Interested in starting your own business?
It can be incredibly rewarding, but also very difficult. Starting a business requires a lot of time and energy, and forces you to make a number of tough decisions.
The first major decision you have to make is deciding what type of business you want to start. This as an important step as it’s hard to go back and change course once you’ve gotten started. If you’re struggling to choose what type of business to start, consider dropshipping.
Dropshipping is a retail model in which your store sells products without having them in stock. This model has a number of benefits, including low upfront costs, which makes it perfect for entrepreneurs who don’t have a lot of capital to spare.
Let’s take an in-depth look at what dropshipping is and how you can start your own dropshipping business.
What is Dropshipping?
Dropshipping is a business model which allows owners to sell products without inventory. When you sell a product from your business, you fulfill the order by purchasing the product from a third party and having it shipped directly to the customer.
How Does Dropshipping Work?
How does this process work? Let’s take a look at a quick example.
Say you want to start your own sporting goods store, but don’t have the capital to purchase inventory.
In order to fulfill customer orders, you would partner with a dropshipping manufacturer or wholesaler. Whenever a client places an order you purchase the items from your supplier. The products would then be sent directly to your customers. As a result, you never have to see or handle the products.
This means you don’t have to worry about purchasing inventory before making sales and having unsold inventory.
Additionally, by learning how to negotiate with your suppliers, you can increase your profit margins.
Pros & Cons
Dropshipping, like any business model, has plenty of advantages and disadvantages.
The primary benefit of dropshipping is that it doesn’t require nearly as much capital as traditional retail business models. You never have to purchase inventory until you actually make a sale.
As such, it’s possible to start your own dropshipping business without having a lot of startup money.
Easy to Start
Dropshipping businesses are also very easy to start. You don’t have to invest in storefront properties or warehouses. You also don’t have to worry about managing inventory, packing and shipping products, or handling returns.
Dropshipping businesses typically operate online — meaning, you don’t have to worry about picking the right location for your store. As long as you have an internet connection, you’re good to go.
Out of Stock
Since you don’t have your own inventory, you have to depend completely on your suppliers. If a customer places an order and your supplier doesn’t have that item in stock, you could run into some issues.
Since anybody can start a dropshipping business, you’ll likely be facing a lot of competition — especially when it comes to pricing. Dropshippers often offer products at extremely low prices to attract new customers. This can make it difficult to compete if you aren’t able to match those prices.
When running a dropshipping business, you have to depend on your suppliers for high-quality service. If your supplier accidentally ships a wrong or broken item, you have to take responsibility, which can damage your reputation.
Despite these disadvantages, dropshipping remains a great business idea for people with low startup capital.
How to Start a Dropshipping Business
Starting a dropshipping business is relatively easy. All you have to do is follow a few simple steps to get going.
1. Choose a Niche
First, you need to decide what type of business you want to start. What products are you going to sell?
It’s important to focus on finding something that is in demand but not oversaturated.
You can sell pretty much anything you want to, including:
👉🏼 Gardening supplies
👉🏼 Sporting Goods
Start by evaluating your own interests and go from there.
2. Pick a Supplier
It’s important to find a supplier that carries all the products you want to sell, has a good reputation and offers competitive prices.
When you start a dropshipping business, your supplier will be your most important business partner. It’s important to do your due diligence and find the best match for you.
3. Make a Website
Next, you need to build your eCommerce website. This is where your customer will go to browse and purchase your products. You can either build your online shop from scratch or choose an already established platform.
There are plenty of platforms to choose from, including:
These platforms make it easy to start your own online store.
4. Get a Sales Tax ID
If you’re starting a retail business in the U.S., you’ll typically need to get a sales tax ID — unless you live in one of the few states that don’t have sales tax.
To get one, you’ll likely need to establish yourself as a sole proprietor. It’s important to collect the exact amount of sales tax required by your state. Otherwise, you’ll likely be held responsible for the difference.
Lastly, you need to perform a lot of research to keep up with your competition and acquire new customers.
You’ll be competing with other dropshippers and large retailers, so you need to be able to conduct research to determine your target market, pricing, and more.
By following these easy steps, you can get your dropshipping business up and running in no time.
How to Find Dropshipping Suppliers
As we mentioned before, your supplier will likely be your most important business partner. You’ll rely on them to fulfill orders, offer good prices, and provide great customer service.
But how can you find a good dropshipping supplier?
The two most common and easiest ways to find dropshippers are: use a wholesale directory or search online.
Wholesale directories, like SaleHoo, provide lists of reputable wholesalers for dropshippers like you to contact. These resources can save you a lot of time in your search for a quality supplier.
Lastly, you can use apps to source products from third party suppliers. The Shopify App Store can guide you to apps like these that make suppliers easy to find.
Beware of Dropshipping Scams
Before starting your dropshipping business, it’s important to be aware of dropshipping scams and how to avoid them.
The most common scam you’ll run into is fake suppliers. Meaning, people pretending to be suppliers without actually having the products you want to sell.
Instead, they pretend that they do have these products, collect payment from you, and never ship your products. This results in you losing money and ruining your reputation as customers never receive their products.
In order to avoid this, it’s important to find reputable retailers. Search for feedback regarding the supplier you’re talking to, ask for the suppliers’ business license, and ask for details regarding their products.
By identifying phony suppliers, you can avoid falling victim to dropshipping scams.
Is dropshipping what you’ve been looking for?
Starting your own business can be exciting but also difficult. It’s important to learn as much as you can about starting and managing your own business in order to avoid wasting your time and money.
At Camino Financial, we pride ourselves on providing expert advice to small business owners like you so that no business is left behind.
For more business ideas and advice, subscribe to the Camino Financial Newsletter. When you do, you’ll be part of an online community of businesspeople, just like you, that want to grow their businesses and reach success.