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What You Need To Start Dropshipping (Beginner Checklist)
In this video, we talk about what you need to build your Dropshipping business and how to set it up the right way.
How to Start a Dropshipping Business
You want to start a dropshipping business. Maybe you’ve heard it’s a low-commitment way to start a side hustle, and make a little extra income. Or maybe you’ve got a niche passion—rock collecting, historical dioramas, exotic ferns—and believe you know how to market to your fellow enthusiasts.
We’ll cover fundamentals specific to drop shipping, as well as everything you need to know to get your business legally up and running. And we’ll also dive into topics some first-time drop shippers overlook—like figuring out sales tax and setting up your accounting for success.
1. Review the details: What is dropshipping?
A quick refresher: A drop shipping business is an eCommerce business where inventory and shipping are managed by a third party.
You take care of running the online store and advertising products—your specialty is getting customers to the point where they click “Checkout.” Once they pay for a product, you transfer the wholesale price, plus the cost of shipping, to the vendor or vendors supplying the product, and keep the rest for yourself.
2. Pick a drop shipping method
There are two ways to set up your dropshipping business and get products to customers. One is to connect directly with dropshipping suppliers. The other is to use a dropshipping marketplace.
If this is your first drop shipping business, you’re better off starting out with a drop shipping marketplace and then establishing relationships with individual vendors. You can see why when we compare the two methods.
Dropshipping directly from suppliers
When you drop-ship directly from suppliers, you open vendor accounts with them in much the same way you would if you were running a traditional retail store. Meaning, you establish a relationship with them as a seller, with agreed-upon prices and order thresholds.
The only difference between this method and a traditional retail store is that the suppliers will package and ship orders individually. You don’t need to order stock from them, then keep it in inventory and fulfill orders yourself.
The main benefit of this method is that you’ll have a higher profit margin. When you seek out individual suppliers as opposed to using a drop shipping marketplace, it’s less likely that other dropshipping stores will be selling their products. Less competition means when to start LLC less need to undercut other stores, so you can set your prices higher.
But there are downsides to this method if you’re new to dropshipping. Most individual suppliers require a minimum order threshold—meaning you need to maintain a minimum number of orders with them each month. That’s hard to do when your store is brand new. Many suppliers will refuse to work with a new, inexperienced drop shipping business.
Using a drop shipping marketplace
A dropshipping marketplace takes a lot of the footwork out of setting up your online store. Typically bundled with existing sales platforms like Shopify, a marketplace lets you shop around for wholesale vendors, and add products to your store quickly: No contacting suppliers, taking product photos, or building when to start LLC out web pages from scratch.
The benefit of this method is that you get access to millions of products, potentially from wholesalers all over the world. Adding and removing products to your store is almost as easy as putting something in your shopping cart on Amazon. That means you get lots of flexibility experimenting with different products and prices, and figuring out the ideal customers for your store.
3. Pick a dropshipping marketplace
There are a few things to take into consideration when picking a dropshipping marketplace:
- Platform. Different marketplaces work with different platforms. For instance, if you’re already familiar with Shopify, and you want to open a Shopify store, then Oberlo is your go-to marketplace. On the other hand, if you’re planning to run your store as a Facebook or Instagram account, you may when to start LLC want to choose a marketplace that works with one of those platforms—like Spocket.
- Cost. Many marketplaces are free, but some charge a monthly rate to use them.
Your best bet is to sign up for different free services and try them out. This is usually the only way to get a feel for each platform and to see what kinds of vendors they connect with.
4. Research your business
Typically, when you start a business, the first step is to do research. That means seeing what your competitors are doing, what demand is like in the market you’re targeting, and what customers are looking for.
But because of the way dropshipping works, you’re able to take a more hands-on approach right away.
Research by the seat of your pants
One of the best ways to do research is to start running your business right away.
Trying out new products in your store is typically free. Running test marketing only costs as much as you’re willing to pay. You can start experimenting right away, without doing tons of competitor profiling or market analysis first.
Research dropshipping products
For a lot of new dropshipping business owners, trial-and-error research can be thrilling. But if you’re coming to dropshipping with only the foggiest notion of what you plan to sell, and how you’ll market it, you may want to start off with some traditional when-to-start LLC research methods.
Here are some of the most straightforward ways to narrow down which products your business will sell.
Scout the competition
If you already have a product category in mind, a Google search will quickly give you a taste of your competition. Look at the most prominent sellers for the products you’re considering, and ask the following questions:
- How do they brand themselves?
- What is their social media presence like? How many followers do they have?
If there’s no way to compete with other, established suppliers when to start an LLC you may want to try a different category of products. Or, if you think you may be able to offer similar prices, look for an angle that gives you an advantage.
Dig through Amazon bestsellers to find gold
Researching on Amazon is free and easy. By checking out best-selling products, you can find out what types of items customers are already searching for, and how much they’re willing to pay.
Start with Amazon’s complete directory, and start drilling down through the categories and subcategories.
Maybe you can’t find a supplier who ships Bob Ross mugs at a competitive price. But research like this can spark inspiration. Maybe it’s worth exploring nostalgic coffee mugs as a dropshipping product.
Infiltrate a niche market
There are millions of online communities based around users’ when to start LLC passions. Finding an overlooked corner of the internet could unlock a brand new market.
Research hobbies and pastimes, and take a deep dive into Facebook Groups to find the people who are obsessed with them. Specifically, seek out “buy and sell” groups. They’ll show you what people are interested in buying.
5. Plan your (small) initial investment
You don’t need much money to start a dropshipping business. In fact, a $1,000 cushion should be enough to help cover the basics—like the cost of setting up an online store, signing up for a paid marketplace plan, and hiring freelancers to design brand assets.
In fact, you’re better off spending as little money as possible while you get started. Hiring designers, programmers, and marketers to run your business for you don’t just cost you a large share of your profits: It costs you valuable experience. Creating your business when to start LLC hands-on, from scratch, you’ll learn how every part of it works. That gives you total control of how it operates, and also sets you up to create future drop-shipping businesses should the inspiration strike.
6. Pick a business structure that protects you
Your business structure establishes how you’ll file your taxes. It also determines your liability. Certain business structures can protect you from being personally being sued, or having your personal property tax levied.
The four main types of business structure are:
- Sole proprietorship
- Limited liability company (LLC)
Each has its benefits and drawbacks. But, for the sake of starting a dropshipping business, you’ll most likely be forming a sole proprietorship or an LLC.
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