How to Start a Dropshipping Business: A Step-by-Step Guide (2023)

By Cory Ferreira

Introduction

Starting a dropshipping business, like any other type of venture, is not easy. However, it is a fantastic step into the world of entrepreneurship.

You can sell products to customers without the need to hold any inventory. You don’t have to pay for the products upfront. And if you’re serious about your new venture, you can build a sustainable source of income in the long term.

If you’re considering dropshipping, think about taking the following business and financial steps in this comprehensive dropshipping guide.

Step 1: Commit to Starting a Dropshipping Business

Like any other business, dropshipping requires a significant commitment and a long-term outlook. If you hope to earn a six-figure income from six weeks of part-time work, you will be disappointed.

By looking at your business with realistic expectations about the investment required and your potential for profit, you will be less likely to feel frustrated and give up.

When starting an e-commerce business as a beginner, you will need to invest significantly using either of the following currencies: time or money.

Step 2: Choose a Dropshipping Business Idea

The second step in learning how to start a dropshipping business is to conduct the necessary market research. Just as if you were opening a retail store and examining various locations, competitors, and trends, you want to explore a niche you care about and make decisions based on its profitability.

But the truth is that finding reliable product ideas to sell is challenging.

To help inspire your next dropshipping business idea, Shopify compiles a list of trending products based on the best-selling product categories on the platform. By focusing on more specialized and trending products, you can capture the attention of shoppers and gain traction without competing with large, established companies.

Specialized products often have a more passionate customer base, making it easier to sell to targeted audiences by increasing awareness of your products.

Examples of specialized dropshipping stores can include:

• Dog lover neckties
• iPhone cases for iPhone owners
• Camping gear for camping enthusiasts
• Workout equipment for fitness lovers

You can also use the following tools to test your dropshipping business ideas:

• Google Trends: Google Trends can help you determine if a product is gaining or losing demand, as well as the seasons it trends in. It should be noted that Google Trends does not show search volume. So, if you use it, make sure to compare your data with a keyword tool like Keywords Everywhere to assess the product’s popularity in search.
• Keywords Everywhere: This tool shows you the monthly search volume for your product and its competitiveness. You can use this information to evaluate the popularity of your dropshipping business idea and inspire new product ideas for the future.
• DSers order volume: In DSers, you can search for products based on order volume to identify the potential of your business idea.

While the growth in e-commerce is a great advantage for those looking to start a dropshipping business, it also creates a lot of competition. This means you’ll need to conduct competitor research when setting up your dropshipping business plan to ensure the success of selling your products.

Step 3: Conduct Competitor Research

Now that you know what you’ll be selling in your store, you want to learn about your competitors and understand how they operate. Your competitors may have excellent success indicators and can help you build a stronger marketing plan for your dropshipping business.

If your market has many competitors (which is good in dropshipping), narrow your research down to about five other dropshipping companies, including two or three large ones like Walmart, eBay, or Amazon. This will help you focus and plan your next steps.

Some ways to conduct competitor research are:

• Research
  In Google: Search engines are a clear starting point. Use Google to create a list of your top five competitors. Start with a simple search keyword, like “earplugs.” The top ten results will show you your main competitors and how they market their products. If you want to focus on a specific country, you can use a third-party tool like Ahrefs or SEMRush to find keyword data for those areas.
• Use competitor spying tools like Similarweb and Alexa: Online tools like these are great for finding and tracking competitors’ online activity. They provide you with a list of competitor website information, such as their social media profiles, main traffic sources, visitor numbers, and their competitors.
• Browse social media: Look for Facebook ads in your category and check out the top brands in the market. Observe how businesses engage with their customers, how their feeds are designed, and the level of interaction they receive – you can even follow their feeds so you don’t miss anything. Use this information to find ways to differentiate your business and improve your social media marketing strategy.

Learn everything you can about your main competitors: their website, pricing, marketing methods, product descriptions, reputation, and so on. Keep your research organized in a spreadsheet so you can easily refer to it when making decisions about your store.

For example, if you’re looking to use an email list to promote your business, you can refer to your spreadsheet to see if competitors are already doing that and the tactics they are using, all in one place.

Step 4: Choose a Dropshipping Supplier

Choosing a dropshipping supplier is a critical step towards creating a successful dropshipping business. Without reliable suppliers, a dropshipping business won’t have products to ship to customers and will cease to operate.

At this point, you have checked the products that you want to sell through dropshipping and know they can be profitable – now you want to ensure you’re finding a dropshipping supplier that offers you the high-quality service you need to grow. E-commerce platforms like Shopify provide an easy option to find potential suppliers by linking DSers to your online store.

DSers is a marketplace that makes it easy to find products to sell online. Whether it’s electronics, fashion, toys, or other trending items, you can find products with good profit potential from dropshipping suppliers around the world and add them to your store with a single click.

The app manages sending customer orders to your dropshipping supplier, so you don’t have to worry about packing and shipping or managing inventory. It costs you nothing to get started.

The DSers app uses AliExpress to help you find products and add them to your store. If you want to read more about product quality or shipping times, or assess the supplier better, you can do that from the product page in DSers.

One thing to keep in mind: Try to sell high-quality products from DSers that offer ePacket shipping if your supplier is based in China.

ePacket is an affordable and fast shipping option for sending items from China to countries like the United States, the UK, and Canada. Instead of waiting several months for a package from China to arrive, your customers will only have to wait roughly two weeks, at a very low cost.

Step 5: Build Your Dropshipping Store

The next thing you need to start your dropshipping business is an e-commerce platform like Shopify. This will be the platform through which you send traffic, sell products, and process payments.

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Shopify makes it easy to build and launch your e-commerce site, from finding your domain name to adding marketing and sales plugins. It’s a comprehensive commerce platform that allows you to sell in multiple places (including online), sell in multiple currencies, and easily manage products and accept payments.

You don’t have to be a designer or developer to use Shopify. You can easily change the look and feel of your store template using the store builder and Shopify templates.

Need help building your online store? Sign up for a free trial of Shopify and read the step-by-step guide on how to start a Shopify store.

Step 6: Choose a Business Structure

If you’re serious about your venture, you’ll want to set up a legitimate business entity. We are not lawyers and cannot provide legal advice, but we can give you an overview of three business structures that are commonly used. Sole Proprietorship

This is the simplest business structure to implement but does not provide personal liability protection. So if your business is sued, your personal assets may be at risk. Filing requirements are minimal, and your business profits are reported on your personal tax returns. There are no additional filing requirements for sole proprietorships.

Limited Liability Company (LLC)

A Limited Liability Company provides increased protection for your personal assets by establishing your business as a separate legal entity. While liability protection is not guaranteed 100%, it does provide greater protection than a sole proprietorship. You may need to comply with additional filing requirements and will have to pay formation fees and ongoing fees.

C Corporation

Most large companies are C corporations, which when done properly, provide the greatest liability protection. They are likely to be more expensive to establish and are subject to double taxation, as income is not passed directly to shareholders.

So which structure do you choose? It’s best to consult a lawyer before making any decisions about incorporation. Most small entrepreneurs tend to choose between a sole proprietorship and an LLC.

Note: The business structure and Employer Identification Number (EIN) information discussed below applies to entrepreneurs in the United States and may not be applicable to other countries. For information on setting up a U.S.-based company from outside the United States, please refer to the notes at the end of this article.

Applying for an EIN for Your Business

The Internal Revenue Service requires all businesses to obtain an Employer Identification Number, which acts as a Social Security number for your business. You’ll need this number to file your taxes, apply for wholesale dropshipping accounts, open a bank account, and do almost anything related to your business.

Getting an EIN is easy and free. You can apply online.

Step 7: Set Up Your Finances

One common mistake entrepreneurs make when starting their business is blending their personal and business finances. This causes confusion, makes accounting more difficult, and can lead to personal liability for the business, which is a big red flag for the IRS if you are ever audited.

You’ll want to keep your business funds and personal funds as separate as possible. The best way to do this is by opening new accounts in your business’s name. You’ll want to open the following:

• Business Checking Account: You should run all of your business financial matters through one primary business checking account. All business revenue should be deposited in it, and all expenses should be withdrawn from it. This step will make accounting easier and cleaner.
• Business Credit Card: You should have a business credit card that you use for business expenses and only for purchasing dropshipping inventory. Since you’ll be buying a lot of goods from suppliers, you can earn significant rewards by using the right travel cards. Combining travel rewards with the right cards can be very profitable.
• Collecting
  Sales Tax: You will only need to collect sales tax if both of the following conditions are true: the state you are operating from collects sales tax, and there is a request from a person living in your state. For all orders placed by residents of other states, even if those states impose their own sales tax, you will not need to collect any tax. There is a good chance of seeing changes in these laws in the coming years, but for now, the tax laws for small online merchants are quite favorable. If your state imposes sales tax, prepare to collect it on a limited number of orders from customers in your state. You will need to contact your state’s Department of Revenue to register as an online seller and to find out how often you need to submit the collected taxes.
• Local Business Licenses: Most cities and towns require businesses to obtain a business license that must be renewed regularly. However, this requirement may differ for online dropshipping businesses, many of which will operate from home offices. You should check local laws and regulations to see if anything is required.

Step 8: Marketing Your Dropshipping Store

Now that you know how to start a dropshipping store, it’s time to talk about marketing your new store. To stand out in your market, you might want to put extra effort into your marketing and advertising efforts when setting up your dropshipping business plan.

With many aspects of dropshipping operating automatically, you can spend time focusing on marketing and promoting your business in the following ways:

• Paid Advertising (Facebook & Google): Facebook ads are scalable and can perform well for products, tapping into people’s desire for immediate purchases. You can run Google Shopping ads and target long-tail keywords where shoppers are more likely to buy. There is usually more pricing competition with Google ads, but it may be worth your time to test them.
• Influencer Marketing: As a new dropshipper, you may have a limited budget to market your business. Influencer marketing is a cost-effective way to reach your target audience because people tend to trust influencers more than traditional ads. If you go this route, inquire about commission fees with the influencer instead of fixed fees. It’s mutually beneficial, as they will earn money from each sale and the cost will be lower for you. The best social media platforms for influencers are TikTok and Instagram.
• Content Marketing: If you want to build a long-term traffic flow to your store, add content marketing to your dropshipping business plan. Start a blog about your dropshipping niche and create content that entertains and educates your target audience. You can also monetize on YouTube, create infographics, or start a podcast to help spread the word about your brand.
• Communities: Join groups of people who are excited about your niche. You can start conversations with potential customers on Reddit, Facebook Groups, or online forums. Remember not to be overly salesy when engaging with the community. Your goal is to help and build relationships with potential customers so they trust your brand and want to buy from you.
• Mobile Marketing: Mobile marketing is an umbrella term that refers to companies communicating with customers on their mobile phones. For example, you can start a VIP text club and encourage website visitors to sign up for exclusive deals and offers. Or provide customer support in real-time chat by engaging with shoppers through Messenger.
• Email Marketing: Email marketing is a powerful tool for dropshipping businesses as it helps build long-lasting relationships with customers and boosts repeat purchases. By sending targeted and personalized content such as promotions, product recommendations, and helpful newsletters, you can increase customer engagement and drive sales. You can use Shopify Inbox for free with your Shopify store.

Like
Any successful online business monitors which channels are working and which are not – especially if you’re investing money into them via paid advertising. As your business continues to grow and improve, you can always adjust your marketing strategy to reduce costs and maximize revenues.

Step 9: Analyze and Improve Your Offer

After marketing and managing your dropshipping business for a while, you can start looking at the results of your hard work. Shopify analytics can help answer some important questions about your online store, such as:

• Sales: Which channels are performing the best? Where should I allocate more ad dollars? What are the best-selling products? Who are my top customers?
• Shopping Behavior: Are people buying more on desktop or mobile? What is the conversion rate for each device?
• Profit Margins: Which products and item identifiers are most profitable? How do your sales and overall profits look month over month?

You can also use tools like Google Analytics and Search Console to measure search traffic over time and optimize your search engine marketing (SEO) efforts. Additionally, if you’re using a third-party app for social media or messaging marketing, check the reports monthly to ensure that your overall strategy is working for your business.

When creating your dropshipping store, you want to build a data-driven analytics system. Plan what you will analyze over time and measure your store’s performance against clear key performance indicators. This will help you make smarter decisions for your store and take your small business to the next level over time.

Step 10: Leverage Dropshipping in 2023

Learn how to find high-margin products, import them to your store, and start selling – quickly. Sign up now.

How does the dropshipping business model work?

Dropshipping is a fulfillment method that allows store owners to sell products directly to consumers without having to keep any inventory. When a customer purchases a product from a dropshipping store, a third-party supplier ships it directly to the customer. The customer pays the price set by you, and you pay the wholesale price to the suppliers, with the remainder being your profit. You will never have to handle the products or invest in inventory.

To sell products, you only need to sign up for an account with a supplier.

Three common ways to find a supplier for your dropshipping store are:

• Through a supplier database like Alibaba or AliExpress.
• Using a supplier directory built into the back of your store, such as DSers.
• Through a print-on-demand service, like Printify.

The easiest dropshipping process for Shopify store owners is through DSers. You can find millions of products from the DSers marketplace via AliExpress and import them directly to your store with one click.

In the dropshipping business model, you are responsible for building
Source: https://www.shopify.com/blog/how-to-start-dropshipping

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