How To Become A Dropshipper (Step-By-Step)

Written by Franklin Hatchett

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Our goal at EcomElites is to help readers get the information they need, we partner with companies to help bring you that information. If a purchase or signup is made through our partners, we receive compensation for the referral. Learn More

The rise of the new Coronavirus pandemic has made it essential to find alternative ways to make money. The best avenue for money-making in 2020 is definitely through an online business. It's easy to start, requires minimal funding, and you get to work from home as per WHO regulations. With the emergence of more online marketplaces such as Shopify and Amazon, online business has never been more straightforward.

The online marketplace has been around for a while, now making it highly competitive. However, there is always room for more people to set up shop and earn money, just like the veteran sellers.

Online dropshipping is one of the quickest ways to make money on an online marketplace. It may start as a side hustle or hobby, but it can quickly become your primary income source. In this article, you'll find the only steps that you'll ever need to get started in dropshipping

What Is Dropshipping?

Dropshipping is a supply method in which a retail seller doesn't hold any goods or services. Instead, he or she transfers orders and customer detail to wholesale manufacturers and sellers who then ship the item.

The following model can help you best understand dropshipping: Say you're a seller looking to buy your product from a wholesale trader, i.e., a manufacturer. You want to buy your product at a wholesale price so that you can sell it again at a retail price that gets your profit.

This is where dropshipping comes in: You find a supplier on a dropshipping company such as Shopify or eBay and find a product that they sell on wholesale. You then list this product in your online store. A customer comes along to your online store and buys the item from your store.

Once you receive an order, you go to the supplier's store and order it from them at a lower price and input the retail customer's address. The wholesale company will then ship it to your client on your behalf.

This method of business eliminates the need to buy and store any product saving you money. You also purchase products on an order basis, and thus you don't have any waste products sitting in your house. Essentially it is like any other retail business without the need to order in bulk or have a storage location.

Before You Start a Dropshipping Business:

Venturing into dropshipping is easier than starting an actual business. The following steps will help you start a business in less than a week:

Step 1: Find a Niche

A niche is a specialization. What exactly are you going to be selling? Your niche could be electronics, e.g., earphones, headphones, and mobile phones. You can even narrow it down and specialize in mobile phones only. You can still go further and say that you only sell Samsung phones. That's a niche. Always make it as specific as possible.

It's tempting to try and sell a variety of products in hopes of a broader market. However, for major manufacturers to work with you, you need to have a niche. Key industry players want undivided attention from customers. The retailer who promotes their product full time is the one they're most likely to work with.

Your niche should be a product that is not too common but also not too rare. Typical products are hard. Your product should also not be exceptional in that no one knows that it exists. Find something that has a moderate number of sellers but also has the potential for growth.

This ensures that as the product customers grow, your business also grows. Saturated niches don't have the potential for fast growth as there are just too many people selling products.

Here are some simple steps to help you discover a niche you're passionate about:

1. Choose Your Passion

It's easier to sell something that you're passionate about. This also ensures that you know how a product is used. Whenever a customer has a question about the product, you'll be able to help correctly. You can sell anything from pens to TV sets as long as you know about your product.

Venturing into something you're not passionate about will make it hard to sustain. It's also easy to give up on something that you don't like. Passion in a product helps you see its potential even when sales are low.

2. Look at Your Favorite Product

If you like using a product, then chances are, other people want it too. If you find that you're in constant need of a particular product that's hard to access, sell that product. It might be something as simple as a salt shaker or a mason jar. Everyday items are great business ventures that a lot of people rarely get into.

3. Find Something Profitable

Dropshipping is a venture that's supposed to make you money. Always choose a product that will give you a significant profit. A profit margin of less than 40% is not feasible to justify starting a business. Otherwise, the little profit that you make will go into fees and taxes, leaving you with less than 10%. Passion should always be the driving force in a business, but don't let it blind you. If your passion isn't profitable, then don't sell it.

4. Analyze the Marketplace

Know the sellers you're going up against. People who venture into dropshipping invest more in getting clients than they do when buying a product. If your niche has big brands, then it may not be worth it. If you still decide to venture into such a niche, then just get ready for competition and high investments.

If you do decide to venture into a competitive niche here are tips on how to go far :

How to Overtake Major Competitors

1. Know Your Competition

Find out who is at the top of the niche you want to venture into. Only look for significant players in big platforms such as Amazon and eBay. This will help you decide what platform to use and who is worth going against

2. Analyze Reviews

Reviews will tell you a lot about a seller's product and their customer service. Look for people who are complaining and learn about your competitors' mistakes. This helps you refine your product and customer service.

3. Look at Their Listings

Analyze how they have set up their platform. How are the products listed? How do they write product descriptions? What kind of product photos do they use? This will help you identify unique tactics that increase customer traffic.

So How Do You Know You've Chosen the Right Niche?

The right dropshipping niche is:

  • Small in Size. An excellent dropshipping product weighs about 2.5kgs or less. Customers are less likely to buy a big product online. This is because it costs more in terms of shipping and handling. People also people generally trust physical stores for such things
  • Not Dominated by Big Dropshipping Companies. There's just no space for small businesses when it comes to big brands. Particular dropshipping companies sell brands like Samsung and Apple. Customers are less likely to trust a new small business for such products
  • Cheap. Your product should be priced at a retail price of not more than $250 and not less than $15. Online shoppers are less likely to spend more than $250 as they're apprehensive about scams. A product that retains at less than $15 won't give you much profit. However, dropshipping rules are not cut and dry. If your product costs more than $250, assess other factors before you settle on it.

Try to have as many as 20 product ideas that you are passionate about. At Least 5 of these should be highly profitable.

Step 2: Get a Supplier

Finding a reliable supplier is probably the hardest part when you start dropshipping. A supplier determines whether or not your business stays afloat. They're the ones who have to keep time and also deliver a quality product. Otherwise, your customers will come after you and not the supplier.

You can easily find suppliers just by using google or looking through directories. Once you find a list of suppliers here's how to approach them:

Questions to Ask Potential Suppliers

How do you engage a dropshipper to get the best information out of them? Here are sample questions you can ask:

1. Do You Sell Directly to Customers?

Online marketplaces such as Alibaba allow for customers to buy from manufacturers directly. A supplier who also delivers directly to customers is not one you want to work with. This is because it increases competition and it's unlikely that customers will choose you.

It's much cheaper for buyers to access a product from the leading supplier compared to a dropshipper. Finding out if this is the case will help you determine whether or not to proceed with a supplier.

2. What Are Your Return Policies?

Find out how your supplier handles situations such as wrong item delivery or poor product quality. Will the return cost be on you, the customer or the supplier? It's better to settle on a supplier who covers return costs. It doesn't matter how much you trust the supplier's product; one or two people will always return it.

3. Are the Prices Constant?

Manufacturers always change prices based on demand and the cost of production. These price changes usually happen suddenly and unexpectedly. Significant changes can cause you to go out of business.

Know when changes are likely to occur for you to be financially ready. You may also come up with a contract that cushions you against sudden price changes. This is something that a lot of suppliers are willing to agree on as long as you are genuine.

4. Are Payments Negotiable, and What Are Your Payment Terms?

Find out what form of payment they use and settle on a safe method. Scammers may also masquerade as wholesale companies on sites such as Alibaba. Look for companies that accept payments through Escrow or PayPal.

Avoid making payments via Western Union. Escrow and PayPal have methods put in place to hold your money until your client has received a high-quality product. Wholesale prices are often negotiable, and so, always try to get the best deal.

5. Are There Any Hidden Costs?

In any business, it's always wise to ask for a summary of all costs you should expect from a supplier. This will help you budget appropriately and decide whether you'll work with a particular supplier.

Hidden costs may include shipping fees, restocking fees, return fees, or import duty. Some manufacturers deliberately keep hidden costs from dropshippers up to a point where it's hard to back out.

Now that you know what questions to ask, what should guide your choice of a supplier? A lousy supplier affects business, and mishaps on their part affect only you.

Here are some qualities to look out for in a supplier:

Qualities of a Good Dropshipping Supplier:

1. They Support Dropshipping

Never work with wholesale suppliers who don't support dropshipping. Some companies have policies that go against any form of dropshipping. If a company doesn't support dropshipping, then never go behind their back to try. Such companies may intentionally hold products and even hike prices to sabotage dropshippers.

Manufacturers that support dropshipping always find ways to help sell their products. This translates into more profits on your part. Such companies may even finance advertising to boost your customer traffic to boost overall sales.

2. Good Customer Service

Always find a company that has experience working with dropshippers. Venturing into dropshipping is a costly exercise for manufacturers. By venturing into dropshipping, you're essentially asking a supplier to help you grow. Thus you must be sure that they're ready to help you grow your business.

Note how good their customer service is. Are they always available to help? Rude and uninformed sales representatives can frustrate you and even ruin your reputation as a dropshipper.

 

3. Provides Timely Shipping

Customers always want their products as soon as possible. Check with your supplier and find out how long they take to ship items. Look into all major cities all over the world. Most buyers are willing to wait about two weeks before they become impatient.

The longer the shipping takes, the less likely a buyer will buy from you again. It is also unlikely that they'll refer you to other people

4. Have Quality Products

Before settling on a supplier, always ask for samples. This will help you compare different suppliers and decide on the best quality product. Samples are usually cheap, and some suppliers may even be willing to send free samples.

If you're dealing with custom made items, give a detailed description of the product. Treat each order as if you're the one in need of the product. This will help you avoid compromising on even the smallest mistake.

5. Affordable

Besides the wholesale price of the product, suppliers usually charge a small fee for handling the goods. This is primarily for doing all the heavy lifting for you. Usually, dropshipping suppliers charge about $3 per item.

In case a company costs over $5, then it's not worth it working with them. High fees translate into high retail prices, which wards off customers. This also reduces your profit margins.

Step 3: Secure a Sales Tax ID

Depending on where you are, sales Tax ID is also called: Vendor's license, retail license, seller's license, Tax ID, resale number, or resale certificate. A Tax ID is a mandatory requirement before starting a business in the United States and Canada. States in the United States that don't require a Tax ID include Oregon, Montana, New Hampshire, and Alaska Delaware.

Other countries also require a certificate of some sort to show that a business is legal and for tax purposes. Sales Tax is a fee paid by sellers after the sale of physical goods. It is usually about 9% of the retail price of a product and is part of the product price.

You can apply for a sales ID directly from your local clerk or online. To apply online, search ‘ [name of your state] Tax ID.' For example, ‘ Ohio Tax ID.'

Tax IDs are only issued to companies, businesses, and sole proprietors who have a Federal Tax ID number. Some sellers still manage to work without a tax ID. However, some suppliers require proof of a tax ID before they engage in business with you.

Step 4: Choose a Trading Platform

You know your product, and you know who you're getting it from. Now it's time to know where you're going to sell it. Choosing a good trading platform is just as important as choosing a good product.

It will dictate the type of customers you find and the number. A good trading platform places you right in the center of customer traffic for your business to flourish. You have two options when choosing what platform to sell on.

You can either set up an independent online store or choose a pre-existing platform. Whatever you decide to go with, here are the advantages and disadvantages of each:

Using a Pre-existing Online Marketplace

Most people choose to go this route when starting dropshipping. Here's why:

Pros

  • It's easy to use and takes less time to set up
  • The traffic to marketplaces is high
  • Customers are more likely to lookup an online platform they know
  • Profitable

Cons

  • Numerous fees
  • Competition is very stiff
  • You're not free to design your shop, i.e., branding and customer service

There are numerous marketplaces to choose from, depending on your preference. That being said, here's a brief description of some of the most common online platforms:

1. Amazon

Amazon is the most popular online platform in the world. The site receives traffic of over 1 million consumers per day and has over 250 million users. On average most sellers make well over $1000 per month, with some making as high as $250000.

2. Etsy

Etsy is a platform well known for its 86% of female users. It has over 50 million registered users and receives over 30 million users in the form of traffic. It is mainly known for art and craft related goods.

3. AliExpress

AliExpress is a platform made by an online company known as Alibaba. AliExpress is easily the most profitable dropshipping platform. This is because Alibaba set up AliExpress just for dropshipping. Now, AliExpress has over 25 million daily visitors and 60 million registered stores.

Starting an Independent Online Store

This is an option rarely chosen by dropshippers. Starting an online store requires initial capital for licensing and setup. However, it's the best option when you're looking at a long term business. Eventually, online marketplace fees become too high and unnecessary for most users

Pros

  • You can design and brand your website as you wish
  • No fees
  • Higher profits
  • No competition on your actual website

Cons

  • Expensive to set up
  • You have to invest in advertisements to get traffic to your site
  • It takes a while before you get noticed by buyers

Despite the disadvantages, creating your online store has been made easy. This is thanks to tools such as Shopify, which help you get started.

Shopify is a software that provides you with all the tools you need to create a website. It's so user friendly that users don't even have to be experienced IT experts to use it. Their tools also help you manage your stock and process orders and track orders.

So how do you move from an online platform to your Shopify website while still retaining your products? Oberlo is a tool that moves your dropshipped products from an online marketplace like AliExpress to Shopify. You can then ship them directly to your clients. Here is a step by step guide on how Oberlo can help you import your items.

How to Import Products from AliExpress to Your Shopify Store

  1. Login into Oberlo using Google chrome on a desktop or laptop
  2. Log into the AliExpress website and select a product category or search it up
  3. Select the country you want to target using the ‘Ship to' filter
  4. Open the Oberlo settings and select your preferred shipping method
  5. On the AliExpress website, choose the item you want and then move your cursor over it. The Oberlo icon will then appear
  6. Click on the icon to import it. This will import the product to your Oberlo import list
  7. To move it to your Shopify store, click on ‘Import to Store.'

Note:

  • You can't import products from the AliExpress homepage
  • ePacket is the preferred method as it's the most affordable option.

Step 5: Figure Out How to Engage and Attract Customers

You may have the most wanted product and the best platform, but no one will buy it until they see it. Attracting consumers to your online store puts you in the frontline for business. It's advisable to set aside a few funds for advertising, but there are still free marketing methods.

Here's a review on free and non- free marketing strategies:

Free Marketing

  • Marketing Through Blogs and Forums. This form of marketing positions you where your clients may be. Blogs and forums are great platforms to advertise your product by simply telling the members about it.
  • Email. Emails are a great way of reaching thousands of people at a go. Most applications use this method to advertise on sales and new features. You can capture email addresses through blogs and even on your website.
  • Social Media and Content Marketing. Having numerous social media platforms like Instagram and Twitter makes marketing cheaper. Content marketing is a customer acquisition method that involves indirectly attracting customers. This is most common on YouTube, where creators make videos and then advertise their content.

Paid Marketing

  • Facebook. Facebook ads direct clients to your store at a fee charged per customer. It's the largest social media platform in the world, making it a strong marketing tool.
  • Google. Google is a useful marketing tool, as it's the world's largest search engine. You can pay for google ads, which increase the chances that your store will be top of the search list.
  • Social media influencers. This is the most common method of paid online marketing in 2020. It's most effective if you're selling items that are popular among internet users. It usually involves things like clothes, hair, electronics, and travel destinations.

You first need to find a social media influencer with a large number of followers. The more followers an influencer has, the more pricey they are. A good influencer for your brand is someone who already uses your type of product. You then pay them to post about your product.

Conclusion

Statistics show that dropshipping has been adopted by up to 35% of online retailers. In 2011 alone, Amazon recorded $14.2 billion worth of products that had been dropshipped. Dropshipping is a fast-growing business model that shows even more potential for growth. It eliminates the need for business permits and expensive rent, as seen in the traditional retail marketplace. It also requires little investment in the initial stages.

What you spend on dropshipping just depends on how much you're willing to put out into your business. Find your product, know your supplier, and choosing your platform is all you need to succeed in dropshipping. Once you gather a positive attitude, work ethic, and determination to start a new business, you're good to go.

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