Drop-shipping has become a very popular business model, especially for people who are just starting out with their new businesses. It doesn’t require a lot of capital to start, nor does it necessitate the management of stocks or inventories, making them ideal for small businesses and new entrepreneurs who possess some internet marketing skills.
In a drop-shipping business, products are purchased from a third-party supplier or manufacturer, who then fulfills the order. This means that you as a drop-shipping business owner do not have to worry about inventory, management, operation and logistical details, leaving you free to focus on customer satisfaction and acquisition. The best part? You can start such a business on a very limited budget.Here are the basic steps for successfully starting a drop-shipping business.
1. Select product line
The first and most important part is to select the product you want to sell. Drop-shipping businesses often start with one or two products at the start, and expand their way slowly onto other product lines. Never make the mistake of selling too many products at once from the very beginning; you will not only lose your focus on profit margins and market research, you might also get caught up in customer service for so many products at once.
Start with something small, such as a small electronic gadget. Know the product in and out so that you can market it to customers and talk to them about its virtues. Customers might also come to you for help regarding its usage, so starting with one product is ideal. Once you have fulfilled some orders, expand to other versions of this gadget, or more gadgets of a similar nature.
2. Research your market
Market research is important for any business. As a drop-shipper, you’re not offering anything unique in the market nor are you delivering exceptional shipping and after-sales services since those are usually handled by the manufacturers themselves. Your customers might not come back to you for the second time as they may be able to find that product elsewhere. Hence, you need to do a little market research regarding the product you want to sell. You want impulsive buyers to come to you and be unable to resist your offering. Knowing your customer and good marketing on top will go a long way towards securing deals.
3. Calculate profit margins
Now that you’ve done your homework on the potential customer base, the next step is to calculate profit margins. Is the profit margin high enough to justify the time you will spend marketing and managing customer services? Does it take the same amount of time to market and sell something that provides a $10 profit as compared to a product that gives you $100? Chose products that offer the best profit margins. But don’t charge too much on a product as that will drive your potential customers away.
4. Find a supplier
Finding the right supplier can mean everything to your drop-shipping business. You have to decide whether you want a factory or a trading company as your supplier. Factories typically offer bulk buying options at a lower price, whereas trading companies offer shipping options and B2C sales. Alibaba, Ali Express and Global Sources are some of the most well-known platforms to find suppliers for your business. Make sure you look at the reviews and trust ratings for each supplier before placing your order. Look for badges such as Gold Supplier, Trade Assurance or Top Seller, otherwise you may end up with a sub-standard product.
Also negotiate with suppliers to get prices down on bulk orders, which will save you a lot of money later on.
5. Consider shipping areas and cost
Where will your customer base located? Will your supplier agree to deliver anywhere you need? Drop-shipping within your home country can be easy and cost-effective, whereas handling customers abroad can be quite challenging. It is almost important to consider the cost of shipping. This cost can be high for certain areas, so your calculations should factor in these concerns as well.
Drop-shipping businesses do not have unique products, but that doesn’t mean they can’t have their own branding. Create a brand/logo of your own which your customers can identify you with. If possible, try to re-brand products as well by stamping on them or repackaging them with your logo on top.
7. Competition research
Once you have the basics all figured out, the final step before going online is to do some research on your competitors. Is there someone else offering the same product? What price are they selling at, and who are their suppliers? You can learn a few things from your competitors and improve your business.
8. Build a website
Now it is time to go online. Get a basic ecommerce website set up and add a few products you’re offering. It would also be a good idea at this point to set up a social presence for your business (if you don’t have already).
9. Attract more customers
Now that you have a running business model and everything in place, it is time to build and grow your customer base with marketing. This step will require you to thrown down some money, but you should very easily see the return-on-investment as your customer base grows. Take to social networks and platforms such as Google AdWords to market your business.
Track and make use of all the data and metrics available to grow your business. These metrics include insights from Google Analytics, Facebook conversion data, and more. Try to track down all your conversions – understand where your customers are coming from, what they’re clicking, what areas of your website most interests them, what comments or requests are they making, and so on. This should allow you to grow the part of your business that are doing well, and let go of parts that are just bogging you down. For example, certain products may be selling quickly giving you smaller profit margins and low customer service requirements, whereas other products, despite giving higher profits, may not be in much demand or might be causing you a lot of time and effort.
Successful businesses are all about optimizations. Any business requires a lot of hard work and constant adjustments and optimizations to make it work successfully. We hope you will find the tips shared in this article helpful for starting your own drop-shipping business. Let us know how it goes! Good luck!