How to Start a Dropshipping Business

There are many ways for people with an entrepreneurial muscle to flex it. If you’re interested in earning extra cash through product selling and want to give ecommerce a try, consider dropshipping. 

Dropshipping has become a popular, low-stakes avenue for people to wade into the ever expansive waters of ecommerce without storing, shipping, or even buying your inventory. According to Statista, by 2026, the global dropshipping market is going to be worth over $476 billion dollars. 

Need to understand a bit more how dropshipping works and its benefits? Ahead, we’ve got you covered on all things dropshipping, including a step-by-step guide on how to get started.

What is dropshipping and how does dropshipping work?

Dropshipping is a method of online commerce where a seller sells products but doesn’t keep those products in-store or in their own warehouse. Instead, a dropshipper (the seller) works with a third-party supplier for inventory and shipping. 

When a customer places an online order, the online store forwards that order to the supplier to fulfill and ship it to the customer. This model allows for online store owners to have a business without investing funds in keeping an inventory that may or may not get sold. 

Dropshippers (you, the online store owner) essentially run the whole operation and keep the communication and information flowing between the supplier and customer. Without the dropshipper, there would be nothing connecting the customer and their order fulfilled by the supplier. 

Learn more about how print on demand and dropshipping works

Why you might want to start a dropshipping business

For new entrepreneurs, starting a dropshipping business is a good way to explore selling online. There’s a lot of pressure taken off of you and how well your business performs—as well as the finances involved in maintaining an online business—but you still get to have a solid hand in the online shopping realm.

Consider the following benefits for why you might want to start a dropshipping business. 

Cost-saving

First and foremost, the startup costs for a dropshipping business are miniscule compared to starting a fully-fledged, operational online store with your own warehouse for stock, and then managing that inventory while figuring out other costs of the business. By dropshipping products, you also don’t need to invest in a physical retail location or hire staff to help fulfill your orders. 

Scalability

Using dropshipping companies means your business can handle an influx of orders with ease versus other ecommerce models. Whomever your partner is as your supplier is the one taking on order fulfillment and shipping, so if you’re having a seasonal surge, that will be built into the partnership. You won’t need to account for additional workers to get orders out—that’ll be your supplier’s job. 

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A key balance many retailers—in-store and online—are faced with is maintaining inventory. How much stock is too much stock? What if stock sells out? With dropshipping, a business’s concerns with maintaining a certain amount of stock is eliminated. Your dropshipping supplier will handle everything that involves inventory including tracking, re-ordering, and managing incoming shipments of product. 

Flexibility

You don’t need to be in the same place as your supplier. A neat reality of an ever-expansive, global online retail market is that sellers and suppliers, as well as customers, can be sprinkled across the world. There’ll be a way for products to get to where they need to be. 

With dropshipping, too, you can offer products that are popular right now and keep your inventory up-to-date with what buyers prefer. That allows you to change, test, and hone in on customer preferences without risking big financial losses. This isn’t as easily done in other ecommerce models. 

Start a dropshipping business online: A step-by-step guide

Now that we’ve gone through what dropshipping entails, here’s a step-by-step breakdown of how to start a dropshipping business online. 

1. Choose a niche

Here is one of the most important questions you’re going to ask yourself on this online sales journey: What do I want to sell? 

Consider selling a product that piques your own interest and is something your customer is going to want. Pick a niche, which is a segment of the market that you are knowledgeable about and/or is something with market demand. 

Getting and maintaining an audience or customer base can be difficult. But the more you hone in on the things you are good at or have information about, the closer you get to the audience who will want the products you dropship. 

A good task to incorporate on this search for your niche is keyword and product research to understand what’s popular right now in your niche segment. This will lead directly to your next task on competitors. 

2. Conduct competitor research

While we all love a once-in-a-lifetime product, chances are the products you do select to sell will have competitors. How are you going to set yourself apart from them? 

Observing your competitors and gathering information on their products, and even marketing tactics, will help you better sell your products to a shared customer base. Do a thorough check of how they describe their products on product pages (including keywords you can optimize through SEO strategies to get your products to show up organically in search.)

Conduct competitor research through: 

• Google searches

• Social media searches, including browsing their business pages

• Marketplaces such as Amazon 

• Using competitor analysis tools

3. Conduct supplier research

The next crucial question you will need to ask yourself is who your dropshipping supplier is going to be. This is an important relationship because you need reliable suppliers that’ll have the products your customers are ordering and fulfill them in a timely manner, and safely. 

The reality is that you may end up needing more than one supplier to fulfill these orders, depending on what you choose to sell. Make a checklist of all the things you need your supplier(s) to have, including quality of product and service, reliability and scalability (especially if you have seasonal products), and what your own take-home profit will be. 

4. Consider business structure

Dropshipping can be your part-time gig or a full-time commitment. Before solidifying agreements with any supplier or building your online store, take a moment to really consider how you want this business to be. 

There are a couple of ways for your business to be structured: 

• Sole proprietorship: This gives you flexibility to dropship as a side-hustle as a solo entrepreneur. 

• Limited liability company (LLC): The LLC option keeps your personal finances out of the mix (unlike a sole proprietorship) and may give you tax benefits. 

There’s also a more complex corporate structure (C corporations) but that’s for bigger operations. 

In any case, consider speaking with financial and legal advisors after you’ve settled on your business path to help you select which structure is best suited for you. You can always start on one path and make a change as your business grows.

5. Build your online store

Once the specifics of your business plan have been figured out, next you’ll need to build your online store. Your online store is the central place for all of your business. Every piece of marketing will link to it. This is where your customers read about your products and make their purchases. 

If you’re a first-timer in both ecommerce and web design, consider a Squarespace website that allows you to select templates or customize the way you want to. Your online store needs to keep your customer’s attention and be easy enough to navigate so they complete their purchase.

Add different integrations or plug-ins that help you sync dropshipped inventory to your store. 

See online store website examples

6. Get your business finances in order

Working out where to put your profits is an important step in setting up your dropshipping business. There’s real merit in opening a checking account completely separate from everything else in your financial life. Get a business credit card. Think about what tax you need to collect. 

De-linking these from your personal financial accounts will simplify everything during tax time and throughout the year to understand how much you’re making on the business. 

Learn more about organizing your financials

7. Start marketing 

Getting your products out in the world with a marketing strategy is going to be your primary task once your business is up and running. 

Consider the following marketing tasks: 

• Set up social media accounts. Instagram, TikTok, Facebook, etc. 

• Create and tailor content to the social media platform. Think Reels or Toks if you have fun product videos to share.

• Have a pop-up email sign-up on your website. Email marketing helps you keep customers updated on products or business news and bring them back to your store. 

• Invest in paid ads if you have the funds. These allow your business to show up in places where potential customers might be.

• Invest time in the communities most likely to buy your products. Remember your niche? Go to those people! 

Get more tips for promoting your shop

8. Measure your progress

When your business is fully operational, take some time to set goals to measure against for your success. How fast do you want to grow year-over-year? What are your website’s traffic goals? 

Draft up some key performance indicators (KPIs) and regularly monitor and adjust them according to your overall goals.

Best practices for a dropshipping business

Dropshipping is an efficient, easy way to enter into the ecommerce world. But it can come with some challenges. Consider the following best practices to ensure you’re running a smooth and headache-free dropshipping business. 

1. Create your shipping and return policy with your supplier 

Not everyone is going to enjoy or need the product they buy. That’s why we have return policies. But for dropshipping, because you’re partnering with another party, understand their return rules, shipping times, and shipping costs before you write your policies. 

2. Keep an eye on inventory levels

Products that go out of stock with a long wait time before they can be ordered again will not make for happy customers. Keep an eye on your inventory levels and, if you can manage it, use multiple suppliers. This may make keeping tabs on stock a bit trickier, but if one supplier is running low, there’s always another to tap in. 

3. Take accountability for order mistakes

Everyone makes mistakes. To avoid upset or lost customers, make sure to take accountability for the error, even if it was your supplier not sending the right item or not sending it in your allotted fulfilment time. But touch base with your supplier to understand what caused the issue.

4. Keep customer privacy and security in mind

Using a third-party may leave you wondering if your information is safe. Essential to that, will the information and privacy of your customers be safe? On top of all of that, you may have fraudulent orders placed. 

The world we live in now has a lot of security put in place to ensure credit card numbers are safely communicated and fraudulent orders won’t put you out of business. Keep tabs on any patterns (misspelled or unusual emails, increase in expedited shipping, etc.) and always have your security features on your website up to date.