All You Need to Know to Start a Dropshipping Business in 2020
When managing a business, the cost of inventory could be overwhelming. Buying products, stockpiling them, and hoping that one day customers order for them take a great deal of optimism – and yes, significant financial investment.
However, with dropshipping, you are saved from the migraine of owning and stockpiling products.
Dropshipping essentially leverages an on-demand business model where customers order products from you, and you simply connect with a supplier, shipping it to the customer.
The risk percentage is notably smaller in this case because you don’t have to own the product, waiting when the customer requires it. With dropshipping, you don’t have to pay upfront either.
Dropshipping gives you a soft landing into the world of entrepreneurship.
“Dropshipping allows you to own a business – without directly shouldering the traditionally associated risks.”
With the world becoming more connected digitally by the day, dropshipping gives you a global market. When managed properly, you should be swimming in cool cash.
To better answer the question “what is dropshipping“, I have put together this emphatic guide on how dropshipping works, covering the finest details like how to source products, source suppliers, and avoid common killers in dropshipping.
Complete digestion (and application) of this guide is sure to help you build a dropshipping empire that not only pays your bills but enables you to live that beautiful life you have so terribly fantasized about.
Ready for the ride?
Why is everyone in love with dropshipping?
There are several reasons why you should be in the dropshipping business. Let us explore some of the selling points of this model.
1. You don’t need much to start
One of the major determinants of the economic viability of a business is the capital requirement.
“For dropshipping, you don’t need much; this is a low-barrier entry business.”
You may only need to pay for setting up your ecommerce store. The rest pays for itself as you don’t have to worry about inventory.
Stockpiling is one of the biggest problems of traditional brick-and-mortar retailers. This requires sizable capital.
But in dropshipping, you only buy when your customer has made his order and paid.
All these factors come together to make dropshipping remarkably easy to start, most especially in the absence of physical management of products.
This means you don’t have to make provision for a warehouse nor worry about stock level management, inbound shipment, or packing your orders.
What more, the flexibility of dropshipping makes it almost irresistible. Provided you have a stable internet connection, you can do business from anywhere in the world.
Such an internet connection will suffice in sustaining communication with your customers and those supplying you.
2. Operational costs are incredibly low
To run a business successfully, your overhead cost should be significantly lower than your revenue.
“The cost of managing a dropshipping business is astonishingly low compared to a physical retail outlet.”
You can manage this business on-the-go or in a dedicated workspace, possibly at home.
How do you start a dropshipping business? Just get your computer, internet connection, and online shop up, and you are practically good to go.
Due to its notably reduced operational cost, dropshipping helps you test a particular product before transitioning to full-blown operation. This way, you have a more accurate idea of customer adoption for that product.
Let us say you want to test a new product line, you wouldn’t need to roll out the full business – spending massively – and optimistically banking on your customers liking the product. This is flimsy and most times end up catastrophically.
Depending on how well that product line performs, in terms of how well your targeted market welcomed the product, you can choose to go full scale or possibly adapt your model with the practical insights derived from the dropshipping experiment.
Not a bad way to test the waters, is it?
3. The scalability of dropshipping is another massive selling point
Few entrepreneurs – if any at all – start a business with the intention of remaining small forever. Down the line, when you enjoy sustained growth, you would have to scale.
The big question now would be the seamlessness of expanding the business.
Scaling a physical business requires far more effort, money, and strategic planning. You would need to procure more infrastructures from production to storage to delivery logistics.
“Scaling up dropshipping is more fun than work – you basically outsource the increased responsibilities to your suppliers.”
Do your customers now need more? No problem, your suppliers will just supply more! Don’t you like it that easy?
4. You can sell just anything you want
In dropshipping, you are the sole captain of the ship and can decide to sell just anything that suits you.
“Unlike in physical businesses, you don’t need to be limited to a specific bandwidth of products.”
The most important consideration here is if your customers will find the product appealing. Since there is no added cost for listing on your shop (and no need to stock that product), you can virtually sell anything.
Challenges of starting a dropshipping business today
Well, why we have emphatically looked at some of the most glistening attractions of dropshipping, let us state here that there are corresponding disadvantages that come with dropshipping.
Answering the question of “what is dropshipping” will require to objectively examine both sides of the coin – the good and not-too-good aspects of dropshipping.
1. Prices aren’t always attractive
If you spend a significant amount of capital in setting up a business, it is only natural that you wouldn’t sell your products for peanuts.
The need to recoup your capital will directly affect the prices you set, right?
“Given that dropshipping’s operational cost is low, there is a tendency from your competitors to reduce their prices drastically.”
Expectedly, prices will drop as your rivals strive to consolidate their competitive advantage with far-reduced overhead costs.
Some of your competitors don’t care much about how thin their margins are since they are not making considerable financial and mental commitment to their dropshipping.
Find a way around that.
You wouldn’t really blame them as they are spending peanuts on the business. Their websites are paltry, just satisfying all righteousness. Their customer service could be poor too.
Sadly, your customers will not consider the considerable investments you are making in your dropshipping. Painfully, they would measure your prices against those low ones from your lousy competitors.
In such circumstances, it would be almost suicidal to set prices far steeper than your competitors’ prices. This forces you to crash your prices to mirror existing market prices. Effectively, your margins could be low.
Also, considering that dropshipping can almost run on autopilot, some of these vendors have dropshipping as a side hustle instead of their primary engagement.
This way, they wouldn’t complain if they manage to scrape off crumbs for profits.
2. The competition could be overwhelming
The sad truth is that the lucrativeness of dropshipping is no longer a secret.
“Unlike in the early 2000s in the dropshipping industry’s infant days, today, the industry has remarkably exploded with swathes of players.”
This isn’t shocking. The beauty of dropshipping is there for all to see, and given that the business is a low-barrier entry business, just anyone can get started tomorrow.
Bigger dropshipping businesses can criminally drop their markups, practically pricing you out of operation.
This is possible because the dropshipping is entirely open source with almost no ultimate regulatory authority to peg prices.
Your prospective buyers have a larger spectrum of options because of such consuming competition, always gravitating towards the cheapest seller on the block.
If you regularly have to slash prices to keep up with the exploding competition, your margin would become so thin that your dropshipping business will ultimately become unsustainable.
The good news, however, competition is fiercer in more popular niches. With remarkable streamlining, you can trim down to build your dropshipping on one particular niche.
This we will be learning down this guide.
3. It could be challenging tracking inventory
Yes, the fact that you don’t have to physically curate your inventory (in the case of dropshipping) is itself an advantage and disadvantage.
“On the gloomier side, not having a physical stockpile means more challenges tracking your inventory.”
Considering that you are not physically administering your inventory, you can’t accurately and punctually determine which of your goods are out of stock.
Your customers can place an order, but you could discover that a specific product is out of stock upon reaching out to your supplier.
Undoubtedly, this will not only hurt the fluidity of conducting business but would eventually (in severally repeated scenarios) hurt your credibility and reliability in the eyes of your buyers.
This problem of syncing with your suppliers is common when you get supplies from more than one warehouse.
Well, this challenge isn’t as notorious and devastating as it used to be.
With the increasing sophistication of dropshipping technologies, it is far easier to synchronize with your suppliers’ stock levels.
These days, it is possible to monitor your supplier’s inventory level of your supplier.
Also, with more adoption of advanced automation technologies, it is possible to automatically delist a product from your online store once your supplier’s stocks hit zero.
4. There is the risk of legal liability
In dropshipping, you may not be able to tell the genuineness of your suppliers’ merchandise accurately.
As a budding dropshipper, it is highly unlikely you will even have the apparatus to confirm their legitimacy.
“You risk facing legal liability issues if your suppliers lack the intellectual property for the stock they supply you.”
There have been repeated cases of suppliers criminally adopting another company’s trademarked logo or even selling products whose intellectual property belongs to another firm.
In this case, you risk being prosecuted for complicity despite being completely innocent in the whole sham.
This problem can be reasonably assuaged by using very credible suppliers or, better still, leveraging a robust Dropshipping Agreement Contract.
5. You may not have complete control over the supply network
One big challenge associated with dropshipping is that you don’t preside over the supply chain.
“The party in charge of the chain is your supplier. 🙁 ”
Unless you have a myriad of suppliers (which is admittedly not easy to manage), your supplier typically decides if and when you get stocks.
There is very little you can do in dropshipping if your buyers are dissatisfied with the product quality. Yet you must answer to your buyers for such ugly scenarios.
You wouldn’t be able to do more than forwarding the complaints to the supplier and hope they promptly resolve it.
Worse still, even in this optimism, you have to guarantee your customers that the problem would be immediately and permanently solved (and often it isn’t that promptly resolved), putting your credibility on the line.
In some cases of suppliers with lackadaisical customer service, they seem to take centuries to reply to your queries.
With such rickety correspondence between you and the supplier, the issue may not be that promptly fixed anymore, costing you customers.
This is a substantial departure from conventional ecommerce, where the store owner is predominantly in charge of the whole process from determining product quality to return policies to controlling the speed at which the product is eventually delivered to your buyer.
So far, these are the most pressing challenges associated with dropshipping. But don’t fret, is there any genuine business without disadvantages?
It is relieving that having uncovered the landmines in the dropshipping industry that kills many businesses, we will outline the best steps to take to navigate your way to success in this industry.
Ensure you get your market research right
I can arguably say that lack – or inaccuracy of market research – is one of the deadliest mistakes dropshipping entrepreneurs make.
What is dropshipping without quality market research? A risky gamble!
A sizable fraction of the challenges we pointed out can be eliminated with proper market investigation before you start.
“If you get your market research right, you can manage to pick a very profitable product to sell – without having to battle with enormous competition.”
Granted, you may not readily come across this type of product without doing exquisite due diligence and digging into the market’s nooks and crannies.
We will be emphatically looking at market research later in this guide, given the extremely critical role it plays in the success of your dropshipping escapades.
Make sure you are protected from overselling
Ask the ecommerce sellers who are winning in the dropshipping industry, they will tell you that one of the crucial secrets of dropshipping is protecting yourself from overselling. Yes, the market is famed for its notorious volatility.
In some cases, you can’t accurately predict where the market is moving.
“Don’t go overstocking in anticipation of spikes in demand.”
Otherwise, this could lead to increases in your inventory costs.
Let the market take its course, but ensure you have reliable suppliers in the background if there are significant hikes in orders.
Many drop shippers are faced with the dilemma of stocking (to reduce delivery time after customer order) during seasonal overflow.
If you must stock, ensure you are doing so only for products you are confident of selling in no time. Don’t stretch your luck too far.
Are you going for products that need significant maintenance?
“Many dropshippers make life unnecessarily harder for themselves by going for products that are harder to ship.”
This type of products attracts more fees when being stored or shipped. In some cases, such higher costs can’t easily be transferred to your customer.
Commonly, the size and the fragility of the product determine how rigorous the maintenance could be. Expectedly, you would pay more for bigger products due to the significant storage and shipping space they take.
The same handicap applies to heavy products. In this case, it could make more sense delegating the dropshipping responsibilities straight to the manufacturer.
Valuables also need more maintenance when being stored and shipped. You should know you would incur more costs when selling jewelry and other high-value commodities like antiques.
This is especially considering the heightened need for security.
Having espoused these considerations, let us go on to answer some of the most frequently asked questions about the dropshipping industry.
How much will you need to begin your dropshipping business?
There is no definitive cost when starting a dropshipping business – as this cost varies across several niches.
However, there are some fundamental expenditure that you must incur regardless of the niche you go for if you want to take dropshipping seriously – and yes, make a decent fortune from it consequently.
1. You need to get an online store
“If you plan to start a dropshipping business, you are not going anywhere without an online store.”
The online store is more like your digital showroom where your prospective buyers can come and inspect the products and possibly place orders.
There are many ecommerce builders to choose from. You can choose a unique SaaS subscription or go with custom ecommerce websites.
If you are a DIY enthusiast and have remarkable technical experience, you can choose to write the codes and build your site up from scratch – or pay someone to.
This can be expensive and time-consuming. It could be better – depending on your specific circumstance – to go with predesigned builders. These platforms lavish you with an almost inexhaustible spectrum of customization options.
The primary factors affecting your online store’s cost include the SSL certificate, your choice of ecommerce software, store design (in terms of available themes), payment processing costs, extensions, and other add-ons, and your domain name (which we will consider subsequently).
2. You will need a domain name
As a dropshipper, you need to build credibility as your business is not as accountable or answerable as a brick and mortar store.
“One way to prop up your credibility and get customers trusting you more is by owning a domain name.”
When you go for quack domains, the alarm bells going ringing, and your prospective buyer gets more skeptical.
I will advise you to go for a reputable “.com” domain that is appropriately compatible with your brand.
Customarily, these domains are renewable annually. But you can spend less by buying up your domain name for many years upfront.
Averagely, you can spend anywhere from $10-15 on your domain name annually.
Another thing to note is that domain names more specific to your dropshipping line of business cost less compared to more ambiguous or generic domain names.
3. You will spend on marketing
“As a dropshipper, you need your brand on as many eyeballs as possible. You need people to find you and your products.”
This validates having a marketing budget. In the contemporary dropshipping space, you have many options for amplifying your reach and ramping up your publicity.
Facebook ads is one of the most prevalent advertising options among today’s dropshippers. Facebook has 2.7 billion monthly users today, making this platform an excellent publicity channel.
Your Facebook budget will vary depending on your campaign’s objective: be it just impressions or if you need website clicks and conversions.
Typically, if your Facebook ad is just for impression, you must have a daily budget of at least $1. If you aim for further engagement forms like video views, likes, or clicks, you should be setting a daily budget of at least $5.
If you ask me how you should start your Facebook ad spending as a dropshipper, I would advise that for your first set of campaigns, you should have a maximum daily cap of $3.50. Why do I root for such low ad-spend at the start?
It gives you a cost-effective approach to accurately examining your ad’s performance, deciphering which is working and which direction you need to invest more money in.
You could also boost up to four separate posts for at most $5 on a weekly $1 fee, setting a total lifetime budget of $5 for every one of these posts to measure their efficiency.
Aside from Facebook and general social media marketing, there are other viable marketing options for dropshippers like SEO, email marketing, referral marketing, and word of mouth marketing. We will explore some of this later down this guide.
A bulk of these is organic marketing channels. If you bring all together, you can expect to spend around $400 on your marketing as you start your dropshipping.
How about the legitimacy of a dropshipping business?
I get asked regularly: Is dropshipping legal? I admit many people struggle to accept the legality of dropshipping as they feel that they are “posing” to own goods they list on their website, only to place orders when buyers order for them.
Well, there is nothing criminal about this business model.
You can view this from this perspective. The retail stores with a physical inventory of goods are not selling goods they manufactured themselves, are they?
This is the same with dropshipping, just that the fulfillment model now changes.
“The question ‘is dropshipping legal‘ can be better answered when you appreciate that dropshipping is nothing more than a fulfillment model (specially adapted to digital businesses).”
Indeed, this model is utilized by tons of retailers across the globe.
Statistically, in just 2017, about 23% of all digital sales utilized the dropshipping model for fulfillment. This accounts for approximately $85 billion worth of trade. What more, about 27% of online retailers have now resorted to dropshipping,
Just as you have in any other legitimate business, sustainable success in dropshipping is equally founded on premium customer satisfaction and credibility.
So long you conform to the laws of your jurisdiction in your dropshipping expertise, you are as legal as the banker in his office. Another related question here is if you have to test a sample of a product before listing.
In some cases, some dropshippers test a sample of the product before they go on to list it. This is to approve of its genuineness.
But this is not always the case, considering that not all dropshippers – especially the new ones – will not necessarily have the financial muscle to buy a test sample.
What more, despite testing a particular product and finding it topnotch, you may not equally say so for the other units you would deliver to the buyer. Therefore, it is not mandatory to buy a sample product, despite being best practice.
You can infer the quality of the product from social proof. This is by studying a pile of online reviews about that product curated from previous buyers of that product you list.
If you see a wave of reasonably positive reviews about a product on reputable review platforms – even enhanced with firsthand images of the item- then you could be fairly convinced of the quality of the product.
“Go for reviews from confirmed buyers, possibly with firsthand pictures of the product, suggesting they are writing from their experience.”
With quality control becoming increasingly problematic, it pays to hunt for manufacturers with a solid history of producing stellar products and readily satiating buyers when defects are reported.
Which category of personas is dropshipping for?
Another question people frequently throw at me is, who should do dropshipping?
Well, I can confidently say that dropshipping is not for everyone.
More than the technical expertise, there is also the need to have the befitting emotional profile to withstand the highs and lows of dropshipping.
Effectively, dropshipping may be an outstanding venture for you if you are not necessarily attracted to investing in a multiplicity of startups and just want to have your own stuff running for you.
“Dropshipping is also fitting for marketing newbies and entrepreneurs just starting out.”
Nowadays, with the increasing profusion of technology, supply and shipping options, and customer acquisition outlets, dropshipping isn’t as capital intensive as it used to be in the infant days of the dropshipping industry.
Let me dig deeper into each category of persons who should do dropshipping.
1. Entrepreneurs just starting out
Budding entrepreneurs can hit gold with dropshipping. Given its reduced capital and management need, this is of the befitting ventures to get onboarded into the entrepreneur’s fraternity.
“Given that you are not spending a significant amount of capital, there is not much to lose if your dropshipping venture possibly fails.”
Also, you need little to no team to successfully run a dropshipping business. This explains why the majority of dropshippers are solopreneurs.
More interestingly, as a budding entrepreneur, your dropshipping business being a less pressurized business space, will give you the calm to learn the ropes of running a successful business.
Another category of people who should do dropshipping is entrepreneurs with a strict budget.
Here, you would be saved from critical expenditures like inventory logistics (like procuring warehouses for your goods) and intermediaries.
Did you know that as a dropshipper, you can earn 50% more profit compared to those who physically own their stock inventory?
2. For sellers who fancy dealing in multiple niches
It is challenging to build a brand dealing in multiple niches as a physical retailer.
Given the need for specialization in on-ground retailing, you could struggle to consolidate your hold in the several product categories you deal on.
Indeed, keeping stocks of these products can be a huge bottleneck, especially considering the financial consequence. It is highly unlikely this model can be sustainable.
“It is much easier selling products in several niches as a dropshipper since you are not storing anything physically.”
You can list just any product on your website since you are not buying it and waiting for the buyer. It is when it is ordered that you would take it upon yourself to procure and ship it.
Having stated this advantage, I must sound it out that you need to be very calculated when choosing product niches, as we will explore down the road in this tutorial. Not every niche is worth it.
3. Dropshipping is good for retailers experimenting with a product
Before making significant investments in selling a particular product, many brick and mortar retailers tend to test it first with dropshipping.
Before spending serious money stockpiling, renting a store, and all that warehousing costs, it could help to test the product in a low-risk ecosystem.
This should give you a firsthand understanding of market dynamics for that product like customer demands, reliability of the supply chain, market trends etc.
“Dropshipping, as we have established, gives you an opportunity to test the water at incredibly lower costs.”
If the dropshipping experiment comes out positive – say you find demand buoyant, a stable supply chain – you may be emboldened to try to make appreciable investments in stocking the product and selling it physically.
4. Dropshipping is excellent for passion income seekers
Considering the minimal need for active day-to-day management in dropshipping, it could be an attractive economic outlet for side hustlers.
You could have your major preoccupation and have your dropshipping business trickling in dollars in the background.
Of course, it is not a bad bargain making some extra bucks doing almost nothing, is it?
How to choose your dropshipping products
Your success in dropshipping is largely connected to your choice of products to deal on. Yes, there are 2.05 billion online buyers across the globe, but you need to pick the best dropshipping product for your situation.
“You need to choose products with satisfactory customer demands and healthy competition, giving you the crucial space to thrive.”
Pick the right product, and you are in for the money, pick the wrong product, and it could be an endless tale of misery.
In this section, we will take you hand-in-hand through the process of picking the best products that would set you for success in dropshipping. Let us start with selling just any product before we narrow down to choosing a niche dropshipping products to specialize on.
1. The trends are important for dropshipping businesses
Like in financial markets, trends are crucial in dropshipping, especially when searching high demand products.
“Trending products in dropshipping can be lucrative if strategically exploited.”
This is more like tapping into the rave of the moment and satisfying customer demands in this niche within this timeframe.
One beauty about trends is that if you tap into them early enough (instead of jumping on the bandwagon much later on), you can take advantage of significantly reduced supply expenditures and lower marketing fees.
As typical of trends, their buoyancy is bound by time and seasons. Suppose you are among the first or second wave of pacesetters when a trend is forming.
In that case, you can establish your dropshipping brand as the go-to destination before the trends fully blossoms and the competition explodes astronomically.
The bigger question now is how do you find the right trendy products as a dropshipper, and more importantly, find them early enough when they are yet profitable. There are a number of tools or resources you can leverage to identify trending products.
The most popular among them include Wish.com, Google Trends, and Kickstarter.com. Let us particularly explore how to discover the right products on Google Trends to dropship.
Finding dropshipping products on Google Trends
Google Trends is mostly free and accessible for anyone with a Google account. Who doesn’t have a Google account?
The first step is logging in. On the dashboard, there is a search bar denoted “Enter a search term or a topic”.
If you already have a product in mind – assume the niche you already deal on – you can type the word you intend searching for. There is also the option of analyzing the topic.
In this scenario, you would focus on the volatility in demands of this product and how well seasonality affects these demands patterns.
“Google Trends gives you further customization options for your product analysis.”
You can choose to streamline your research to specific demographies.
This can be the location or destination where your customer base is predominantly domiciled.
Google Trends gives you crucial information on customer behavior for a particular based on demography. You can measure the sentiments of people in a particular city or country have for a particular product. You can also measure, for example, based on age and other differentiators.
I have noticed that dropshippers get quite frenetic about Google Trends results, especially when it appears sparse. Take note that the numbers are not specifically representative of the number of queries.
What Google Trend is actually showing you here is the relative proportion of customer interest.
When measuring how seasonality affects demand for a particular product, it is recommended that you extend the period you are studying reasonably.
This gives you a larger picture of how these demands have been varying (say on a yearly basis) and how proportionately they vary.
Another helpful feature of Google Trends is analyzing real-time customer sentiments on a particular product or product category. With the current trends feature, you can know what people are talking about.
This is readily accessible from the homepage of Google Trends. Opening the left menu allows you to explore the Trending Searches functionality.
This can be set to a daily span so you can know what your prospective buyers are conversing on.
The daily news can help you adapt your product choice or overall dropshipping strategy. Doing this for a handful of minutes in a day is not exerting, especially considering the possibility of landing on an epiphany or insight that could get you crazily rich.
Having seen how you can pick generic dropshipping items, let us explore how you a niche dropshipping product.
How do you find a niche dropshipping product?
In dropshipping, rather than a scatter-gun approach of selling just anything that smells like a pot of gold…
“…you choose to build your brand around a particular niche product.”
This helps you accumulate market recognition and credibility within that specific niche.
A niche product appeals to a streamlined fraction of customers within a larger product category.
Indeed, securing supply chains for niche products is more challenging, given that these products are not produced in enormous quantities. This is because of their significantly selective nature.
Selling niche products help you shave off the bulk of the competition. Being that you are more niched, you are competing against a far reduced number of rivals.
Another advantage of selling niche dropshipping products is that it reduces the ambiguity – and, consequently, the cost – of your marketing.
If, for example, you were using Google Adwords or the more common marketing medium, Facebook ads, you will find it less challenging to rank your dropshipping on search engines for specific terms related to your niche product. Of course, you will agree that this favors your growth in the long run.
How do you find the befitting niche that is already booming or has high prospects of doing so in the nearest future?
You can still find the most profitable niches on Google Trends for a particular period, say 2020. You can utilize the compare feature.
But there is even more. When finding niche dropshipping products, there are two strategies I favor. These are using Amazon and eBay to find the niches with the most buoyant economic promise.
1. How to use Amazon to find niche dropshipping products
There is a reason why Amazon is the largest retailer in the world. To sprinkle in some statistics here, with Jeff Bezos and his crew pocketing a handsome sales revenue of $75.5 billion for the first quarter of 2020 alone.
With these numbers, it is apparent that Amazon sells just anything under the sun.
“Leveraging the diversity Amazon has, use it to find the most promising niche products to go for in your dropshipping business.”
It’s quite simple, really.
When you visit the Amazon website, you can start your search by clicking on the ‘All’ tab.
This is just on the left side of Amazon’s main search bar displayed on the homepage. Clicking on that tab will reveal a stretch of niches, otherwise known as categories.
Diving in further, you can click on any of the categories that resonate with you. You can also click randomly with no particular penchant. Hitting “Go”, Amazon consequently displays more subcategories under your chosen niche.
You can either pick one of the first generations of sub-niches or even dig further into the categories listed under each sub-niche.
Take note that the deeper you go into these subcategories, the more niched your products with correspondingly diminishing target audience.
There are a handful of metrics to determine the viability of the product niche on Amazon for which you could be dropshipping. First, I am always keen on the profit margin of that product niche.
The profit margin is the money you make at the end of the transaction. In dropshipping, this would be the net income, following the subtraction of all your expenditures.
This is after delivering the product to the customer and the customer approving of it.
“Personally, I would only go for products with a minimum profit margin of 15%.“
You should also be examining the dimensions of the product in relation to your supplier. Specifically, what could be the shipping costs?
Also, does the product has intense competition on Amazon? Yes, and the chances are high that the competition for dropshipping that niche product could be correspondingly high.
2. Using eBay to find niche dropshipping products
Yes, I have gushed so much about Amazon, but eBay is another platform to determine your niche product.
Take note that eBay’s prices don’t always reflect the current market prices as the prices on eBay can be ridiculously low in some instances.
One good strategy to use on eBay is exploring expensive products across several niches. I admit the “expensive” metric can be quite subjective. But generally, anything above $500 is deemed expensive on eBay.
Following on this parameter, you will alter the search results to display “completed listings” from Advanced Search. The colors matter a lot here.
A completed listing displayed in red connotes the product failed to sell. When the completed listing comes out in green, this implies it sold.
As you can infer, completed listings in red are a no-no. This could mean demand for them is too low or other factors making that niche unattractive for dropshipping. We will focus on the green completed listings.
“Niche your search up to products that sold at least 10 units daily.”
If you can get up to 20 products that meet the margin, picking one gives you significantly high chances of landing on a profitable niche product to dropship.
Let me stress here that while going with niche products give you specialization (and increased prospects of gaining market depth quicker), you have every freedom to branch into other niche product categories after establishing yourself in one.
Over time, after consolidating your position as a market leader for that specific niche product, you can start strategically expanding to cater to products related to what you are already offering your existing bunch of buyers.
So let us assume that your chosen niche dropshipping product is Nike Air Max sneakers. You can gradually expand into offering your buyers socks down the line.
3. Analyzing your competition
Clearly, there is a more comfortable option of stealing product ideas directly from your competitors. This could relieve you of the rigors of the previously espoused strategy.
If you already have a prospective product niche, no one will take you to jail for researching the websites of the leading dropshippers for that product and pick a clue or two from there.
“In this vein, there are there three main classes of competitors you have. These are the primary, secondary, and tertiary competitors.”
Your primary competitors are those dropshipping vendors targeting almost the same customer cluster you are gunning for. Your primary competitors are your direct competitors.
You should focus more on them in your competitor analysis as they would you more clues to model your dropshipping strategy (and product choice) after on the immediate.
For secondary competitors, their target market slightly varies from the segment they are targeting. For example, your secondary competitor may be selling the same product category but dealing on a different brand.
Similarly, your secondary competitors could be in the same product category as you, but either focusing on lower-end or higher-end products within that specific category.
Your tertiary competitors deal on products that are not directly aligned with yours for now.
But somewhere down the line (especially when you expand), you could be aiming at the same target market like them. Using the previous example of Nike Air Max, your tertiary competitors could be those selling socks.
Aside from just the products they list, a competitor analysis can give you valuable insights into your competitor’s pricing model, their supply chain, and even how they build their fanatic customer base.
Armed with these insights, you can enhance your competitive advantage to stay one step ahead of your rivals.
It is worth pointing out that competitor analysis shouldn’t take your whole day. Also, it does not have to be a one-off activity.
“From time to time, it is crucial to be sneaking in on your prospective competitors to analyze what changes they are making and analyzing why they are making such changes.”
This is regardless of if you already have a system that is already working remarkably for you.
Remember, the idea is to stay a step ahead of them always. One great way to stay abreast of developments with your competitor is setting Goggle Alerts for them.
These alerts can be tied to either specific industry terms (in your product category) or even directly to the names of your major competitors’ brands. This way, you will get email notification anytime new developments arise.
Sounds like too much work? Nah, making money is never too much work, my dear!
4. Search Social Shopping Sites for Products That Sell
So far, we have discussed leveraging Amazon, eBay, and even your competitor as resources to find profitable niche products to dropship.
“Social shopping sites are equally fantastic destinations to pick your choice niche product.”
These social shopping websites have ecommerce functionalities. Here the seller maximizes the influence – accrued from sharing metrics like buyer recommendation, commenting, liking, or referral – to ramp up sales.
Some of the most popular social shopping sites around include Wanelo, Pinterest, and Etsy.
You can extract clues from which products are making waves on these sites. What are buyers saying about them in terms of feedback and reviews?
5. Exploring online communities
“Online communities are also great for finding economically viable niche dropshipping products.”
This includes typical social media communities or online forums.
Yes, you guessed right; Facebook can be an excellent place to start from. You agree there are thousands of groups on Facebook into dropshipping and ecommerce in general.
This can be further segmented into Facebook communities by country or locality.
Across these online communities, products are regularly sold. In others, people could be discussing their problems.
It is now left you to brainstorm which need has the highest frequency of occurrence and the perfect product to dropship to assuage this need.
How to structure the pricing for your dropshipping business
Regularly, I get asked how to set prices in dropshipping. Yes, pricing, just like your choice of products, is critical to your dropshipping venture’s eventual success.
“As you would expect, your pricing greatly determines your product’s attractiveness and your competitive advantage over your rivals.”
Certainly, it is always a terrible idea to dropship your products at the lowest price in a bid to prop up your competitiveness.
It not only significantly slashes your margins (making you busier than being profitable), it will also come back to haunt your credibility.
Not every buyer is comfortable buying the lowest-priced products.
As I tell dropshippers, your price largely depends on the product you choose to dropship. The right tactic on how to set prices in dropshipping involves studying your product market and competitors.
Is your industry that which the margins are lower, but the higher volumes compensate for that? Or conversely, is it that industry where the margins are higher but volume is lower? Examples of the former is the electronics dropshipping market; the latter can be home décor products.
Aside from your type of industry, your manufacturer’s (or supplier’s) cost and shipping cost will affect the price you set for your products. This is particularly important for dropshippers shipping to international customers.
Some of this shipping can take up to 14 days or, in some cases, even longer. You will agree this is a long time to wait.
If your buyer has to put up with this lengthy interval, the price will have to be reasonable enough for that sacrifice when they are much quicker options, right?
To evade this, most dropshippers offer shipping at supposedly no cost to their buyers, only to sneak the shipping cost into the product price.
“If you can get products for which the supplier charges no shipping cost, you can be in for serious money as a dropshipper, as this would make your pricing far more attractive.”
Having laid this premise, let us look at some powerful pricing techniques to answer the question of how to set prices in dropshipping.
1. Tiered markup on cost
This dropshipping pricing strategy is more fitting when you dropship several product types, cutting across high-end to low-end products.
“The essence of this strategy is to ensure that your low-value goods are yet profitable to sell while your high-end goods are not deemed too expensive by your buyers.”
For expensive items (say those products of $500 and above based on supplier cost), you can set a markup of say 13%, while your lower-end products (for example, those selling for less than $10) can have a markup of 40%.
Admittedly, this markup margin is not definitive. Depending on what you are selling, you can decide to vary it. But the essence remains the same: spreading the attractiveness (in pricing) across board.
2. Fixed markup on cost (FMOC)
This is different from the dynamic pricing in the tiered dropshipping pricing strategy.
“For the FMOC mode, the dropshipper sets a predetermined price across board for all products, regardless of differing value.”
The FMOC works either as a percentage or a fixed dollar margin. How about we demonstrate it practically?
If you had the average price of your dropshipping products set at $20, you could go for an FMOC markup of 20%. Equivalently, you would be adding $2 for every price that your supplier bills you. Do you catch it?
3. Psychological pricing model
Apart from the markup model, other famous psychological pricing models are used in our everyday commercial world that still rightly apply as a dropshipping pricing strategy.
“The use of a close decimal price format is one potent mental trick that has been working on customers for ages.”
For example, instead of setting your price for a product at $20, you can set it at $19.99.
Impulsively, you may discard the difference as insignificant. After all, it is just a cent, right?
But in the average buyers’ perspective, $19.99 could be light-years far apart from $20. They could see $19.99 as more of $19, making it enormously cheaper and consequently more appealing for them to buy.
4. Discount dropshipping pricing strategy
In commerce, buyers are generally inclined to buy from the more generous seller.
“Buyers want to buy from the seller making the most concessions to them regarding the price.”
Therefore, most dropshippers keep their original prices higher and slash them down to current market prices in discounts or special coupons.
Now, when the regular buyer comes to your dropshipping website and sees these relatively significant slashes (supposedly generous) that you made, they impulsively feel they are getting a much better deal from you.
When setting these discounts, you must accurately analyze your customer persona. You should rightly tell what they value.
What are they looking for in your store? Do they want exclusive commodities or commonplace products? This will help you shape your discount or special coupon offers.
At the end of the day, your offers shouldn’t significantly eat into your profit margin. This is why it is wiser first to state higher prices and slash them down with the offers.
Marketing strategies for your dropshipping store
Marketing is a core part of dropshipping, just like any business. You need to create awareness about your dropshipping business. Such publicity doesn’t have to be exorbitantly costly, nor must it need seasoned marketing expertise.
“It is about having the right dropshipping marketing strategy that balances efficiency with affordability, giving you befitting publicity where it truly matters.”
This involves finding the right platforms or marketing channels to invest in.
At the end of the day, you want to pull the right traction to your dropshipping store. But traffic will not just do.
Of what benefit will be it attracting Celtics fans to your dropshipping store focused on Lakers accessories? They’re not gonna buy anything!
Your choice of marketing channel should be predominantly determined by the specific demography of your target market. Also, what niche dropshipping products (if the case may be) are you selling?
1. Maximize social media marketing for your dropshipping business
Agreed, ask the average about dropshipping about his best dropshipping marketing strategy, and he would go screaming social media marketing. Statistics show that over 3.8 billion people are on social media today.
Agreed, social media can be remarkable if well harnessed. But it is just more than splattering your products about your Instagram and Facebook pages.
It is important to have a bespoke social media dropshipping strategy that is extensively tailored to your target audience and your choice of products to sell. To create the perfect social media strategy for your dropshipping business, I always recommend that you set your goals from your start.
What specifically are you aiming to reap from social media marketing? Do you just want to shape your social media dropshipping strategy to expand your reach and ultimately accrue more sales?
Do you want to grow your mailing list for your dropshipping brand, essentially? Or do you want to use your social media as customer support for your dropshipping enterprise?
After precisely setting your objectives for your dropshipping social media marketing, it is now time to define your ideal customer accurately. Here, you should be establishing your buyer persona.
Here, important demographic data like age, marital status, income category, education, interests, and hobbies will come into play.
Great, now that you have these details, what social media platform will be best for your audience? Of course, there are tens of social media platforms from the well-known likes of Facebook and Twitter to the lesser-known likes of Douban and Exploroo.
Undoubtedly, Facebook is one of the choicest social media platforms for marketers, given its overwhelming user base. You can also leverage Facebook ads – as we have earlier advocated – stimulating your reach and conversion.
Instagram is a great platform for its visual power, perfect for parading your dropshipping products. More than that, Pinterest is famously one of the most shopping-optimized social media platforms.
The type of content should be optimized to the platform you are using. They should follow the right post format in terms of length (say for Twitter) and the right shape and size in the case of image posts.
Also, don’t just focus on promotional content screaming about your dropshipping products in your dropshipping social media marketing. You should also strategically juice up your posts with giveaways, contests, polls, and quizzes to increase your engagement.
2. Leverage user-generated content
As a dropshipping business – same as any digitally based venture – you terribly need to build trust and credibility. One reliable and accelerated way to build this is via user-generated content. This is a perfect tactic on how to market your dropshipping business.
By user-generated content, I am specifically referring to content produced by your customers. This can be testimonials by your buyers, reviews, or ratings.
Seeing a stamp of approval from previous buyers – say in the form of positive testimonials – will significantly ease the initial skepticism buyers have about your legitimacy.
Given the swarms of fraudulent players we have congesting today’s ecommerce space, positive user-generated content help the prospective buyer to mirror the quality of service they could get from you. This can enormously influence their buying decision.
3. Don’t underrate social videos
The power of video can be overwhelming. Remember the popular adage seeing is believing? Statistics show that 72% of customers prefer learning about a service or product via video format.
It applies to your prospective buyers as well. Social videos add more realism and tangibility to your dropshipping marketing strategy – pumping up engagement.
Leverage video content to promote your dropshipping business. You must not produce multimillion Hollywood-grade videos to promote your dropshipping business.
No, just a simple video (even filmed with your phone) on your nightgown can get the job done if it integrates the relevant concepts. Who knows? Your short video might just go crazily viral, creating massive awareness for your dropshipping business.
4. Maximize retargeting
You will agree with me that not all of us get our spouses to enter relationships with us on the first time of asking. Some of us had to ask and ask…The same persistence applies to marketing your dropshipping business.
This time, this involves a dropshipping marketing strategy called retargeting. Statistics show that 98% of people that visit your dropshipping store will not buy for the first time.
But you don’t have to waste that costly traffic – given how costly traffic is nowadays in the face of the millions of websites strewn on the internet. With retargeting, you can further customize your marketing to advertise to people who visited your website but left without taking action.
This can just be visitors who just landed on your website and exited within seconds or those that almost bought (even loading their shopping cart) before exiting your website.
Now, these retargeting ads are more compelling because this class of prospective buyers has already previously interacted with your dropshipping store before.
This way, they are more likely to click on the ad, visiting your dropshipping website again, and possibly get converted in terms of them buying or taking any other desired customer action.
In fact, statistics show that with the right retargeted ads, you can shoot up conversion rates by almost 150%. If you are using Facebook ads for retargeting your website visitors, from a statistical examination, you will get the best results showing your retargeting ads to such website visitors within 15-30 days after they visited your website.
This is the perfect interval because there is a higher possibility of the event that triggered their previous objection (to not taking action on your dropshipping website) having changed.
Also, within this span, the visitor shouldn’t have entirely forgotten about ever visiting your dropshipping. This is because you need this acquaintance to make your retargeted ads resonate with them enough to click on them. This makes retargeting a good hit on how to market your dropshipping business.
Why should you invest in a good dropshipping website?
Given that many see dropshipping as a low-investment venture, they often think anything paltry can be managed. It is not uncommon to see dropshippers being reluctant to invest significant dollars in building a dropshipping website.
The quality of your website is highly suggestive of the legitimacy of your dropshipping website. Statistics show that 48% of people will measure how credible your business is from your website design.
What more, a website is the foundation of your dropshipping market if you are serious about thriving in this space. This will the base to which the traffic you derive from all your marketing efforts are directed to.
You can only imagine the horror of your prospective buyer when they land on your store and see a poorly designed website, not only slowly loading but also starved of crucial features.
This makes having a top-grade dropshipping website a priority. The best dropshipping websites are not only highly functional, they are also remarkably user friendly.
Your branding is a critical element when building a dropshipping website. The image and text must be properly aligned in your store. The features that make shopping a seamless experience for your visitors must not be lacking.
But you don’t need to wrack your brains when building dropshipping; you can quickly borrow a handful of clues from the best dropshipping websites in your niche. This should give you some insights on how they craft their copy, choice of apps, and store design.
Regardless, there are crucial components that shouldn’t be missing when building a dropshipping website. Care to know about some?
1. Ease of navigation
First, the best dropshipping websites boast ease of navigation. Prospective buyers should be able to find their way around your website readily.
For such enhanced navigation functionality, your dropshipping website should be outfitted with a main navigation bar, search bar, and also product category to better organize your product listing.
2. The checkout process
Another critical feature to consider when building a dropshipping website is the checkout process. You want it to be as easy as possible, as the most minimal discomfort can get the buyer canceling the transaction.
To make the process stress-free, your checkout process needs to be enhanced with functionalities like straightforward form-filling, guest checkout, different payment options, and persistent shopping cart.
3. The product image
One crucial aspect of your design when building a dropshipping website is the product image. Fundamentally, you need high quality for these images as a product image of low resolution will deter potential buyers from clicking on it.
Also, many dropshippers make the mistake of having just one image product. This will cost you many sales. Buyers prefer to have an extensive viewing of the product.
Indeed, this translates to having multiple images for each product. Statistically, at least 3 in every 10 consumers prefer seeing several pictures of a product before buying.
It is also a brilliant idea to furnish your listings with a 360-degree if you can. This should emphasize demonstrably the key features of that product so as to prop up its appeal to your buyer.
This visualization will significantly amplify the attraction and relevance of the product. For example, if you are selling lifestyle products, say a shoe, such a 360-degree shot will enable the buyer to better put himself in the place of the shoe’s owner, consequently springing a sentimental attachment to that product. This will increase the chances of such prospects buying.
Lastly, on images, the pictures for your products should have the zoom option. It is unwise to miss this as people generally like to view a product in detail before buying. This same attitude applies to that buyer in a physical retail store inspecting and feeling a product before buying.
Buyers want to see the finer details before they make their purchase decision. Considering the need for this zoom functionality, your product image once again must be of very high resolution. This is to prevent them from blurring when a prospective buyer zooms in and out.
4. Email pop-ups
One last functionality you may consider adding when building a dropshipping website is an email pop-up. These pop-ups are very effective in converting normal website visitors to loyal subscribers.
The truth is that contemporary internet users don’t last long on a website. Commonly, 55% of visitors tend to exit a website within 15 seconds. This may not be enough to get them to buy from you.
More than retargeting them via ads, you can get them within the first few seconds they spend on your website to give you their email addresses. This way, you have a better hold on them and can gradually pass them through your sales funnel to conversion.
If you a beautiful offer, website visitors wouldn’t be too reluctant to input their email addresses into your pop-ups. What more, if your website design is amazing, it should ramp up your credibility in the visitor’s perspective, making them even more willing to part with their email address.
The question is, what would you offer them to incentivize such website visitors to join your mailing list? This is flexible as there is a broad spectrum of possibilities. This can range from something as simple as a free PDF to irresistible coupons and discounts.
Best tips to run your dropshipping company
Having emphatically examined several aspects of dropshipping, in this section, we will explore winning insights on managing a dropshipping company.
I will not deny that dropshipping can be frustrating at times. But I can confidently tell you that it only gets frustrating when you do it the wrong way.
One massive advance that many newbie dropshippers thank me for is to keep it simple at the start. Don’t try to complicate things as you set off your dropshipping business. The central idea is not necessarily to be perfect. Being reasonable can be enough for a start.
This is why it is best to start with solutions that are relatively easier to implement instead of those intimidatingly ambitious solutions. With this crucial preface established, let me take you through how to deal with some common scenarios that will be arising in your dropshipping venture.
1. How to deal with suppliers botching orders
Botched orders are typically part of the game when you run a dropshipping business. Even the most excellent of suppliers are not totally infallible.
They can make mistakes that could result in fulfillment errors. The most important thing is how you respond to such botched orders.
Many dropshippers make the fatal mistake of passing the guilt to their dropshippers for botched orders. Never do this. You must take responsibility for the malfunction.
Take note that your buyer is not supposed to know that you even use a dropshipper in the first place. Own up for the error and palliate your buyer with a promise of resolving this soonest.
It is not wise to put a definitive timeline (for the resolution of such error), considering that you are not entirely in charge of the process.
Palliating the buyer depends on the severity of the error. You may choose to offer the buyer an upgrade or even refund the shipping fee.
In most cases, the supplier will take charge of fixing the error. I will admit here that not all do so, but the most reputable suppliers, with a reputation to protect, tend to take responsibility for such errors if it is established that it is an erring on their part.
This may extend into the supplier covering the expenses of shipping the returned products to the buyer. Nonetheless, it is uncommon for your supplier to pay for upgrades or any other generous offers you want to give the buyer for appeasement.
While I have said that even the most excellent suppliers are not infallible, you should be wary if you notice an increased frequency of botched orders from a specific supplier.
In this scenario where a particular supplier is frequently getting the fulfillment wrong, it is wise to change to a new supplier else you risk tarnishing the reputation of your hard-earned dropshipping brand.
Remember, you don’t want to regularly apologize to your customers. It will make you appear like a quack. Inevitably, this means the termination of their relationship with you.
2. How to manage inventory when using multiple suppliers
For most dropshippers – new and seasoned – managing inventory from several suppliers is a headache.
If you don’t get your inventory management right, you will constantly be telling your buyers that you have run out of the stock to fulfill their orders. Again, this is a reputation killer.
Automation can play a critical role in inventory management. With the right automated tools, you can sync your inventory better, with suppliers giving your data feeds in real-time. This way, you can get alerts when a specific supplier’s stock for certain products is out of stock.
Armed with such information, you can either pull down that product listing on your dropshipping website or slapped an out-of-stock tag on it. This will be pending when that supplier restocks or you get a different supplier.
It is wise to use various suppliers as relying on a single supplier can be unreliable and risky for your order fulfillment ratio. Your best bet would be to go for different suppliers whose inventory overlap.
In this manner, each supplier compensates for the deficit of another. When supplier X’s inventory is out of stock for product A, supplier Y’s inventory could still have such products. This makes you far more reliable for your buyers.
Time to build and grow your dropshipping business!
There you are! We have extensively studied all you should know to run a profitable dropshipping business successfully. We have rigorously explored different critical facets of this business, from choosing the befitting product to your marketing to your website optimization.
I am confident that if you diligently apply the tactics and directives espoused in this ultimate dropshipping guide, you are poised for a lucrative dropshipping business you will be proud to call yours.