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What Is Dropshipping? Learn How to Start A Dropship Business

Tillie Demetriou
14 Jun 2024

Thinking about starting an online store, now’s the best time to start!  According to Statistica, the US eCommerce Market is projected to reach US$1,223.00bn this year!

Now, a simple way to do this is to start a dropshipping business. The dropshipping business model is essentially when your store makes a sale and forwards it to a dropshipping supplier, who then handles the delivery of your brilliant products to your customers.

Want to know more? Then stick with us. This complete guide will tell you everything you need to know about this growing industry. We'll answer:

  • What is dropshipping?
  • How does dropshipping work?
  • Who are the key players in your dropshipping business?

Plus, we'll even answer some commonly asked questions such as: Is dropshipping legal? How can your retail POS system help streamline your dropshipping operations? And more general tips. 

Let's get started!

What is dropshipping? 

Dropshipping is a retail method in which an online store doesn't stock its own products. Instead, when a customer orders something (usually online) the store sends that order and payment to a dropshipping supplier. The supplier then ships that product directly to the customer.

Many business owners like the dropshipping model because it lets suppliers handle the order fulfillment process. This means stores don’t need to invest in warehouse space or worry about unsold inventory and inventory management. As a result, businesses can focus more on other things to better their ecommerce business, like marketing, loyalty programs, and other activities.

Difference between dropshipping suppliers and wholesalers

Dropshipping suppliers are the people (and companies that handle the orders placed by retailers for their customers. They store the products, pack them up, and ship them straight to the customer’s door.

To get started, you can team up with a single third-party supplier or use a platform like AliExpress that lists lots of different suppliers. Sometimes, even manufacturers act as dropshipping suppliers.

For example, say you want to start an online store that sells pet products. Your customers will come to your website and order a product like a cat collar. You then send that order cat collar to your supplier, who will pack it up and send it to the customer.

Then you've got your manufacturers. They're the people that make the products. They typically sell the products they've created in bulk to either a wholesaler or a retailer, rather than selling them individually directly to the end customer.

As a seller, you could buy products in bulk directly from a manufacturer, but many manufacturers don't offer small batches of products. Instead, they prefer to sell them in bulk and might have a minimum quantity requirement for purchases.

For entrepreneurs or individual sellers just starting out, buying a large number of products at once might be challenging (we're talking both financially and in terms of storage space). That's why having someone else handle this part of the dropshipping process could be a plus.

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How does dropshipping work?

Now that you've got a decent idea of what dropshipping is, and who is involved in the dropshipping process, let's go through a step-by-step breakdown of how it works:

Step 1: Partner with a dropshipping supplier

Find a dropshipping supplier (or multiple suppliers) that sells the products you want. Remember to research the highest profit margin products ahead of time, so you know what to sell. You'll also want to make sure that you're partnering with a reputable supplier. Look out for things like:

  • Price transparency: How much are they charging for things like shipping costs and packaging? Are they open about this? Are their prices negotiable?
  • Product quality: It goes without saying, but you wanna sell top-quality stuff. It’s important to check if their products pass the quality test. You don't wanna be dealing with unhappy customers because of shoddy goods.
  • Shipping times: Make sure your supplier can get those products out the door and into your customers' hands pronto. Nobody likes waiting around for ages for their order to arrive.

After you sign an agreement with them, they'll take care of storing, packing, and shipping the items when your customers buy them. You can team up with a single business in your field, or you can use a dropshipping app that lets you sell products from various suppliers.

Step 2: Set up an online store

Now, create your online store. You'll list the products from your supplier at the prices you set. To keep your product listings up-to-date and make order processing easier, add a dropshipping app to your store.

TIP: Take your business online effortlessly with Epos Now Online. Our website builder lets you build an online presence with simple, intuitive, hassle-free software. Plus, we use Wix Stores to sync with your retail POS system, making it easy to sell, engage and communicate with your customers online as well as in store.

Step 3: Receive customer orders

When someone decides to splash some cash in your store, it's a little victory dance moment! Make sure your checkout process is smooth sailing so they can breeze through it without any headaches. Once they've hit that buy button, they'll get a confirmation email so they know everything's A-OK. Then it's just a waiting game until their goodies arrive. However, you can still keep them in the loop with updates and tracking info along the way using your POS software with integrated CRM functions.

You can simplify this process by using online store builders like Shopify or Wix. These platforms can be set up quickly and get you trading almost immediately. 

Step 4: Forward the order to the supplier

Now it's time to pass the baton to your dropshipping supplier. They need all the deets to make sure the order gets fulfilled just right. If you're using an app, this part usually happens in the blink of an eye – technology, right? But it never hurts to double-check and make sure everything's in order. Clear communication with your supplier is key to keeping the wheels turning smoothly and stop any supplier errors before they happen.

Step 5: Supplier prepares and ships the product

Once your supplier gets the lowdown on the order, it's go time. They'll grab the product, wrap it up nice and tight, and send it on its merry way to your customer. If you've picked a good, reputable supplier, they might even throw in some fancy packaging in their dropshipping services to really wow your customer. It's all about those little touches that make the shopping experience extra special, right?

Step 6: Customer receives the product

Ta-da! This is the moment of truth. Your customer gets their hands on your brilliant products. Make sure everything's tip-top because this is where it all comes together. If there are any issues, reach out to them quickly with some winning customer service. Happy customers mean repeat business and glowing Google reviews, so it's worth going the extra mile to keep them smiling.

Pros and cons of dropshipping 

Dropshipping is a popular way for new business owners to make money online because it has a ton of key advantages. Here are some of the main benefits of dropshipping:

  • Low barrier to entry: You don’t need a lot of money to start a dropshipping business. Once you sell a product, the supplier handles the order fulfillment method and shipping. However, you do need strong promotion and branding skills, especially in a crowded market. If you're not confident in these skills, you can take free (or affordable) online marketing courses on sites like Udemy.
  • Flexibility: Dropshipping isn’t a 9-to-5 job. You can sell as many or as few products as you want. This scalable model lets you work whenever and wherever you like.
  • Simple testing: With order fulfillment and shipping handled by the supplier, your main focus is testing which products sell best. This makes dropshipping a great way to learn about ecommerce marketing.

Unfortunately, it's not all sunshine and rainbows. There are some cons that you'll need to consider before you start dropshipping. Here are the main disadvantages of this business model:

  • Narrow profit margins: While the perk has minimal overhead costs since you don't deal with inventory management or storage, it also means your returns are modest. You're investing less upfront, but you're not reaping big rewards. This situation requires a constant flow of business just to keep things running smoothly, let alone make a profit, especially considering a significant chunk of your revenue goes to the supplier. With such slim margins, it's tough to cover all your expenses, from marketing and maintaining your website to managing sales orders and handling customer inquiries during office hours.
  • High competition: Some entrepreneurs get caught up in the allure of low overhead costs and overlook the harsh truth. With dropshipping requiring minimal capital to start, it's become a crowded arena, especially in popular markets. The big players can slash prices to the bone, leaving smaller businesses struggling to keep up. To add insult to injury, you probably don't have an exclusive deal with your suppliers. This means your rivals could be selling the exact same products as you. And if you're just starting out, the big fish with years of experience have the upper hand, making it hard for you to compete on price.
  • Limited control over the supply chain: In traditional e-commerce, if customers have complaints about product quality or shipping issues, you have the power to fix them yourself. However, in dropshipping, you're at the mercy of your supplier, while still being the one who has to face your customers. It's like being stuck in the middle, trying to juggle both ends.

How does dropshipping work? 

Now that you've got a decent idea of what dropshipping is, and who is involved in the dropshipping process, let's go through a step-by-step breakdown of how it works:

Carry out market research for your dropshipping business idea

First, you need to understand what people want to buy. Start by looking at current trends. Websites like Google Trends or your socials can show you what products are popular right now.

Next, check out online marketplaces like Amazon, eBay, and AliExpress. See what other dropshipping companies are selling and read customer reviews to understand what people like or dislike about these products.

As a business owner, you should also analyze your potential competition. Look at your competition in the ecommerce space to see what they offer and how they market their products. This will help you identify gaps in the market that you can fill.

Don’t forget to consider your target audience. Think about who would want to buy your products and why. Are they young adults, parents, fitness enthusiasts, or tech lovers? Knowing your audience will help you choose the right products and marketing strategies.

Lastly, test your ideas out. You can use online surveys or social media polls to ask people what they think about your product ideas. This feedback is invaluable for refining your choices.

By doing thorough market research, you'll have a solid foundation for your dropshipping business.

Choose the right dropshipping suppliers for your website

Now that you know what kind of dropshipping company you want to start, it's time to start looking for people to work with. Find a dropshipping supplier (or multiple suppliers) that sells the products you want. Look out for things like:

  • Price transparency: How much are they charging for things like shipping costs and packaging? Are they open about this? Are their prices negotiable?
  • Product quality: It goes without saying, but you wanna sell top-quality stuff. It’s important to check if their products pass the quality test. You don't want to deal with unhappy customers because of shoddy goods.
  • Shipping times: Make sure your supplier can get those products out the door and into your customers' hands pronto. Nobody likes waiting around for ages for their order to arrive.

After you sign an agreement with them, they'll take care of storing, packing, and shipping the items when your customers buy them. You can team up with a single business in your field, or you can use a dropshipping app that lets you sell products from various suppliers.

Build your online store and track performance

Now, create your store where you can sell online. You'll list the products from your supplier at the prices you set. To keep your product listings up-to-date and make order processing easier, add a dropshipping app to your store.

TIP: Take your business online effortlessly with Epos Now Online. Our website builder lets you build an online presence with simple, intuitive, hassle-free software. Plus, we use Wix Stores to sync with your retail POS system, making it easy to sell, engage, and communicate with your customers online as well as in-store.

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Best practices for a dropshipping business

Now onto some tips and tricks for dropshipping:

Choose to dropship products with strong profit margins

When you're picking products to dropship, focus on those with strong profit margins. This means choosing items where the difference between your cost and the selling price is big enough to make a good profit. Products with higher profit margins help cover other business expenses and leave you with a decent profit.

TIP: We've got a whole guide on the highest-profit margin products. Check out our best retail products to-sell blog for more!

Automate your operations with technology 

To run a smooth and efficient dropshipping business, use technology to automate as much as possible. POS software is a great tool for this. It helps manage online sales, inventory, and customer data all in one place.

Look for POS systems that integrate well with other software you use. For example, if you have a physical store and an online store, your best bet is a unified retail POS that can sync inventory between both. This way, you won’t accidentally sell the same product twice.

Automation tools can handle order processing, track shipments, and even update your customers on their order status. This reduces manual work and the chance of errors. By automating your operations, you can focus more on growing your business and less on day-to-day management.

FAQ about dropshipping

Is dropshipping profitable?

Yes! Typically, dropshipping businesses see profit margins hovering around 10% to 15%. But with some savvy moves like finding the right products to sell and building solid relationships with suppliers, you could build a pretty profitable dropshipping biz.

How do I integrate dropshipping into my business?

Integrating dropshipping into your business is pretty simple. Start by finding a reliable dropshipping supplier who offers the products you want to sell. Next, use an e-commerce platform like Shopify or WooCommerce, which have easy integrations for dropshipping. Set up your online store, add the products from your supplier, and sync everything. Many POS systems can also link your physical store with your online store, keeping your inventory in sync. Once set up, when a customer places an order, your supplier handles the shipping directly to them. This way, you expand your product range without holding inventory.

How do dropshippers actually make money?

Dropshipping businesses make their dough by making sure they've got a profit margin on the products they snag from suppliers and sell to consumers.

Is dropshipping legal?

Absolutely! Dropshipping is totally legit and a widely used method in the world of e-commerce. It's become a go-to choice for many online businesses out there.

What is an example of dropshipping?

Say you're starting an online store that sells custom phone cases. You don’t keep any phone cases in stock. Nope, you partner with a supplier who has a wide variety of phone cases. Here's how it works:

  1. You set up an online store on a platform like Shopify and list the phone cases with your own branding and prices.
  2. When a customer places an order on your store, you purchase the phone case from your supplier at a lower price.
  3. The supplier then ships the phone case directly to your customer.

You make a profit from the difference between your selling price and the supplier’s price, without ever handling the product yourself.

How do I become a dropshipper?

To kickstart your dropshipping venture, you'll need to invest in setting up an online store, which includes things like getting a domain name and setting up your e-commerce website. You might also want to set aside some cash for online advertising to reach potential customers.