Dropshipping is still a relatively new business format, but it’s already predicted to be worth more than $475 billion by 2026. But what is dropshipping, how can you start a dropshipping business and what pitfalls do you need to be aware of when starting a dropshipping business
What is dropshipping?
Dropshipping is a form of retail business. The key difference from other retail businesses is that you do not buy, hold or ship your stock. Orders are fulfilled by third-party suppliers often via a dropshipping platform. Typically:
- You find a dropshipping supplier that can supply the goods you want to sell. You might deal directly with individual suppliers or with a range of suppliers via a dropshipping platform.
- You curate the items you want to sell into an online shop.
- Customers browse your online store, place orders and pay you for their items.
- The orders and the money (less your markup) are passed from your website to the supplier.
- The supplier packs and ships the order to the customer.
The customer has no idea you have not fulfilled the order as the whole process is automated.
All you need to do to start a dropshipping business is to choose a dropshipping platform and set up your online store or integrate the dropshipping platform into your existing website. Once you have done that, you simply select the items you want to sell from the dropshipping platform, add them to your site and start marketing your site.
What are the benefits of dropshipping?
There are many benefits to starting a dropshipping business - which goes some way to explaining why dropshipping has taken off as a business model.
- Low start-up costs – you do not need to invest upfront in buying products, investing in premises or hiring staff to manage the sales and distribution of goods. This means the entry costs are much lower than for traditional retail businesses.
- Inventory management – goods are created (in the case of custom goods) or stored by the supplier and are dispatched by the supplier as orders are received. This model eliminates your risk of being left stuck with stock that no one wants to buy.
- Range of products – you are free to choose goods from any of the suppliers giving you access to a much broader range of goods and suppliers.
- Flexibility – you can try new products without risk as you don’t pay for the goods you are selling until a customer places an order.
Can you start dropshipping business with no money?
In theory, it's possible to start a dropshipping business with next to no upfront costs if you're canny. To start, you’ll need to find suppliers who don’t expect payment in advance. This is most likely if you're in a niche where the goods are inexpensive in the first place.
Next, you'll need to find a way to market and sell the goods for free. You could use the free trials offered by some web-building software providers. Some offer a 14 or 30-day free trial that you can use to get off the ground. Or you could try selling online via social media.
You can also use free online tools to design and create your logo, branding and website. Some marketing can be done at very little cost. If you’re creative, you can use content, influencer marketing and social media to build awareness for your business.
In reality, you might find it difficult to gain traction without some marketing budget and many suppliers will want assurance that they will get paid.
Why do dropshipping businesses fail?
Although there are undoubted benefits to dropshipping, there are some potential drawbacks too. The ease with which you can start a dropshipping business means that there's lots of competition. This can drive down profits as businesses undercut each other to attract sales. Profit margins are generally lower than for normal retail businesses.
You need to pick the right products. If you’re selling the same products as many other dropshippers, you will struggle to stand out. Some products are also difficult to promote online due to the rules set by the various online platforms. This can make it difficult to reach potential customers.
You will need an attractive, well-optimised and easy-to-use website. It will need to offer customers secure but simple ways to pay. If you don’t look like a legitimate business and trustworthy, you will struggle to convince people to buy from you.
You might experience supplier issues. Stock management can be challenging - especially if your supplier also supplies many other dropshipping businesses. Stock levels can drop suddenly if several rivals start listing the same products at the same time.
Many products come from overseas meaning there can be long lead times. Where possible, you should try to work with suppliers in the US and EU where shipping is likely to be quicker and more reliable.
Shipping and returns can also be more difficult to manage – especially if you’re dealing with both domestic and overseas suppliers. Customers will expect different goods in the same order to be delivered at the same time or within a similar timescale. If goods are coming from several different suppliers, shipping costs can be difficult to calculate, orders may be made in several separate deliveries and returns can be much more difficult to manage.
How do I find a dropshipping supplier?
You can find dropshipping suppliers in the same way you would find any other supplier. You can:
- search online for ‘dropshipping supplier’ or for suppliers of specific products you would like to sell
- search your online ecommerce platform for suppliers
- visit trade shows
- approach manufacturers directly
- ask your business contacts and other dropshipping businesses for recommendations
- search online directories
- check who your competitors are working with
Finding a good supplier will be key to your success. You need to satisfy yourself that your suppliers will not be the reason your business fails.
- Do they offer a good range of products?
- Check the quality of their products and packaging. Do the products match up to their description?
- What are their shipping times and costs? Many products come from China with long lead times.
- What do their online reviews reveal?
- What is their customer service like? Are they easy to reach? Do they reply promptly?
- Is there a robust returns policy without any ‘nasty’ surprises?
- What are their payment terms?
What are the best dropshipping platforms?
The best dropshipping platforms will offer you a good range of products, excellent customer service and easy integration. Here are some of the most popular:
- Aliexpress – offers a great range of products, especially interesting electronic goods. Known for its low prices. On the downside, many of the items come from China so delivery timescales can be much longer.
- Sprocket – lists more than 20 million products mostly from US and EU suppliers so delivery is usually quick and hassle-free.
- Worldwide Brands – this might have a dated website, but it is one of the most well-established dropshipping sites, setting the standard for wholesale and dropshipping suppliers.
- SaleHoo – gives you access to more than 8,0000 pre-vetted suppliers and 2.5 million products across a wide range of niches.
- CJDropshipping – a Chinese company that offers a one-stop-shop for those new to dropshipping. You can source products from thousands of worldwide suppliers. CJDroppshipping also offers print-on-demand and warehousing services.
There’s also a whole host of dropshipping suppliers who focus on specific niches such as Shein (best for clothing), Printful (best for gifts and corporate giveaways), AW Dropship (best for giftware) and Printify (best for personalised clothing).
If you’re looking for an ecommerce solution to start your dropshipping business, you won’t go far wrong with Shopify, WooCommerce and Wix. You can also start dropshipping via social media.
Which businesses are most suited to dropshipping?
There’s no doubt that some niches are more profitable than others. Gadgets, accessories and devices are popular and potentially profitable niches. But this can mean competition is greater.
Ideally, you need to find a niche that is popular but where the market isn’t already saturated. You need to look for trends to try and identify products that could become the next ‘must have’. Use tools such as Google Trends and Facebook Audience Insights. Look for keywords with increasing search traffic.
It helps if you choose a niche that you already have some experience of or knowledge about. You are more likely to be able to identify what customers want and what the new developments in the area are likely to be. For example, as a pet owner, you might have noticed that fellow dog owners are looking for natural dog treats.
Look for products that are small (and therefore have lower shipping costs), customisable (so you can stand out from competitors) and, ideally, are repeatable (so customers come back time and time again).
What’s the difference between dropshipping and print-on-demand?
When you run a dropshipping business, you are selling pre-existing products. In other words, items that your suppliers have already made. When you run a print-on-demand business, you design the items, but they are only created once a customer places an order.
Print-on-demand is another type of ecommerce but the key difference from dropshipping it that you sell items that are not yet in existence. Typically, print-on-demand businesses sell products that the customer can customise. For example, you might design a t-shirt which your customers can personalise, perhaps with a name. When a customer places an order, the item is printed and despatched by your print-on-demand supplier straight to the customer. So, in much the same way as dropshipping, you do not hold the stock yourself.
Print-on-demand businesses sell items designed by their creator. It can be easier to create a strong, easily identifiable brand as a print-on-demand business as your products are not available anywhere else.
