Dropshipping is a way of entering the online retail market without having to commit to purchasing stock up front. Increased publicity surrounding this retail approach has seen it presented as the ultimate business model, however there are plenty of pros and cons that need considering.
This guide will explain everything you need to know about launching and running your own dropshipping business. By the time you have finished reading, you should have an understanding of whether this is the right business model for you.
- What is dropshipping?
- How does the dropshipping business model work?
- What are the benefits of dropshipping?
- What are the pitfalls of dropshipping?
- How do you start a dropshipping business?
- Dropshipping vs. purchasing stock
- Dropshipping vs. white label
- Dropshipping vs. private label
- Dropshipping suppliers
- Dropshipping FAQs
- Further reading on Modern Retail
What is dropshipping?
Dropshipping is a retail fulfilment model where the online store never physically holds the inventory it sells. Instead, the retailer accepts a customer’s order before passing it onto a supplier to fulfil directly.
This method of fulfilment has grown rapidly in popularity alongside the rise of ecommerce, with many making the most of the opportunity to launch their own dropshipping store.
How does the dropshipping business model work?
The biggest difference between dropshipping and traditional stock purchasing is that a dropshipper does not own or stock inventory. Instead, they purchase inventory from a third party that fulfils orders on their behalf – directly to the customer.
The typical dropshipping business model follows these simple steps:
- A customer makes a purchase via the retailer’s online store
- The order is automatically passed to the dropshipping supplier and they are paid the wholesale price (lower than what the customer paid the retailer)
- The supplier sends the product directly to the customer
- The retailer keeps the profit margin
What are the benefits of dropshipping?
Dropshipping has many advantages, which we will explain in this section.
- Lower startup costs
Retailers that choose to implement this model do not have to invest cash into inventory. Instead of having the risk of spending money on unsold stock, retailers only pay suppliers once the customer has placed an order.
- You can test new products with less risk
Dropshipping enables you to test new products and markets without having to commit to purchasing stock. This means you can add new products to existing ranges, or even offer completely new products, without having the risk of failing to sell them.
- More product variety
The benefit of having less overheads and no space limitations is that retailers can offer more choices for their customers. This means retailers can have a vast range of different products for sale on their website, as well as regularly updating their inventory, which increases the likelihood of sales.
- It requires less time investment
Dropshipping allows retailers to focus on other aspects of their business, as they don’t have to deal with stock inventory or fulfilling orders. Organising stock, liaising with delivery companies and dealing with large volumes of products can be incredibly time-consuming. But if you dropship, it means you don’t have to worry about the handling, labelling, packing or shipping side of the business, as the stock and inventory is taken care of by the supplier.
- You can start selling quickly
In typical retail models, you would need to wait until you physically had the stock, before beginning to sell it online. With dropshipping, you can start promoting items almost immediately, using imagery and product descriptions from the supplier.
Dropshipping can also result in cost savings, as certain aspects of the business are taken care of by the supplier. As an example, retailers that choose to use this model do not require warehouse space, which can save significant sums of money over the year.
What are the pitfalls of dropshipping?
As with any business model, there are drawbacks as well as benefits.
- Your reputation relies on a third party
When you choose to dropship, you don’t get to carry out quality control checks and you have no control over shipping. Instead, your chosen supplier is solely responsible for sending the correct items in a suitable way to customers. Choosing a reputable and reliable supplier is the best way to counteract this issue, however, you must be able to trust them, otherwise it can quickly damage your business’ reputation, even if issues aren’t necessarily your fault.
- Customer service challenges
While you don’t have to deal with the fulfilment side of the business, this can result in customer service issues. If you receive a complaint, you have no idea of whether an order arrived on time or as described, meaning you must contact the supplier for more information every time. This can be a time-consuming process, resulting in delayed responses to customers and elongated periods of time to find a solution.
- Stock availability
If a specific product goes out of stock and you are unaware, customers will continue to place orders. When this happens, it can be time consuming to resolve, having to offer alternatives or refunds to disappointed customers. Making sure your supplier is transparent about the quantity of remaining stock, and/or effective with their communication, is key in avoiding this costly mistake.
- Lack of product information
Many suppliers provide limited product information, meaning retailers may not know dimensions of items, or be able to answer customers’ specific questions. This can make it difficult to market the products online, as well as harming SEO due to a lack of unique information. In addition to this, having to regularly forward questions onto the supplier causes delays and can leave customers feeling ignored. Ensuring you have plenty of product information before agreeing to work with a supplier is incredibly important, helping you to increase sales and create a streamlined customer experience. You should also order sample products, as explained later in this guide, to make sure you have experienced and seen the product first-hand.
- Lower profit margins
While your initial investment and financial risks are reduced, the penalty for this is often a lack of bulk pricing. In comparison to purchasing large quantities of stock, the cost per unit is typically higher, resulting in less profit.
How do you start a dropshipping business?
- Decide your business idea and choose a product
The first step of starting with the dropship model is to decide which products you want to sell.
Often, finding your niche can be easiest when the products are something that you are passionate about. Perhaps you have a specific pain point that you believe could be solved by a particular product, or you feel there is a gap in the market. Use these ideas to form the basis of your research.
When choosing a product, the goal is, of course, to find something that will sell well. Once you have thought of a product with potential, you should carry out extensive research to make sure you think it is a good idea.
Look at websites that stock products in your niche and understand the demand for these items, as well as order volumes. Tools such as Google Trends and Ubersuggest can give you product inspiration, by revealing the approximate amount of Google searches there are for different keywords.
Here are some of the questions you should ask yourself to minimise the risk of your chosen product failing to sell:
- Is there a need or demand for the product?
The best products have significant demand, so make sure people are interested in your chosen item.
- Does it capture people’s attention?
Consider whether you can market the product well. For example, think about any interesting features that you can use in advertising, as well as exploring how well the product photographs.
- Can it be shipped safely to customers?
Products need to be able to be shipped to customers with minimal risk of damage. Ideally, they are lightweight and durable, keeping costs and returns to a minimum.
- Is it sold by major competitors?
If an identical product is sold by a large brand, you may struggle to capture consumers’ attention, making it difficult to compete.
- Can it be purchased instore?
Any product that can be bought instore easily may have less demand online.
- Know your competition
Once you’ve found your niche and decided potential products, it’s time to understand the market and ensure you’re making the right decision, as well as getting inspiration.
- Research the competition
Google the products that you are thinking of selling and carry out extensive research online. Click on the top results and view the items being sold, as well as taking note of their popularity and the types of branding that they use. Consider signing up to competitors’ newsletters for inspiration.
- Understand the data
Sites such as Alexa and SimilarWeb allow you to understand competitors’ analytics, traffic information and audience data. This information can give you an idea of the demand for your competitors’ products, giving you confidence in what you are looking to sell.
- Utilise social media
Social media is a great tool for market research. Find competitors on social media, taking note of their top performing types of content, as well as posts that gain the most interaction, the size of their following and the ways that they market their brand. This can help to inspire ideas that you can utilise or adapt, enabling your brand to stand out from the crowd.
- Choose a dropshipping supplier
Once you know your product, the next step is to find your supplier.
This is an essential aspect of any dropship business as it directly impacts customers’ experiences. Your choice of supplier is key to your chances of success, as this can make or break a positive brand experience for your customers. Choosing an unreliable supplier can result in quality control issues, refunds and a bad reputation; three things that can potentially end a business.
So how can you find a quality, reliable dropshipper? Follow these steps:
Create a shortlist of potential suppliers
Begin by creating a list of 5-8 manufacturers or wholesalers that sell the products you require. Having multiple suppliers enables you to compare various options.
There are many different ways to source suppliers, including the below:
- Alibaba is one of the biggest B2B marketplaces for importers, manufacturers and wholesale distributors.
- Oberlo is a platform that simplifies sourcing products from AliExpress, for selling via Shopify stores. It is free to sign up to and has paid-for plans for higher-level access.
- Spocket allows dropshippers to choose products to sell from thousands of suppliers around the world and can integrate with most online store platforms.
- Modalyst works in partnership with AliExpress, giving access to millions of products that can be added to online stores on Wix, Shopfiy or BigCommerce.
- Worldwide Brands offers a budget solution for those looking to sell on Etsy, Amazon or eBay, presenting options of high level certified dropshippers.
- CJdropshipping tends to be cheaper than AliExpress as it has items sourced from Taobao and 1688. Allowing you to import products into a Shopify store, this is a free app that can work alongside the likes of Oberlo.
- Wholesale2B has more than a million products ready for dropshipping. It allows you to become a registered reseller with chosen suppliers, or pay a fee to have it taken care of for you.
- SupplyMeDirect is a free Shopify app that has a 24/7 support team and enables retailers to sell branded items through private labeling.
- CROV integrates with Shopify and enables order automation through a list of vetted US suppliers.
- SaleHoo offers a free trial before going onto a monthly membership, giving users access to a database of dropshippers and wholesalers.
- Trade shows can be a great way to meet wholesale manufacturers and distributors face-to-face, building rapport and discussing requirements.
- Recommendations are another way to find suitable manufacturers and wholesalers
Narrow down your list of suppliers
Once you have your initial list of potential suppliers, it’s time to rule out any that are unsuitable. Begin by removing any suppliers that do not fit your requirements.
Points to consider when choosing a reliable supplier include:
- Do they allow you to scale up or down as required?
- Is their communication effective?
- Are reviews positive?
- Is product quality consistent?
- Is the supplier reliable?
- How long does shipping typically take?
- Do they have a range of shipping options?
- Is packaging sufficient?
- What is their customer service like?
- Does their minimum order quantity meet your needs?
- What is the cost per unit?
Consider your target market’s requirements at this stage, thinking about the most important attributes that your dropshipping partner must have. Here are a few points that could be worth taking into account:
- Is sustainable packaging important to your customers?
- Do customers expect fast delivery?
- Are shipping updates something that customers want?
Place a sample order
The next step is to place a sample order, enabling you to check the quality of products before placing a large order. This essential step will allow you to assess the same first impression that your customers will get, allowing you to choose suppliers that will deliver the customer experience you require.
Note the length of time that products take to be delivered, the state of the packaging when it arrives, the quality of the product and the overall experience.
Once all product samples have arrived, compare them to each other, noting any preferences or problems.
Finalise your suppliers
Now you have all of the information that you require to make a decision, it’s time to reach out to your favourite suppliers. Build a business relationship with each one, calling them, or even meeting with them if possible. This will help you to fully understand every aspect of the business relationship, including customer returns processes and the lead time for any queries you may have.
Based on your requirements and experience with receiving samples and communicating with suppliers, you should choose the one that you want to work with.
It can be beneficial to keep numerous potential suppliers on record, in case you need to change your dropshipping supplier at short notice in the future.
- Set up your online store
Next, it’s time to build your ecommerce website.
For beginners, the safest and easiest option can be to create a website using a dedicated ecommerce platform such as Shopify. This makes the process straightforward and is often the most suitable choice, even for experienced ecommerce business owners.
Shopify works alongside numerous apps that are designed for dropshippers. Its accessibility and simplicity make it easier than ever before to sell online, allowing dropshippers to manage payments, track orders, market their products, prevent cart abandonment and track analytics. Following a 14-day free trial, the basic Shopify plan starts at $29 per month, however, the most advanced plan can cost up to $299 per month.
For those with a more generous budget, there is the possibility to hire a web developer to create a custom ecommerce website, although this could always be implemented at a later date, once your online store becomes more established.
Using multiple sales channels can be crucial, meaning retailers that sell across platforms such as Amazon, Facebook and Instagram are often in the best possible position to reach a large audience. In addition to this, social media channels can be integrated with marketplaces such as eBay and Amazon, creating a synchronised online presence.
Here are some of the most common platforms that you can use to create an ecommerce site:
- Marketing your dropshipping business
Marketing effectively is essential in order to maximise web traffic and increase conversions.
To successfully market an online business, you will need to spend money; something that is often not mentioned in dropshipping success stories. Some marketing can be done in-house and organically, keeping costs to a minimum, however, even that will require a time investment.
Here are some of the best ways to market your dropshipping business:
- Social media
Social media is a fantastic tool to grow brand awareness and establish a following. Engaging social media content encourages shares and likes, as well as creating an opportunity to run competitions, share product reviews and much more. Not only does this help to raise awareness of your brand, but it can also help to improve consumer confidence.
Generating organic traffic from search engines is a long-term solution, that does take time to generate results. However, it can be a fantastic, ongoing source of free traffic, so is often well worth the effort. Google Digital Garage is a great free resource to help you understand the basics of SEO and content marketing.
- Paid search
Pay-per-click, or PPC is a method of promoting product or brand advertisements on search engine results pages (SERPs). As you would expect from the name, you only pay when somebody clicks on your advert, however this means that it does cost you money. Advertising formats for paid search include text ads and shopping ads. To succeed with paid search, you must create engaging copy that is relevant to your target market’s search terms.
- Email marketing
This can include email marketing to potential customers about products, or even emails to prevent shopping cart abandonment. For email marketing to be possible, you must of course have collected your target market’s email addresses, which can take time to gather. Asking for contact information at the checkout is a great way to collect email addresses in a GDPR-friendly way.
- Influencer marketing
Having recognisable people promote and link through to your online store is a fantastic method of marketing your dropshipping business. Sometimes a fee will be required, while other influencers may be happy to promote your product in return for a free item.
- Retargeting ads
Retargeting typically uses paid advertising to target individuals that have visited your website or social media profiles. This is a fantastic method of preventing cart abandonment, as it allows you to tempt customers back in with products they are interested in, as well as being familiar to them by this point.
Dropshipping vs. purchasing stock
These two business models each have their own benefits and some retailers choose to use a combination of both dropship and buying stock upfront. While the customer-facing side of the business may look similar, these two different models each have unique features.
- Price per item
The cost per item is usually more expensive when dropshipping. This means you may have to sell more dropshipped items to make a significant profit than you would if you purchased stock and warehoused it.
- Cost to launch your business
The cost of starting a dropship business can be extremely low, with website building and marketing usually being the most expensive aspects of setting up. On the other hand, when purchasing stock, this significantly increases the initial investment, as buying the products can be costly.
- Cost of running the business
Purchasing stock will mean additional ongoing costs such as storage, handling, packaging and shipping, whereas dropshipping sees the supplier take care of these.
Dropshipping enables you to minimise financial risk, as you never purchase stock before an order has been placed. This also means there is no disadvantage to trialling numerous new products at once and selling a wide range of items. When purchasing stock, you run the risk of investing into products that may not sell, so must be more cautious when choosing which items to invest in.
- Control and customer experience
When you purchase stock, you have greater control over factors such as storage, packaging, shipping and customer service. A dropship model leaves these factors in the hands of your chosen supplier.
- Customer service
When purchasing stock, you have full control over the shipping process, meaning you can provide accurate delivery updates for customers. You also know the process and can therefore communicate effectively, making it simple to deal with complaints and queries. When you dropship, you must contact the supplier to find out information such as shipping details, which causes a delay and can damage customer experience.
Dropshipping vs. white label
White label is the process of having a manufacturer brand up generic products to make it appear as though the retailer has created it. This means numerous retailers can sell the same products, however, they will each have unique branding, so can sell it under their own names.
White label enables you to create more of a brand for yourself, adding your company name or logo onto the products you sell. Due to the personalisation you can achieve, white labelling helps you to create a more memorable retail brand, as opposed to selling identical products to competitors.
White label products are generally sold by manufacturers directly at low wholesale prices, making this an affordable method of purchasing stock.
- Unique products
With both dropshipping and white labelling, it can be difficult to stand out from competitors, so product selection becomes essential in offering something that others don’t.
- Investment risk
White label often requires the retailer to purchase stock, which means they have a higher financial risk. Dropshipping, as previously explained, means no money is spent on stock until orders have been placed.
It is also worth noting that it is possible to dropship white label products, combining the benefits of both fulfilment models.
Dropshipping vs. private label
Private label sees manufacturers create unique products that are sold under a retailer’s brand name. This means the retailer controls all aspects of the product, including its specs and packaging.
- Profit margins
Private labelling typically allows for larger profit margins in comparison to manufactured brands.
- Stand-out offerings
Customers appreciate retailers that offer unique products and this can be achieved through private labelling. Being the only source of specific products can grow customer loyalty, whereas dropshipping creates competition as you sell the same products as countless other retailers.
While a dropship model can be seen as a low-risk business model, private labelling carries a higher risk. This is because retailers must invest in unique inventory with no option to return stock if it does not sell.
- Order quantities
When negotiating with a manufacturer, most will refuse to offer private labelling unless a minimum order quantity is met. Often, this can be a large number of products that the retailer must commit to purchasing. With dropshipping, there is no minimum order quantity.
Finding quality suppliers is essential in order to make this business model work. Here are some resources to help you source suppliers:
Traditional, white label and private label dropshipping suppliers
These dropshipping suppliers and resources offer a combination of traditional, white label and private label options. It is worth discussing the potential to utilise white label or private label business models with suppliers, to see if it’s something they can facilitate.
These suppliers are a specific subset of white label dropshippers, enabling you to personalise printed products with customisable options:
How much does it cost to start a dropshipping business?
It can vary depending on how you approach it. Technically, by utilising free trials and starter plans, you can build a dropship business for free. However, if you wish to create a more functional website and promote your products, the costs quickly increase.
Who handles customer service and returns?
This all comes down to the way you run your business. The retailer typically takes care of customer service and will then collaborate with the supplier to resolve any issues.
To simplify this process, create a returns and refunds policy that is accessible at the point of purchase and clearly outlines how it works for customers. Shopify offer a free return policy generator that can assist with this. It is essential to discuss the logistics of returns with your supplier before working with them, making sure you are able to meet expectations.
There are different returns processes that can be implemented. For example, some dropshippers offer replacement products in the case of damaged items, asking for images of the damaged products instead of physically returning it, to avoid the handling of returned products.
How do you choose the best dropshippers for your business?
As mentioned earlier in this guide, having an in-depth selection process and specific criteria is essential when choosing your suppliers. By understanding your priorities, you can choose a supplier that meets your requirements and helps you to fulfil your promise to customers.
What’s the catch with dropshipping?
There’s not necessarily a real catch with this model, unless you see it as a ‘get rich quick’ scheme. As with any business, it does require time and financial investment to succeed.
What are the best dropshipping products to sell?
The answer to this depends on your interests and your target customers’ demand for specific products, which is why research is so important. Generally, a popular dropshipping product will be useful, solve a problem, be relatively rare to find and be priced reasonably.
Some of the best dropshipping products to sell often fall into the following categories:
- Health and personal care
- Home and bedroom
- Fitness and gym equipment
- Tools and home improvement
- Pet products
- Gaming accessories
- Car accessories
- Phone accessories
Further reading on Modern Retail
- Read Modern Retail’s guide to fulfilment
- 10 reasons to outsource fulfilment
- Your fulfilment partner checklist