Over the last decade, dropshipping has become an incredibly popular business model. When suppliers and brands realized they could shake up the supply chain to offer lower-cost products to consumers, dropshipping took off. And as technology has made it possible for anyone with an internet connection to start a dropshipping store, tens of thousands have been built.
While it’s technically “simple” to set up a dropshipping business, it’s hard to find success…unless you have help along the way and take the right steps.
Read this guide to learn if dropshipping is the right business model for you, and if so, where to get started.
Table of Contents
What is the Dropshipping Business Model?
Dropshipping is basically a way of selling products without every having to touch them, hold inventory, or coordinate shipping. You work directly with manufacturers and suppliers, who ship the product to end customers as they’re ordered.
The dropshipping business model shakes up the supply chain. It cuts out the traditional levels of middle men and moves products directly from manufacturers and suppliers right to end customers. This reduces costs, increases margins, and speeds up end-to-end distribution.
When you run a dropshipping store, you get to run an e-commerce business without renting warehouse space, investing in shipping labor and costs, or holding onto high-overhead inventory. It’s a great business model for new e-commerce entrepreneurs looking to:
- Test a product or niche without huge startup costs
- Start a low-cost side hustle
- Begin to build an e-commerce brand before proprietary products are complete
- Learn things like e-commerce, digital marketing, website development, etc. while building a real business
Cash flow when it comes to dropshipping is one of the best parts. By dropshipping and therefore processing orders only after a customer has purchased, there’s no up-front inventory investment and you have money in-hand from your customer before you buy from your supplier.
Benefits of Dropshipping
Now that you know what dropshipping is…let’s talk through some of the benefits.
Cash Flow
With the dropshipping business model, you don’t incur product costs until after you have the customer’s order and money. Here’s how the process works:
- Customer orders product on your site
- Customer pays
- You order and pay for the customer’s products (at a lower cost from the supplier, of course)
- The supplier packs and ships the customer’s order
- The custom receives their order
Depending on the payment platform you use, there may be a delay between when the customer pays and when you receive the money. So you’ll want a small amount of money set aside to purchase the first few orders. After a few orders, though, the cash flow works out really nicely.
Speaking of getting paid, if you’re using Shopify, go ahead and set your store to use Shopify Payments. You’ll get paid faster and incur fewer payment processing fees.
Low Startup Costs/Risks
As you can tell from the cash flow process, you don’t need to invest much money to to get started. You don’t have to purchase products in bulk ahead of time, there’s no physical space to rent, and Shopify makes it very affordable to get a site spun up.
“Yea, but what’s considered not much money?” you may be asking. If I had to put a number to it, you can get a store spun up for under $500, even less if you can do the website design and build yourself.
After the initial site setup costs, your biggest pre-purchase investment will be marketing. Sadly, just because you build it, doesn’t mean people will come buy. You’ll have to invest in marketing your store. Budgets for marketing will depend on your price point, product margins, target audience, competition, and more
No Inventory to Handle or Store
Because the supplier sends your products directly to customers, you don’t have to buy 500 products at a time. That saves you inventory costs as well as inventory storage costs. You don’t have to rent a warehouse or keep products in your spare room.
The inventory benefits of dropshipping also allow you to test and offer products without investing a ton. You can add a product to your store, put some marketing dollars behind it, and see if it’s a profitable product or not. If so, great! If not, you’re not out a bunch of money to buy the minimum order from a traditional supplier.
Scalability
Dropshipping stores can be as big or small as you want. And as you scale up in size, you gain more and more economies of scale. Your revenue increases but your costs don’t increase at the same rate, meaning margins improve.
In general, dropshipping store owners go through the following stages:
- Solo – doing everything on your own
- Piecemeal Outsourcing – having someone (usually a freelancer) help with very specific tasks like product descriptions, images, web development, or marketing
- Responsibility Outsourcing – giving someone (again, usually a freelancer) responsibility for a certain portion of the business, often customer service, marketing, product research, or similar tasks
- Hiring In-house – bringing on full- or part-time employees to work on and in the business
Most businesses end up in stages 2 and 3, with really ambitious owners advancing into stage 4.
Because you don’t have inventory to manage, a dropshipping store can do a lot in revenue with very few internal resources.
Startup Speed
No product R&D. No manufacturing lead time. No waiting for product to arrive.
The process of starting a dropshipping business can be as fast as you want. I’ve watched experienced dropshippers open new niche sites in a weekend. Newbies usually take a month or two to learn the ropes, get the pieces put together, and launch.
Your main startup efforts are going to be in branding, website design and development, product selection, and marketing.
Downsides of Dropshipping
Dropshipping isn’t all sunshine and rainbows. Here are some things to keep in mind.
Quality Assurance
The nature of the dropshipping model is that you don’t have to touch the products before they go to your customers. That inherently means that you don’t control the quality. If a customer gets shipped a broken product, you don’t have control over that…but you are on the hook for fixing it.
In general, you’ll want to order a product yourself before you offer it on your site. That way you can see how it arrives and actually make sure the product is of quality. (Plus, if you have the product on-hand, you can make way better marketing videos.) This step certainly isn’t required, but if you’re focused on building a brand, it’s a good way to maintain some control.
If a customer receives a broken product from you, they’ll come to you to fix it. And you need to fix it by refunding their payment and/or sending them a new product. To make this process easier and less costly, make sure to work with reputable suppliers and ask about their dropshipping return policy.
Differentiation
When you’re starting out dropshipping, you’ll likely start with the common suppliers and marketplaces…the ones everyone else uses. That means you’ll be offering the same products as everyone else. Your product won’t be any different.
Things that can help you stand out include:
- Unique product descriptions (make them funny, quirky, or somehow memorable)
- Your own product images
- Product reviews from actual customers
- A unique brand or niche angle
- Brand and reputation
Success Rate
To be blunt, most dropshipping stores fail. People learn a little about the business model, assume it’s easy money, create a store with no direction, and fail.
I’m of the impression that failure is good…it helps you learn. I’ve had two dropshipping stores fail, and those two stores are the reasons I was able to build and sell a successful dropshipping business and am now able to pass my knowledge along here.
But you won’t set out to fail. So know that running a dropshipping business is hard. It’s not a guaranteed success. And you’ll want help along the way.
Dropshipping Sales Methods
Dropshipping itself is a distribution method—shipping products directly from suppliers to customers without the seller needing to get involved. Implementing this business model can happen through a variety of sales mechanisms.
Once you’ve decided to start a dropshipping business, one of the next decisions you’ll make is where to sell products. There are several options and, as with everything in this industry, each has pros and cons.
Here are common sales methods and the realities of each
Shopify Website
One of the most popular platforms for creating a dropshipping store is Shopify. And Shopify has fully embraced their dropshipping brand. They’ve developed tools, tutorials, and entire infrastructure around helping entrepreneurs start dropshipping businesses.
With its integrations and beginner-friendly setup, Shopify is the go-to for dropshipping. Some people swear by WordPress and WooCommerce, and while those platforms are awesome for other purposes (like this site), they lack the dropshipping-specific buildout of Shopify.
If you plan on starting a dropshipping business, Shopify is for sure the place to start.
Amazon
Did you know that a bunch of the products you see on Amazon are actually dropshipped?
Like this one:
Key giveaways that it’s a dropshipped product are:
- Not eligible for Prime
- Few and unengaging product photos
- Shipping times 4+ days
You can dropship on Amazon by creating an Amazon Seller Central account and following instructions. And if you have a Shopify store already, you can integrate Shopify and Amazon.
However, if Amazon is your planned end-game, you can use dropshipping to test product viability, and then do Amazon FBA for validated products. Amazon FBA is a more advanced business model than straight-up dropshipping, but there are great resources if you’re looking to learn. I recommend starting here:
Ebay
Ebay, like Amazon, has a lot of dropshipped products on it. This means it’s easy to get up and running, but there’s a ton of competition. If you don’t differentiate your products, you’ll have a hard time standing out; you’ll be stuck competing on price (and low margins aren’t why you’re getting into dropshipping).
If you’re just wanting to test some products and validate the Ebay model, you can, similarly to Amazon, integrate Shopify and Ebay to make selling on Ebay streamlined and simple.
Social Media: Instagram, Pinterest, & Facebook
Many of the social media platforms have the capability to build stores directly on them. Instagram, Pinterest, and Facebook all have this capability. You can create a store on each platform and users can purchase directly on it. This behooves the social networks because they keep customers on their platform and can take a cut of each sale.
If social media is a huge part of your marketing strategy, then integrating with these platforms can have a big advantage. Playing nice with social networks and keeping your traffic within them can lower ad costs and improve favorability.
Again, Shopify to the rescue. Once you have a Shopify store created, you can quickly integrate and create stores on Facebook, Pinterest, and Instagram.
Sales Platform Recommendation
Now that you know the different sales methods, which one should you choose? If you’re a beginner, start with Shopify. Get your shit together there, and then expand to social networks, Ebay, and Amazon based on where your target audience spends the most time.
Should You Start a Dropshipping Store?
If you’re looking to start your own business—and understand that dropshipping isn’t a get-rich-quick deal—dropshipping is a great option. It’s quick to start, there are a ton of resources to make it as easy as possible, and it can take any direction you want it to.
If you’re looking to make some quick cash by selling cheap shit from China, you might be looking at this business model the wrong way.
In the end, your destiny is in your hands.