplier furthers the supply chain by preparing the order.
  4. The dropshipping products are shipped directly to the customer.

The pros and cons of dropshipping

Many beginners believe that becoming a dropshipping business is an easy way to earn a fast and profitable income. However, running your own dropshipping company is more than just using some middlemen to store and ship your products. See below to see if dropshipping is the right option for you.

Pros of dropshipping:

  • Less upfront capital is needed to start than a brick-and-mortar business.
  • Less responsibility for packing, shipping, tracking, and handling.
  • Low overhead.
  • Location and time flexibility.
  • Limitless product options.
  • Simple to test out new products.
  • Upscaling is a low-risk venture.

Cons of dropshipping:

  • Low profit margins.
  • No control over inventory.
  • Complexities in costs and communication of shipping.
  • No control over supplier errors or shipping times.
  • Generally cannot customize or brand products.

If you are ready to start a business that can compete with retail giants, and do so on a limited budget, then follow the six-step guide. While it doesn't take a lot of startup funds to launch a dropshipping business, it will require an immense amount of hard work.

6 steps to building a successful online dropshipping business

1. Select a niche

The niche you select needs to be laser-focused and something you are genuinely interested in. A product range that isn't focused will be difficult to market. If you aren't passionate about the niche you select, you will be more apt to becoming discouraged, because it takes a lot of work to successfully scale a dropshipping business. Here are some points to consider when selecting your niche:

  • Seek attractive profits. When you are running a dropshipping business model, your focus is on marketing and customer acquisition, so the amount of work required to sell a $20 item is essentially the same as it would be to sell a $1,500 item.Product quality matters, and cheap t-shirts will not be your best bet. Select a niche with higher-priced products.
  • Low shipping costs are very important. Even though your third-party supplier or manufacturer will handle the shipping, if the cost is too high, it will act as customer repellant. Find something that is inexpensive to ship, as this also gives you the option of offering free shipping to your customers and absorbing that cost as a small business expense in order to attract more sales.
  • Make sure your product appeals to impulse buyers with disposable income. When you are focused on driving traffic to your website, you want to experience the highest conversion rate possible because most visitors will never return. The products you are selling should trigger impulse buys and appeal to those with the financial ability to make a purchase on the spot.
  • Make sure people are actively searching for your product. Use Google's Keyword Planner and Google Trends to check some common search terms related to your potential niche to boost your SEO. You can also research social media trends on Instagram and TikTok to find marketing goldmines. If nobody is searching for the new products you are planning on selling, you are dead in the water before you even begin.
  • Create your own brand. Your dropshipping business will have more value if you can rebrand whatever it is you are selling and pass it off as your own. Look for a product or line you can white label and sell as your own brand with custom packaging and branding. To accommodate this, choose an adaptable business and domain name.
  • Sell something that isn't readily available locally. Pick something your customer can't find down the street. That way, you become more attractive to a potential customer.

Related: 8 Reasons a Powerful Personal Brand Will Make You Successful

2. Perform competition research

Remember, you will be competing with other dropshipping operations as well as retail giants such as Walmart and Amazon. This is where a lot of potential dropshippers go wrong, because they look for a product that has little to no competition. That's a sign there isn't demand for that particular product.

There are many reasons why a product might not have a lot of competition, including high shipping costs, supplier and manufacturing issues or poor profit margins. As you conduct your market research, look for products that have competition, as it's a sign that there is a high demand and the business model is sustainable.

3. Secure a supplier

Partnering with the wrong supplier can ruin your business, so it's important that you don't rush this step. Conduct proper due diligence. Most dropshipping suppliers are located overseas, making communication extremely important, both in terms of response speed and the ability to understand each other. If you are not 100 percent confident in the communication abilities of a potential supplier, move on and continue your search.

Alibaba has become one of the largest online resources to identify and communicate with potential manufacturers and suppliers. Make sure to ask a lot of questions and learn what their production capabilities are in the event that your business grows exponentially. You want to be certain they have the ability to scale with you.

Try to learn from other entrepreneurs who have walked this path in the past. There are plenty of information sources available, from business and tech blogs to this subreddit about dropshipping. It's a popular topic that can help you avoid costly supplier mistakes.

Related: How to Start a Business With (Almost) No Money

4. Build your ecommerce website

The fastest way to launch a website that supports a dropshipping business model is to use a simple ecommerce platform such as Shopify. Shopify is a user-friendly platform that allows you to customize your online store, set up checkout preferences (like giving customers the options of credit cardsand PayPal), and create a customer support page. You don't need a tech background to get up and running, and it has plenty of apps to help increase sales.

Even if you have a sizable budget that would allow you to hire a web design and development company to create a custom solution, it's a much wiser move to use one of the plug-and-play options, especially in the beginning. Once you are established and the revenue is coming in, then you can explore additional website customization.

5. Create a customer acquisition plan

Having a great product and a website is great, but without customers looking to buy, you don't have a business. There are several ways to attract potential customers, but the most effective option is to start a Facebook ad campaign.

Related: Here's How to Master Facebook Advertising and Why You Must

This allows you to generate sales and revenue right from the start, which can contribute to quick scaling. Facebook allows you to place your offer directly in front of a highly targeted audience. This gives you the ability to compete with the largest brands and retailers immediately.

You also have to think long term, so search engine optimization and email marketing should also be a focus. Collect emails from the start and set up automated email sequences that offer discounts and special offers. It's an easy way to leverage your existing customer base and generate revenue without additional advertising and marketing spend.

Related: Need a Business Idea? Here are 55

6. Analyze and optimize

You need to track all of the data and metrics available to grow your business. This includes Google Analytics traffic and Facebook conversion pixel data, if that is your main customer acquisition channel. When you are able to track every single conversion — to know where the customer originated from and what path they took on your website that eventually led to a sale — it enables you to scale what works and eliminate what doesn't.

Related: 5 Customer Engagement Metrics All Ecommerce Sellers Must Track

Build your online dropshipping business

Dropshipping can be a great option if you want a business with low overhead and flexibility. However, just because dropshipping involves a third party doing a significant portion of the work does not mean your job is easy.

You will never have a set-and-forget advertising or marketing solution. You need to constantly test new opportunities and fine-tune current campaigns, which allows you to know when to optimize or shift campaign spend.

Dropshipping is an area of ecommerce that is full of opportunities. But if you're serious about diving into this new venture, complete your due diligence on marketing techniques, the right supplier for you, and how to ensure the process runs smoothly for your customers.

Looking for more? Explore Entrepreneur's library of eCommerce-centric resources here.

Jonathan Long

Founder and CEO, Market Domination Media

Jonathan Long is the founder and CEO of Market Domination Media, a Miami Beach-based SEO and online marketing consulting firm. Market Domination Media also offers SEO coaching programs for companies and individuals that want to learn how to build their brands online using search engine marketing. Sign up for its weekly VIP newsletter by clicking here. Long also founded EBOC, an exclusive private community for entrepreneurs and business owners.

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