Dropshipping can be an ideal way to break into the ecommerce market as a first-time business owner with limited startup cash. It can also be an ideal business model for those who want to try their hand at a low-risk ecommerce venture prior to moving on to bigger markets and original companies.
At the same time, starting a dropshipping business comes with its own unique set of challenges, due in part to the very nature of its accessibility.
Over-saturated markets, inventory supply chain issues and quality control are just a few of the headaches you might encounter when trying your hand at a dropship ecommerce business.
That’s why following the right startup principles and committing fully to your dropship business is so important. Read on to discover how to start a dropshipping business that has the potential for profit sustainability and future growth.
1. Lay the Groundwork
Before you do anything, you need to take care of some basic preliminary steps when starting a business. Obtaining a business license should be your number one priority before anything else. You’ll need to decide if forming an LLC or a sole proprietorship is the best option for you.
Picking a corporate entity helps you protect yourself from financial and legal liabilities. It also allows you to apply for a separate EIN or tax ID, effectively streamlining the process of paying income taxes for your business. An EIN also gives you the ability to open a bank account in your dropship business’s name and apply for any financial help you might need along the way.
After you get the official paperwork out of the way, you’ll need to establish a base of operations. A benefit of a dropshipping business is that you can run it effectively out of your home. As long as you have a reliable computer and internet connection, you’ve got the beginnings of your dropshipping ecommerce business.
2. Pick a Product and a Market
Your next step is to decide on a product you’d like to connect with an audience. While this might seem easy initially, you need to be careful about your decision. One of the dangers of starting a dropship ecommerce business is low profit margins due to a high rate of competition.
To combat this, you should focus on diversifying the products you offer at competitive prices. You can diversify your products by selecting a wide range of related items or by drilling down into a niche set of interests inherently reflected in the items you have on your site.
While you might be tempted to sell low-cost, high-volume items, you’re better off going for quality. So many dropshipping businesses fold within the first year because they haven’t focused on quality.
When selecting your products, you should also have a market in mind, especially if you choose the niche route. Like with any new business, you’ll want to perform some light market research to see who fits into your intended demographic and how you’ll need to reach them.
3. Find Reliable Vendors
Your next step is to locate the vendors or wholesalers that you plan to integrate into your supply chain. When a customer places an order, these are the companies you’ll need to rely on to fulfill shipments on time and stick to pre-arranged prices. It’s not going to help your profits if your wholesaler keeps fluctuating the prices that you’ll pay.
Part of picking reliable vendors also involves testing for quality assurance. When you’re using vendors to fulfill orders, you don’t ever actually see the inventory that gets passed along to your customers.
However, the customer isn’t aware and frankly doesn’t care about this aspect of your business. All the customer knows is that they placed an order with your business and that it ended up being the wrong item or arrived damaged.
Vetting your vendors for reliability and quality should be your number one priority after pricing their products. You should also keep a close eye on customer feedback and often reassess how your vendors are working out for you.
4. Market Your Business
Marketing your products and ecommerce business will be the ultimate key to your success, especially in the beginning. It doesn’t matter how great your products are or how smooth your website runs. If nobody knows you exist, you won’t make a profit.
To leverage a small marketing budget for maximum website traffic, look into inbound marketing techniques. Inbound marketing is all about evaluating your audience, making connections and driving website traffic organically.
You can embrace marketing techniques like SEO, automated email campaigns and Customer Relation Management (CRM) software to attract your demographic and add value to their lives through your products.
5. Plan to Upscale
For the best results with your dropship business, plan to upscale after your first year or so. While this might seem aggressive, the low overhead required in dropshipping will make upscaling your product range and quality much more accessible.
Placing a goal like this early in your business will also help to keep you accountable and engaged. This isn’t a get-rich-quick scheme or a passive income gig. It’s a legitimate business that you’ll need to commit yourself to in order to create a future. Create a business plan early on that reflects your future goals and sets the tone for the success you want to achieve.