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There was a time, not so long ago, when starting a retail business represented a significant investment. You’d have to find and rent a shop front, kit it out the space,clothe it in your brand, buy stock to fill the racks and shelves, and spread the good word through print, radio and TV advertisements.
Today, each of these critical steps can be taken care of for a surprisingly low price, and in some cases don’t require a monetary investment at all… incredibly, even with that all-important stock.
Welcome to the world of dropshipping.
Dropshipping is a uniquely modern way of doing business. It leans on a wealth of modern technologies and innovations, from eCommerce, through digital marketing, to low-cost international shipping, to allow anyone with the necessary ambition and motivation to become their own boss, without the need for much, if any, capital investment. The resources dropshipping does demand, however, are time and effort.
Here we’ll take a deep dive into this new business world, taking a look at what dropshipping is, whether it’s the right choice for you and if it is, how to start dropshipping.
Let’s get started.
How does the dropshipping business model work?
The dropshipping business model is essentially the standard eCommerce business model, with one significant difference: you don’t hold your own inventory.
You begin as you would with any eCommerce venture: you choose the niche to fill and products to sell, you create a brand and a website, and you market yourself through search engines and social media. Things only differ when you make that first sale.
Dropshipping businesses don’t hold their own stock. They instead take an order from a customer, then send that order on to a third-party supplier who picks, packs and delivers the order directly to the customer. The dropshipper more or less makes money as a pure salesperson, finding customers for the supplier and taking a commission on each sale. But unlike a salesperson, the dropshipper does all of this under their own brand and looks the same as any other eCommerce company as far as the customer is considered.
The dropshipping business is responsible for:
- Choosing the products it wants to sell
- Setting up an eCommerce website
- Setting its own prices
- Marketing itself and the products
- Finding customers and making sales
- Providing customer service pre-and post-purchase
The supplier is responsible for:
- Creating products
- Maintaining appropriate levels of inventory
- Shipping products to customers
- Replacing defective products (although the dropshipper acts as an intermediary in these situations)
Benefits of starting a dropshipping business
Why start a dropshipping business? One reason stands out above all others: the low barrier to entry.
If you’re looking to establish an eCommerce site, you have three business models to choose from:
Create your own products: Or find a manufacturer willing to create them for you. This option is by far the most expensive, requiring significant capital for market research, product R&D, and to make that first order, as bespoke manufacturing often demands large minimum orders.
Buy and resell existing products from a wholesaler: The model that most retail stores use, is perhaps the most conventional approach to eCommerce. Creating your own inventory of existing products still demands significant capital to get the first order of stock in, and to find somewhere to store it.
Dropship: Then there’s dropshipping, which allows a business owner to avoid all of these significant expenses. Sure, you’ll need to set up an online store and market yourself, but if you develop the right skills, these steps don’t cost much money (although they will require a lot of your time.)
Dropshipping also offers a wealth of other benefits to the business owner:
- Less buying pressure: Wholesale purchases tend to be made in bulk. This brings real pressure come order time, particularly if you deal in a fickle industry like fashion, or in perishable items like food. Dropshippers don’t have these worries, as they aren’t obliged to make large orders, nor carry any stock at all.
- Less risk: Lower levels of investment mean lower levels of risk. It doesn’t matter if a specific product doesn’t sell, because you don’t have money tied up in the stock of that item. Failure is a part of business, and it’s far more palatable as a dropshipper.
- More agility: The results of this reduced pressure and risk? Dropshipping is a super agile business model! Without the burden of pre-purchased inventory, you can act instantly on customer feedback. If an item doesn’t sell, don’t advertise it. If an item is super popular, concentrate on offering similar or complementary products.
- More money to invest elsewhere: In dropshipping each customer covers the costs of their own transaction, and you simply take your cut (which you set.) Instead of spending your capital on stock, you can spend it on branding, marketing and advertising – things that are absolutely critical in the world of eCommerce.
- It’s fun!: In dropshipping you get to experience all the excitement of building a brand, without the responsibilities of dealing with inventory and sending out orders – more pleasure, less pain!
Is dropshipping profitable?
Dropshipping is indeed profitable… if you do it the right way. The low barrier to entry means that the dropshipping industry has its fair share of ‘fly by night’ sellers – those who seek to make as much money as possible as quickly as possible, and who tend to burn customers (and ultimately themselves) in the process.
When dropshipping is done right – when market research is conducted, when branding and marketing are taken seriously, and when excellent customer service is provided – it can be a lucrative business and one that almost anyone can set up.
This brings us to the main course of this article: how to start dropshipping business.
How to start a dropshipping business in 7 steps
You’re excited by the prospect, and you’re eager to give it a go, but you’re wondering exactly how to start dropshipping. Happily, the process can be condensed down to 7 simple steps.
1. Find your products
What will you sell? Begin by focusing on an area of interest, as you’ll find it easy to sell products that you’re passionate about. Perhaps you love fashion, food, art or pets, and can sell products in those areas. While there’s no wrong answer, keep in mind that some fields are more competitive than others, and they’re inevitably the areas that people see as more exciting or fun. Perhaps it’s worth investigating comparatively ‘boring’ yet underserved markets?
2. Conduct market research
Find your niche. Once you have a field in mind, conduct some basic market research to work out the sort of products that people are searching for, and that they are perhaps struggling to find. This can be as simple as using Google Trends to work out what your potential customers are searching for. Your research should also cover potential competitors, as you want to avoid having to compete against a big and well-established brand.
3. Find a dropshipping supplier
There are many online marketplaces that allow you to shop dropshipping suppliers and their products. AliExpress (from Alibaba) is the world’s largest marketplace, although a dropshipping directory like SaleHoo has the potential to connect you with more suppliers.
Most of these marketplaces offer ratings and reviews on suppliers and products, making the process of finding a quality dropshipping partner far simpler. Get in contact with a handful of the best, and ask questions around minimum orders, shipping times, replacement policies and order processes. Make your final choice based on who will offer the best experience to your customer.
4. Register your dropshipping business
Sure, a dropshipping business might be simpler and less costly to set up than a traditional business, but the same rules still apply in terms of tax and other regulatory responsibilities. You’ll need to register for an Australian Business Number (ABN) or an Australian Company Number (ACN), and if your business makes more than $75,000 in a financial year, you’ll also need to register for GST.
5. Build your online store
Once you’ve found your niche, products and suppliers, and knocked over all of the necessary paperwork, it’s time to begin building your business into a money-making machine. The foundation of this effort is creating a place where customers can browse your range and purchase your products: a website.
A good website is central to dropshipping success, but building one can be an intimidating prospect, particularly if you haven’t constructed an eCommerce website before. The good news? Square Online is a free online store building tool that makes the process super simple. Setting up your store is fast and easy, the results are stunning, and launching your site won’t cost you a cent! You’ll also enjoy the backing of our market-leading eCommerce payment solutions – the only time you pay is when a transaction is processed, at a rate of just 2.2%.
6. Market your dropshipping store
Once you’ve created your beautiful online store, it’s time to get customers through the virtual door. The importance of marketing, advertising and branding cannot be understated – as an online business you’ll find yourself competing against the world, so you need to do all that you can to ensure your business and products get in front of the relevant eyes.
Consider marketing your business in the following ways:
- SEO: People no longer type URLs into the address bar of their browser. They Google it. Search engines are the gatekeepers of the internet, so if your dropshipping business has any chance of making it big, you need to make your website as Google-friendly as possible. Search engine optimisation (SEO) covers a wealth of tactics, from inserting the right keywords to technical strategies like improving page load times, so it’s wise to get help from an expert.
- Paid ads: While the aim of SEO is to get you to the top of the search engine results page (SERP) for the relevant search terms, this is easier said than done, because your competitors all have the same aim. Google Ads will guarantee you a top spot, and display advertising remains a cost-effective way of getting your brand in front of the right eyes.
- Social media: Create profiles on Facebook, Instagram and any other social media site where your target customers tend to hang out and post beautiful, entertaining, engaging or informative content that will draw them in.
- Content marketing: Content creation extends beyond social media. A blog on your website can serve to push you up the Google SERP. By using a webinar or whitepaper as a lead magnet you can ask for customers’ permission to be added to your database. In content marketing, you give something to get something.
- Influencer marketing: There’s no need to get a Kardashian – targeted influencer marketing can prove super effective and surprisingly affordable, particularly if you choose a genuine influencer with an engaged audience in the thousands rather than the millions.
- Customer reviews: The concept of ‘social proof’ is becoming more important by the day. People want to hear about the experiences that other people have had with your brand because people trust other people. Incentivise customers to leave reviews and reply to them religiously. Remember that your response to a bad review is an opportunity to show customers who you are as a brand.
- Email marketing: While it might be a (relatively) old technology, email remains as important as ever. Collect email addresses during the purchase process or via lead magnets, and email special loyalty deals regularly. A tool like Square Marketing can automate almost every aspect of email marketing, ensuring you enjoy a steady stream of return customers and warm leads.
7. Analyse your web performance and optimise your website
Your dropshipping journey doesn’t have an endpoint. To stand still is to go backwards because your competitors will always be looking for ways to get ahead. This means that you need to constantly monitor, analyse and improve every aspect of your online presence: your website, your marketing, your social media and your purchase processes. To help you out, Square Online offers a wealth of data and insights, as does Google Analytics.
Dropshipping represents a unique opportunity – one that didn’t exist just a few years ago. It grants almost anyone the ability to start their own business, but at the same time, not everyone will succeed in the space – this is a venture that demands quality, commitment and a long-term mindset.
But if you’re ready to do things right, and to make the most of the opportunity that dropshipping offers, Square offers a wealth of high-quality solutions to help.