Steps to Start a Drop Shipping Business

Steps to Start a Drop Shipping Business

In an ever-increasing interconnected planet, the realm of business has never moved at such a rapid pace. With industrialized manufacturing and shipping that can utilize transportation via road, air, rail, or sea, we have realized a broad and expansive network of commerce on a scale that has not yet been seen in the history of human civilization. Additionally, with the invention of the internet, cellular, and satellite technologies, we have revolutionized the way we plan, coordinate, and carry out these activities. Furthermore, the internet has opened avenues for more people than ever before to become business owners. One type of business that can allow an entrepreneur to leverage all of these components of our modern-day economic world to their greatest benefit and realize substantial profits is drop shipping.

Drop shipping permits someone specializing in sales and communication to wield the power of various other aspects of business in their favor while fulfilling a necessary role and providing a valuable service to other companies. Drop shipping allows a seller to promote and market a product, handle customer interactions, and receive and process orders while using business partnerships with suppliers that manage the manufacturing, warehousing, packaging, and transportation of goods. This makes drop shipping a great business that has high profitability potential, can be done remotely, and requires little overhead as the drop shipper does not have to incur the upfront effort or costs associated with manufacturing, buying inventory, storage, packaging, and shipping.

In this article, we will cover the basics of how to start a drop shipping business, which include the following aspects:

  • Understanding Drop Shipping

    To start a dropshipping company, you must first understand how dropshipping works. In drop shipping, a seller of a product (drop shipper) will market a specific product, deal with customers, and receive and process orders for the product at a price point they determine. Once they have made a sale, they will contact their supplier with whom they have already formed a business relationship. They will purchase the product at a wholesale cost, often leveraging the money they received from the customer (or using their own money) to place the order with their supplier. The supplier will then ship the order directly to the customer from the warehouse without the drop shipper ever physically possessing the product. The drop shipper will then handle any further customer service communications. The drop shipper's profit is the difference between the retail price they have set and sold the item for and the wholesale price they paid to their supplier for the product.

    Drop shippers benefit from the relationship with their supplier, as they do not need to be involved in manufacturing, warehousing, packaging, or shipping and avoid all associated costs. The supplier benefits because the drop shipper actively promotes their product, finds new and repeat customers, and places consistent orders with the company. This makes drop shipping a very low-cost business to start, with the potentiality of earning substantial profits. To read about how drop shipping compares to other forms of selling, please view our article, "What's The Difference Between A Salesperson, An Affiliate Marketer, And A Drop Shipper?"

  • Pick a Product You Are Interested in Selling

    The next step in starting a drop shipping company will be picking a product you are interested in selling. Your product can be something you are personally interested in or passionate about, something you feel would be a profitable product to sell or a combination of both. Doing industry and market research will be a part of this process as you can learn more about the competition, the products they offer, and the market demand. You can also get general ideas regarding your retail price and what kinds of profit margins you could realistically expect. As a drop shipper, you will not need to buy inventory, and you can use this to your advantage and easily begin to experiment with different ideas and see what works. If one product does not sell well, you can easily switch your focus to something else.

    The following is a list of details you should consider when selecting a product to sell through drop shipping:

  • Is There a Demand For The Product?
  • Is The Product Oversupplied or Undersupplied in The Market?
  • Can It Be Profitable?
  • What Is The Quality of The Product?
  • Where Is Your Supplier Located?
  • Is Your Supplier Reliable?
  • Will Your Supplier Accept Returns?

An excellent product idea for a drop shipper could be one with strong demand but that is not readily available to retail customers. A product that manufacturers or suppliers would like to move in bulk but don't necessarily want to market towards smaller customers, even if that customer could be a repeat but small-scale buyer. Examples of this could be products used within specific industries but not necessarily the general public. Another example could be niche products for non-industry-related consumers produced by a company that would like to move large units and that does not want to spend money and effort marketing towards smaller-scale customers.

  • Find a Wholesaler/Supplier and Start Developing a Relationship

    Once you have selected a product you are interested in selling, you will need to find a supplier interested in developing a business relationship with a drop shipper. You will need to find one who will sell the product to you at wholesale prices and ship it to your customers. Finding a good manufacturer, supplier, or wholesaler that is willing to work with you can be one of the more challenging aspects of starting a drop shipping business. The two main ways to source your products are through direct-source suppliers or drop shipping marketplaces.

    Drop shipping marketplaces are platforms designed to automate drop shipping and can be convenient for new entrepreneurs to start a drop shipping business. This is done through implementing various eCommerce tools such as a search engine that allows you to look for products on the platform, being able to add listings, display inventory numbers to avoid supply issues, and automated shipping confirmations. These marketplaces are great for people just starting in dropshipping, but direct-source suppliers are better long-term options for profitability and building business and customer relationships.

    Direct-source suppliers are companies you can purchase your products through directly, involving no middlemen. This can create higher profitability and a better overall relationship and communication between you and your supplier. You can sell products that display your supplier's branding, or you may have the ability to have your supplier put your branding on the product before they ship it out to your customers. These are known as "white-label" products and can be used to help your brand to stand out as a unique company. You can find examples of these in grocery stores as many stores source the same food products from the same supplier but put their store's branding on the product. Developing a relationship with direct-source suppliers can be mutually beneficial to both companies. In addition, it can be easier to resolve issues or address any questions you or your customers may have.

  • Create a Website

    After choosing your product, finding a supplier, and securing a wholesale price, you will have to create a website to start promoting and selling your product. You will need to include all necessary or relevant information about your product, including pricing and expected shipping times. Your site should also have customer support contact options and a payment processing system set up in order to receive and process payments.

  • Form a Business Entity

    Next, it is suggested that you form a business entity before you start actively pursuing customers and engaging in commerce. This is to provide legal protections for you and can enable you to take advantage of certain tax benefits. InCorp specializes in business entity formation, such as LLCs and others.

    When a company is recognized as a legal entity, they are required by the state to have a designated registered agent to receive official legal notices. The state will make the registered agent's address available in public listings so that other parties can contact the business regarding legal matters. An individual acting as their own registered agent will have to provide their private address to the public. InCorp can also provide registered agent services (, which can help keep your personal address private while keeping your business in compliance with the state. Additionally, by hiring InCorp to be your registered agent, you will have a professional service keeping track of and notifying you of any important legal documents or official notices from the state received on behalf of your business.

  • Start Promoting and Selling Your Product

    Once all of the previous steps have been completed, you can actively start promoting and selling your product and making a profit! Since a person involved in drop shipping will not be preoccupied with certain aspects of running a business, such as manufacturing, warehousing, and shipping, they can focus on marketing and selling their products, along with providing excellent customer service. This can be done online, over the phone, or during in-person meetings, demos, or trade shows. Please view our Low-Cost Business Marketing Ideas (insert link) series of articles to learn more about some cost-effective ways to market your dropshipping business. In these articles, we detail multiple successful strategies to market your business for free or at a minimal expense.

A drop shipping business can be an excellent business to get into that requires little overhead in getting started and can become highly profitable over time. This makes it a viable option for someone trying to generate a reliable income source but may be somewhat limited in purchasing inventory, renting storage space, and buying shipping materials. Drop shippers focus on customer service, marketing, and converting sales, while their suppliers cover warehousing, packaging, and shipping, and both companies and the customer benefit in the process. Drop shippers can operate exclusively on the internet or can combine online promotional methods with more traditional in-person business strategies.

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