How to Start a Dropshipping Business in 9 Steps

The dropshipping industry is massive, with a market size valued at more than $225 billion and continuing to grow rapidly each year. Allied Market Research estimates that the dropshipping market is projected to reach $1.67 trillion by 2031.

While a dropshipping business can be profitable, a clear understanding of the common challenges associated with this business type makes for healthier decision-making.

In this comprehensive guide, we’ll walk you through every step of starting this type of business, from choosing a niche to locating quality suppliers.

What is dropshipping?

Simply put, dropshipping allows you to sell products online without needing to keep inventory, as the supplier ships the items directly to your customers.

A dropshipping store typically functions like this:

1. Launch an online store on your chosen platform.

2. List products from a supplier within your niche.

3. Set the retail price for these products.

4. When customers place an order, they go through the standard checkout process, but order details are sent to your dropshipping supplier.

5. The supplier ships the product directly to your customer, handling all of the logistics, including packing and shipping.

6. Your customer receives the product. Typically, the invoice or receipt inside the package will feature your custom dropshipping business branding information.

7. If there are shipping delays, returns, or other issues, you’ll need to troubleshoot these for your customers.

Lower startup costs make dropshipping accessible to people just starting their entrepreneurial journey. You don’t need to invest heavily in inventory, making it an attractive option for those looking to enter the e-Commerce space with minimal risk.

What to know before getting into dropshipping

Dropshipping as a business offers a low-risk way to dive into the world of e-Commerce without the hassle of managing inventory.

Here are some key things to know before you invest your time and money in a dropshipping business:

Profit margins are lower than traditional retailers

According to Spark Shipping, profit margins for a dropshipping store typically range from 10% to 30%. While this is lower than traditional retail margins, a dropshipping business comes with significantly lower overhead costs.

Because many other retailers are likely to sell the same products, competition over pricing can be intense. To stand out, you’ll need to offer exceptional customer service, unique branding, or additional value that justifies higher prices. You can also make up the difference by selling at a higher volume.

Potential supplier issues

Supplier issues can be a significant challenge for dropshipping companies. Delayed shipping, low-quality products, and poor communication can all negatively impact customer satisfaction and brand reputation. However, by thoroughly vetting your suppliers before you launch and by working with multiple suppliers, you can take control of these risks and be better prepared to handle any issues that may arise.

Take Wayfair as an example. The company operates on a dropshipping business model and mitigates supplier issues by maintaining a network of more than 10,000 suppliers. This ensures it always has a backup if one fails.

Little insight into inventory

Since you don’t control inventory, keeping track of stock levels is another challenge. If a product goes out of stock or is discontinued without notice, it will impact your company’s reputation. Though challenging, you can mitigate these issues with automated tools to sync your inventory with your suppliers’ stock levels.

One tool is Inventory Source. It offers automatic inventory updates and order routing, helping you keep your stock levels accurate. Syncee is another worthwhile tool that provides real-time product data updates.

Shipping takes longer

Long shipping times, especially from overseas suppliers, lead to customer dissatisfaction. People expect quick delivery, similar to services provided by large companies, like Amazon’s dropshipping business. So, if your shipping is slower, that can be to your detriment. However, if you set clear expectations about delivery times, you can help manage customer expectations.

You can see this in action on Etsy, where many sellers dropship products internationally. Individual sellers overcome obstacles caused by delayed shipping by clearly stating the estimated delivery times on their product pages and providing regular updates.This maintains high customer satisfaction.

Customer service is your responsibility

Despite not handling products directly, you are the primary point of contact for your customers. So, if any issues with orders arise, like missing items or returns, you’ll need to address them. Ensuring excellent customer service will be your responsibility.

A tool like Zendesk can be invaluable for managing customer service effectively. It offers a comprehensive customer service platform, with features like ticketing, live chat, and a knowledge base.

Legal and tax considerations

Before you begin any ecommerce business, it’s important to have a clear understanding of the legal and tax implications that go with it. These implications include obtaining the necessary business licenses, understanding sales tax obligations, and complying with consumer protection laws. Consulting with a legal professional can help you navigate these complexities.

Glossier is an example of a company that includes this in its dropshipping business plan. The company worked with legal professionals to navigate the complex beauty industry regulations and tax requirements. It even published its own supply chain code of conduct to make its standards clear.

High competition

The low barrier to entry in dropshipping means that competition is fierce. To succeed, you need to find ways to make your online business stand out. This could involve selecting an unsaturated niche, using more creative marketing, or sourcing unique products.

MVMT Watches is a great example of this. The company differentiated itself with a minimalist design and targeted social media marketing campaigns. This allowed it to stand out in a saturated market, where it still had a leg up on the competition.

How to start a dropshipping business: step-by-step guide

Starting a dropshipping business involves several essential steps beyond setting up an online store. Success in dropshipping requires thorough research upfront. Here’s a step-by-step guide to build and grow your own.

Step 1: Solidify your business finances

Before launching your dropshipping business, establish a solid financial foundation. This will help you manage startup costs, track expenses, and set realistic profit goals.

Assess your startup costs first. Research and list all potential expenses, such as website hosting, domain name, ecommerce platform fees, and marketing costs. Factor in costs for product research tools, email marketing software, and any necessary business licenses. These can cost anywhere from $50 to $400 to start.

Open a dedicated business bank account to keep your dropshipping finances separate from personal funds. Then, choose an accounting software, like QuickBooks, to track income, expenses, and profits for each product.

💡 Tip: Don’t forget to plan for taxes. Set aside a percentage of your revenue for quarterly estimated tax payments.

Step 2: Define your niche and audience

The next task is identifying what products you’ll sell and who your intended audience is.

Begin by looking for a niche you are personally interested in, that has market demand, and that isn’t overly saturated. Do you enjoy cooking? Maybe you like a specific rock band? Or are you enthusiastic about innovative baby products?

Make a list of all your interests and ideas. Then, use tools like Google Trends and Google Keyword Planner to identify market demand for each niche. This will help you determine whether a sufficient audience is interested in the products you plan to sell.

If there’s high demand among your top picks, use a tool like Meta Audience Insights to gather insights and information about the potential customers for your products.

Here’s how you can make use of each tool:

• Google Trends: This tool helps you see the popularity of search terms over time. It provides insights into whether a niche is growing or declining, as well as seasonal trends that might affect demand.

Here, you can see we did a search for “phone cases.” This niche remains stable, with decent interest over the past three months. So it would go on our list of potential niches to pursue for dropshipping businesses.

• Google Keyword Planner: This is a valuable tool for understanding search term popularity. It allows you to explore keyword data related to search volume, competition, and trends. By analyzing this information, you can make informed decisions about which keywords to target in your campaigns.

Looking at “phone cases,” in this example, we can see the average search volume for different related search terms and how competitive it is to rank for each.

• Meta Audience Insights: This tool aggregates data from Facebook, Instagram, and WhatsApp, providing detailed demographics, interests, and behaviors of your potential customers.

Step 3: Analyze your competition

Once you have a list of dropshipping business ideas, you’ll need to analyze your competition. Doing this helps you identify what works and where there are gaps in market coverage your business can fill. You can conduct an analysis in many ways, including:

• Using monitoring tools. Tools like Dropship and Koala Inspector allow you to “spy” on competitors’ sales and marketing strategies. You can see which products sell well and which ads perform best.

• Checking out marketplaces.

  Look at the bestselling ranks of successful dropshipping businesses like Amazon and AliExpress to see what products are popular. High sales volumes can indicate strong demand. It also means there’s high competition, but it could be worth it if you can take a unique angle—like offering better quality.

• Analyzing social media ads. Use tools like Minea to track successful Facebook and Instagram ads. Look for high-engagement ads (likes, shares, comments) to understand which products resonate with consumers.

Of course, this is a lot to handle on your own, so working with freelance talent on Fiverr can help you breeze through starting a dropshipping business and get to launch faster.

Step 4. Evaluate product viability

Not all products that are in demand will be profitable. So, once you’ve got a list of niches and potential products to sell, you’ll need to conduct further research to determine profitability.

Consider the following:

• Profit margins. Calculate potential profit by subtracting the cost of goods sold (including shipping and fees) from your selling price. Ensure the margins are sufficient to cover your marketing and operational expenses while still leaving room for profit.

• Product characteristics. When you first start a dropshipping business, it’s a good idea to favor products that are lightweight, have low shipping costs, and are not easily found in brick-and-mortar stores. It reduces overhead and keeps your profits sustainable.

• Customer reviews and feedback. Look at customer reviews for trending products to gauge quality and common issues. It will help you avoid those with frequent complaints and ensure they will have the best chance of performing well.

Step 5: Find reliable dropshipping suppliers

With your niche and product type sorted, your next task is to find reliable suppliers. It is one of the most important parts of starting a dropshipping business. After all, the suppliers you pick directly impact your customer satisfaction, delivery times, and overall business reputation.

You can avoid some of the hassles by sticking with well-established dropshipping platforms. Here are a few popular options:

AliExpress

AliExpress is a well-known international supplier directory with an impressive range of products. It’s known for its competitive pricing and ability to ship to more than 220 countries.

SaleHoo

SaleHoo offers an extensive directory with over 8,000 suppliers and more than 2.5 million products. It verifies each supplier, too, which helps take some of the risk out of the process of starting a dropshipping business for you.

Spocket

This platform focuses on US and European suppliers, so if that’s your target market, this can be a good option. Spocket is also known for its high-quality products and strong supplier vetting process.

Printify

Ideal for print-on-demand products, Printify partners with multiple print shops worldwide, allowing you to choose suppliers closer to your customer base. It also integrates directly with platforms like Shopify, Etsy, and WooCommerce for added convenience.

Once you find good suppliers on these platforms, you’ll want to vet them yourself. Here’s a simple process to follow:

1. Conduct a web search and look for customer reviews and ratings on these platforms. What are real people who’ve actually dealt with this supplier already (either as a business owner or as a customer) saying about it?

2. Look for a supplier with a broad product range. If you’re aiming to sell a single high-value item, this won’t apply to you. But if you plan on selling smaller items, choosing a supplier that offers a lot of items can help you diversify your product selection later on without having to partner with tons of suppliers.

3. Prioritize suppliers that offer white labeling services for dropshipping businesses. This means you can apply your own branding to whatever products you choose to sell, which can go a long way toward solidifying your brand presence.

4. Place sample orders from potential suppliers to evaluate the product quality. Does it live up to the product description? Does it feel high-quality in your hands? Is the packaging suitable? What was the delivery time like? This firsthand experience will help you understand what your customers will receive.

5. Ask detailed questions about the business operations of any supplier you’re considering. If you can’t find answers to these questions on the supplier’s website or in its FAQs, contact them directly.

Here’s a quick list of what to ask:

• How long have you been supplying dropshipping businesses?

• What products do you specialize in?

• What are your average processing and delivery times?

• How do you handle returns and refunds?

• Do you provide tracking information?

Though it’s tempting to select a single supplier and move on, diversifying has its benefits. Relying on multiple suppliers can protect your business from disruptions and ensure a steady product supply. It also allows you to compare different suppliers’ performance and pricing over time.

Entering into a formal agreement can set clear expectations and protect your business interests. Key points to include in a supplier agreement, if applicable, are:

• Delivery time expectations

• Packaging and branding requirements

• Return and refund policies

• Procedures for handling out-of-stock items.

If you go with an e-Commerce dropshipping business platform, it will likely have an agreement already established, and there will be less flexibility. However, if you work with a smaller supplier, drafting a clear agreement will help protect both parties.

Step 6: Build an online store

Building a professional and user-friendly online store is how you’ll offer your products to the world. It will also serve as the face of your business and the primary platform where customers will interact with your products, so how your site looks and functions matter a great deal.

We’ve broken down some of the steps you need to take to launch an effective e-Commerce store:

Choose a domain name and hosting plan

The domain name you choose for your online dropshipping business will often set the customer’s first impression of you. It should be simple, memorable, and relevant to your niche. The Shopify business name generator or the Wix business name generator are solid resources to use for brainstorming ideas and ensuring the domain name is available.

Opting for a .com domain is usually best, as it’s the most recognized and trusted by consumers. But you could get away with a .store TDLR.

You’ll also need a web host for your new website. This is where your e-Commerce dropshipping business will live online. Popular providers include Bluehost and Hostinger. Look for a plan with good reviews, affordable pricing, and easy scaling as your store grows.

🧠 Learn: 10 Best Ecommerce Hosting Services

Select an e-Commerce platform

Another important aspect of site setup is choosing the right e-Commerce platform. Shopify is a popular choice for dropshippers, due to its ease of use, extensive features, and seamless integration with dropshipping apps.

However, WordPress with WooCommerce installed is a popular choice among successful dropshipping businesses, and many plug-ins are available that integrate with dropshipping platforms just as quickly.

🎯 Get expert help: Find Dropshipping Website Development Services for Hire Online

Design your Store

Once you have your hosting in place and your e-Commerce platform installed, it’s time to design the look of your store. You’ll first want to select a theme that matches your brand’s aesthetic. Shopify offers both free and premium themes that are mobile-responsive and customizable. Sense is a top free option:

Source: Sense Theme

If you opt for WooCommerce, you have access to the whole WordPress theme directory. Popular theme options include the default WooCommerce theme, Storefront, Astra, and Neve.

No matter which theme you choose, you’ll need to consistently incorporate your brand’s color scheme, logo, and fonts across your online dropshipping business. High-quality images and a clean layout are also essential. Finding a graphic design expert is a good idea for this step.

🎯 Get expert help: Find Ecommerce Website Design Services for Hire Online

Install and connect dropshipping apps or plug-ins

Dropshipping apps and plug-ins make managing inventory, importing products, and processing customer orders easier.

A few popular options include:

• DSers: Connects your store with AliExpress and offers features like Supplier Optimizer to compare suppliers and keep stock levels stable.

• Spocket: Focuses on suppliers from the US and Europe. It helps you locate suppliers and manage inventory in real-time.

• Modalyst: Provides access to luxury and high-end brands with fast shipping options.

• Auto DS: Saves time by sourcing and importing products, monitoring prices and inventory, and automatically processing orders across multiple marketplaces and ecommerce platforms.

• Printify for WooCommerce: If you’re going the print-on-demand route, this plug-in works with WordPress, making adding products to your e-Commerce dropshipping business store easy.

Install your chosen app and connect it to your store to start importing products.

Add products and optimize product pages

When adding products to your store, ensure each product page is optimized to attract and convert visitors. This means writing unique descriptions for each product you add and ensuring they’re optimized for SEO. Most dropshipped products come with a pre-written description, but it’s best to replace that with unique content.

You should also include high-resolution images that showcase the product from multiple angles. Ensure the images load quickly to avoid slowing down your online dropshipping business site, too.

Set up payment options

Offering a variety of payment methods is just good business. e-Commerce platforms typically integrate with all the popular payment gateways, such as PayPal, Stripe, and credit cards by default, but you’ll need to select which you’d like to accept.

Configure shipping settings

Clear and transparent shipping policies are also essential for dropshipping businesses. Offering free shipping, if possible, makes your products more attractive to potential customers. You can incorporate shipping costs into product prices or set flat rates.

Launch your store

Once your store is set up, review all settings, ensure all links work, and conduct test purchases to check the entire process. When you’re confident everything is in place, launch your store. Then, all that’s left to do is promote it and wait for the orders to start rolling in.

Step 7: Register your business

Before you start accepting orders, you’ll need to register your business. This establishes your company’s legal structure, protects your personal assets, and ensures compliance with local, state, and federal laws.

First, choose your business structure. There are three common types:

• Sole proprietorship: Simplest structure, but offers no personal liability protection.

• Limited liability company (LLC): Provides personal asset protection and tax flexibility.

• Corporation: Offers the strongest protection, but involves a ton of complex paperwork and regulations.

💡 Note: It’s best to consult with a tax or legal adviser when registering your business. You can also use an online service like ZenBusiness to complete registration.

Next, you’ll need to:

• Obtain an employer identification number (EIN) through the IRS website.

• Obtain any necessary licenses and permits. These may include general business licenses, home occupation permits, or professional licenses.

• Comply with ongoing requirements like filing annual reports and paying associated fees.

Step 8: Market your store

Once your dropshipping store is up and running, it’s time to market it and attract customers.

Go deeper into understanding your target audience. What are their interests and pain points? Knowing this will help you craft messages that work.

Then, choose your digital marketing channels. Here are the most common ones:

• Search engine optimization (SEO): Optimize your website and content so you rank higher in search results. This organic approach attracts potential customers who are actively looking for products like yours.

• Social media marketing: Create compelling content that showcases your products and brand personality on platforms like Instagram, Facebook, and TikTok.

• Email marketing: Keep in touch with subscribers and nurture leads with regular newsletters and promotions. An email marketing strategy will keep your relationships strong and help you sell more.

• Influencer partnerships: Make sure your brand and products are endorsed by niche influencers to reach a wider, more relevant audience.

• Pay-per-click (PPC) advertising: Run targeted ads on search engines and social media platforms to reach potential customers quickly and measure your return on investment. Google Search and Facebook ads are two great places to start.

• Content marketing: Create valuable, informative content related to your niche to establish your expertise and attract organic traffic to your site.

• Customer reviews and user-generated content: Encourage customers to leave reviews and share their experiences. Positive feedback builds trust with potential buyers and improves your online reputation.

🧠 Learn: Best Small Business Marketing Ideas for 2024

Step 9: Manage customer service

Once your dropshipping business is up and running, your biggest task will be maintaining excellent customer service. Your reputation depends on how efficiently you handle orders and address customer issues.

You can set yourself up for success by doing the following:

• Offer multichannel support. It’s always a good idea to provide multiple communication channels for your customers. Email is a given, but adding live chat, social media messaging, and phone support can make all the difference for your customer’s experience.

• Use chatbots. Live chat is always good, but integrating a chatbot into your site means customers receive instant support around the clock, making yours the best dropshipping business people prefer. Chatbots can handle common questions, direct customers to your FAQ section, or provide order details. This integration frees up your human customer support staff to deal with more complex issues.

• Provide FAQs. Set up a comprehensive FAQ section on your website to address common customer questions. It can reduce the number of support requests you receive and help customers solve their own problems.

• Be proactive with communication. Keep customers informed about their order status, especially if there are delays. Proactive communication helps manage customer expectations and reduce frustration.

• Create a clear return policy. Clearly outline your return and refund policies on your online dropshipping business website. Include details on how to return items, time frames for returns, and any conditions that must be met.

• Make returns as painless as possible. Provide prepaid return labels and clear instructions to simplify the process. A hassle-free return process can enhance customer satisfaction and loyalty.

• Be speedy about refunds. Process refunds promptly once returned items are received and inspected. Quick refunds demonstrate reliability and build trust with your customers.

📌 Remember: Your goal is to provide a positive shopping experience, and prioritizing customer support is crucial.

Tips for setting up a dropshipping store

Achieving success in dropshipping requires strategic planning and a willingness to adapt as you go along. Here are some actionable tips you can use to thrive in your dropshipping business:

Choose a profitable niche

We’ve covered this extensively already, but it bears repeating: The niche you select will weigh heavily on the success of your business. So, choose a niche that balances your interests with market demand. Identify niches with high search volumes and low competition. Find something that has a sufficient audience while allowing you to stand out.

Build a strong brand

As you start a dropshipping business, you’ll have to accept that other companies will sell products identical to yours. Branding is essential for differentiating your business from your competitors. Spending time developing a unique brand identity, including a memorable logo design, consistent color scheme, and compelling value proposition, can make all the difference in how your business is perceived.

Use quality suppliers only

Partnering with reliable suppliers can ensure you’re only selling high-quality products that arrive when promised. Do your due diligence to vet potential suppliers by checking reviews, ordering samples, and assessing their responsiveness.

Optimize your website

A well-designed, user-friendly website is crucial for converting visitors into customers of your dropshipping business. Ensure your site is mobile-friendly, loads quickly, and has clear navigation. Use high-quality images, detailed product descriptions, and streamlined checkout processes to improve the user experience.

Use automation

Automation can save you a ton of time on tasks like inventory management, order processing, and customer support. Tools like DSers, Spocket, and Zendrop can automate many tasks, allowing you to focus on growth and marketing.

Properly invest in marketing

Effective marketing will make all the difference in how your target market takes to your brand. A mix of marketing strategies, including SEO, content marketing, social media marketing, and email marketing campaigns, will go a long way to getting your e-Commerce dropshipping business products in front of the right people.

• Provide excellent customer service. Customer service can make or break your dropshipping business. Offer multiple communication channels, respond promptly to inquiries, and handle returns and refunds efficiently. You want a key part of your brand reputation to be how well you handle customer service.

• Regularly analyze and improve. It’s a good idea to assess business performance and customer feedback frequently. Use analytics tools to track key metrics like conversion rates, customer acquisition costs, and lifetime value. Then, use that information to improve your product offering, website, and customer service. Doing this will help you stay competitive over the long term.

Hire a freelancer to help start your dropshipping business

Launching a dropshipping store involves many steps and various tasks within each step. Conducting market research, selecting a niche, designing your store, and managing customer service all take time, energy, and money to complete.

Working with talent on Fiverr can streamline this process for you, allowing you to leverage expert skills across all these areas. Various professionals can assist with detailed market analysis, creating a professional and user-friendly online store, sourcing reliable suppliers, and developing effective marketing strategies.

Start a dropshipping business FAQ

How can a beginner start dropshipping?

A beginner can start dropshipping by choosing a niche, setting up an online store on a platform like Shopify or WooCommerce, finding reliable suppliers, importing new products into their store, and marketing those products effectively.

How much does it cost to start a dropshipping business?

Starting a dropshipping business typically costs between $200 and $1,000. This cost covers expenses like domain registration, web hosting, the cost of an e-Commerce platform, marketing, dropshipping apps or plug-in subscriptions, and the cost of hiring talent to assist.

How profitable is a dropshipping business?

Dropshipping can be profitable, with typical margins ranging from 10% to 30%. However, you must prioritize effective marketing and excellent customer service to stand out in a highly competitive market.

How do I find dropshipping suppliers?

You can find reliable suppliers by searching online for “niche name + dropshipping.” You can also use platforms like AliExpress and SaleHoo to find suppliers for products from all over the world. Just be sure to check reviews and order samples to test product quality before committing to a supplier.