Do you want to start a drop shipping business? If YES, here is a complete guide to starting a drop shipping business with NO money and no experience.
Okay, so we have provided you an in-depth sample drop shipping business plan template. We also took it further by analyzing and drafting a sample drop shipping marketing plan backed up by actionable guerrilla marketing ideas for drop shipping businesses. In this article, we will be considering all the requirements for starting a drop shipping business. So put on your entrepreneurial hat and let’s proceed.
Why Start a Drop Shipping Business?
As an aspiring entrepreneur looking towards leveraging on the e-commerce industry to launch a business that requires minimal startup capital, one of the many businesses you can successfully start in the industry is a drop shipping business.
You will only require very minimal startup capital to successfully start and run a drop shipping company. The truth is that it is possible to launch an e-commerce store without having to invest thousands of dollars in inventory up front.
Basically, with the drop shipping business model, you don’t have to purchase a product except you have already made the sale and have been paid by the customer. Even if you don’t have major up-front inventory investments, it is possible to start a successful drop shipping business with very minimal startup capital.
It is very important that you analyze the existing drop shipping businesses in and outside of your area. Also, you would be required to check the existing competition, as well as know their strengths and weaknesses. Knowing the weaknesses of existing drop shipping companies around you means that you can learn from their mistakes and in turn come up with a better and more preferred drop shipping service devoid of the mistakes and weaknesses of others.
So, if you are serious about starting your own drop shipping company, all you need do is read this article and you will be well equipped.
Starting a Drop Shipping Business – A Complete Guide
- Industry Overview
The e-commerce industry that drop shipping business is a part of is indeed a very large industry that can boast of creating business opportunities for loads of entrepreneurs all across the globe and generating multiple billion dollars annually. The industry generates well over $1 trillion annually on a global scale. For example, in 2012, e-commerce sales topped $1 trillion for the first time in history and the figure is still growing.
According to Wikipedia, “China’s e-commerce presence has continued to expand every year. With 384 million internet users, China’s online shopping sales rose to $36.6 billion in 2009 and one of the reasons behind the huge growth has been the improved trust level of shoppers.
Chinese retailers have been able to help consumers feel more comfortable with shopping online. China’s cross-border e-commerce is also growing rapidly. E-commerce transactions between China and other countries increased from 32% to 2.3 trillion yuan ($375.8 billion) in 2012 and accounted for 9.6% of China’s total international trade in 2013, Alibaba had an e-commerce market share of 80% in China.”
Drop shipping business model just like Amazon FBA is a retail fulfillment method where a store does not necessarily keep the products it sells in a warehouse or a store of some sort. Instead, when a drop shipping company sells a product, it purchases the item from a third party and has it shipped directly to the customer. Hence, the merchant never gets to see or handle the product in question.
One obvious difference between the drop shipping e-commerce business model and the standard retail business model is that the drop shipping company doesn’t stock or own inventory. Instead, the drop shipping company purchases products/stocks as needed from a third party – usually a wholesaler or manufacturer or the direct manufacturer of the products so as to fulfill orders placed by customers.
It is important to mention that there are loads of advantages in starting a drop shipping business hence the increase in the number of players in this line of business. Some of the advantages of starting a drop shipping business are low overhead, flexibility in choosing a location for the business and a wide selection of products from different manufacturing brands or wholesale distributors.
So also, if you start a drop shipping company, you will not have to crack you brain on how to source for money to lease or manage a warehouse, how to package and ship orders from customers, keeping track on inventory for accounting reasons, handling returns and inbound shipments and frequently ordering products and managing stock level.
The drop shipping business will continue to blossom because people will not relent in purchasing products from online stores. Despite the fact that the industry seems saturated, there is still room big enough to accommodate aspiring entrepreneurs who intend opening their own drop shipping company.
Lastly, it is important to state that the e – commerce industry is regulated by a number of federal, state and international regulatory organizations, so if you are a player in the industry, you are expected to play by the rules and regulations.
There are laws that govern e-commerce business; such laws involve complex contracts and tax issues, security and privacy issues. Because technology changes swiftly, so also the laws regulating it are renewed on a regular basis.
For example, in the United States of America, the Uniform Computer Information Transactions Act (UCITA) regulates the e – commerce industry. UCITA are responsible for creating rules and regulations that govern areas like software licensing, online access, and other transactions in computer information.
Starting a Drop Shipping Business – Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those who purchase goods from online stores via third party providers cut across all genders; male and female above 18 years with the financial means, hence the demographic composition for a drop-shipping company is all encompassing.
The truth is that when it comes to selling goods online, there is indeed a wide range of available customers. In essence, your target market can’t be restricted to just a group of people or business, but to all those who have access to the internet and have the purchasing power.
List of Niche ideas Within the Drop Shipping Business That You Can Specialize in
Most drop shipping companies tend to retail any product that is in high demand, and also operate general business activities carried out by a standard drop shipping company, that is why it seem that there are no niche areas in the industry.
But on the other hand, some drop shipping companies may decide to major in some key areas (retail certain products in their online stores as a third – party dealer) such as;
- Retail electronics, computers, smartphones, cameras, projectors and other related gadgets
- Retail clothes, shoes, bags and other fashion accessories
- Retail books, stationaries and academic stuffs
- Retail furniture, safes, office, kitchen utensils and home wares
- Retail groceries
- Retail drugs, supplements and cosmetics et al
- Retail children toys
The Level of Competition in the Drop Shipping Business
The competition that exists in the e-commerce industry cum drop shipping line of business goes beyond competition amongst drop shipping companies and other online stores in your city or country; you will be expected to compete with drop shipping companies all over that world that also retail similar products and offer same services as you do.
This is so because the world-wide web is a great platform for any entrepreneur to launch a drop shipping business and still make headway no matter the part of the world they live in. So, it will be right to say that the competition in the drop shipping business is tough.
The truth is that no matter the level of competition in an industry, if you have done your due diligence and you brand and promote your products or business properly, you will always make headway in the industry. Just ensure that you retail products that are in demand in your business location and you know how to attract and reach out to your target market.
But over and above, there are several drop shipping companies cum online stores scattered all around the United States and on the cyber space. So, if you choose to start your own drop shipping company in the United States, you will definitely meet stiff competition amongst other drop shipping companies and online stores that retail same products like you. Besides, there are larger drop shipping companies and online stores that determine the trend in the industry and you should be ready to compete with them for customers.
List of Well – Known Brands in the Drop Shipping Industry
In every industry, there are always brands that perform better or are better regarded by customers and the general public than others. These are some of the leading drop shipping companies in the United States of America and in the globe;
- Sunrise Wholesale Merchandise Dropshipper
- Vousi – Fashion Jewelry Wholesaler/Dropshipper
- Safety Technology
- Rainbow Card Company
- Choice Promotional Products
- KIDSBLANKS by ZOE (USA) Free Shipping
- Smart Blonde® Novelty License Plates & Signs
- Sunrise Glamour LLC
- Kamar Silver -Offer Silver Jewelry at Factory Pric
- My Southern Home Place … Decor Country Wholesale
- Kole Imports Drop Shipping
The Drop shipping business is quickly becoming competitive, as a matter of fact, you will come across several drop shipping companies and online stores on the internet retailing same products and offering same services like you do. So, you should carry out thorough market survey and costing of the required amount needed to effectively handle logistics and also the running cost to successfully run the business.
Over and above, if you are considering starting a drop shipping business, then your concern should not be limited to the cost of building and maintaining your website, but should also be on branding and how to build a robust third party retailers and clientele base. The truth is that if you are able to build a robust retailer and clientele base and far reaching distribution network, you are sure going to maximize profits in the business.
Starting Your Drop Shipping Business from Scratch vs Buying a Franchise
If you are looking towards starting a drop shipping company, you would have to start from the very scratch simply because you can hardly get a franchise of a drop shipping company to buy. It is a business that is open to all and sundry.
Besides, starting a drop shipping company from the scratch is less stressful when compared to other small scale businesses which usually require detailed groundwork before launching the business. With a drop shipping company, you should just try as much as possible to build a user friendly e-commerce store, build business relationship with retailers and then leverage on every marketing tool within your disposal especially the internet to market the products that are listed on your e-commerce store.
Please note that most of the big and successful drop shipping companies around started from the scratch and they were able to build a solid business brand. It takes dedication, hard work and determination to achieve business success.
Possible Threats and Challenges You Will Face When Starting a Drop Shipping Company
If you decide to start your own drop shipping company today, one of the major challenges you are likely going to face is the presence of well – established drop shipping companies and online stores on the cyber space that also retail same products and offer same services as you do. The only way to avoid this challenge is to create your own market.
Other challenges and threats that you are likely to face are economic downturn and unfavorable government policies. There is nothing you can do as regard these threats and challenges other than to stay positive that things will work well for you.
Starting a Drop Shipping Business – Legal Matters
- Best legal entity to use for this type of business
When considering starting a drop shipping company, the legal entity you choose will go a long way to determine how big the business can grow; some drop shipping companies design their business for city wide market, while others for national market and others for international market.
Generally, you have the option of either choosing a general partnership, limited liability Company which is commonly called an LLC, or a sole proprietorship for a business such as drop shipping company. Ordinarily, sole proprietorship should have been the ideal business structure for a small scale drop shipping company especially if you are just starting out with moderate capital and covering just a city. But people prefer limited liability Company for obvious reasons.
As a matter of fact, if your intention is to grow the business and sell your products to customers all across the United States of America and other countries of the world, then choosing sole proprietorship is not an option for you. Limited Liability Company, LLC or even general partnership will cut it for you.
Setting up an LLC protects you from personal liability. If anything goes wrong in the business, it is only the money that you invested into the limited liability company that will be at risk. It is not so for sole proprietorships and general partnerships. Limited liability companies are simpler and more flexible to operate and you don’t need a board of directors, shareholders meetings and other managerial formalities.
Catchy Business Name Ideas Suitable for a Drop Shipping Company
When it comes to choosing a name for your business, you should be creative because whatever name you choose for your business will go a long way to create a perception of what the business represents. Usually it is the norm for people to follow the trend in the industry they intend operating from when naming their business.
If you are considering starting your own drop shipping company, here are some catchy names that you can choose from;
- Golden Bird® Drop Shipping Company
- Eagles Wing™ Drop Shipping Company, LLC
- Prince Felix Drop Shipping Company, Inc.
- Merry Go Round Drop Shipping Company
- Ariel Drop Shipping Company, Inc.
- Power Line Drop Shipping Company, Inc.
- Park ‘n’ Sale Drop Shipping, Inc.
- Park Lane Drop Shipping Company, LLC
- Blue Rays Drop Shipping Company, Inc.
- J Anthem e – Commerce Group
In the United States and in most countries of the world, you can’t operate a business without having some of the basic insurance policy covers that are required by the industry you want to operate from. So, it is important to create a budget for insurance and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your drop shipping company.
Here is some of the basic insurance covers that you should consider purchasing if you want to start your own drop shipping company in the United States of America;
- General insurance
- Health insurance
- Liability insurance
- Credit insurance
- Motor vehicle insurance (comprehensive insurance)
- Deposit insurance
- Workers compensation
- Overhead expense disability insurance
- Business owner’s policy group insurance
- Payment protection insurance
Intellectual Property Protection/Trademark
If you are considering starting your own drop shipping company, usually you may not have any need to file for intellectual property protection/trademark. This is because the nature of the business makes it possible for you to successfully run the business without having any cause to challenge anybody in court for illegally making use of your company’s intellectual properties.
Is Professional Certification Needed to Run a Drop Shipping Business
When it comes to a drop shipping business, you do not need to have any formal training or special certification before you can be allowed to start a drop shipping company. All you need is informal training that will expose you to the in and out of drop shipping and e – commerce business processes.
With that, you will be able to maximize profits in the business. On the other hand, if you come across any form of certification that can aid you to conduct your drop shipping business pretty well, then by all means try and pursue such certification.
List of Legal Documents You Need to Run a Drop Shipping Company
The essence of having the necessary documentation in place before launching a business in the United States of America cannot be overemphasized. It is a fact that you cannot run any business in the United States without the proper documentations.
These are some of the basic legal documents that you are expected to have in place if you want to legally run your own drop shipping company in the United States of America;
- Certificate of Incorporation
- Business License
- Tax Payer’s ID / Tax Identification Number
- Business Plan
- Non – disclosure Agreement
- Employee Handbook
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Company Bylaws
- Memorandum of Understanding (MoU)
- Contract Document
- Franchise or Trademark License (optional)
Financing Your Drop Shipping Business
Starting a drop shipping company can be cost effective especially if you choose to start on a small scale, but if you choose to start the business on a large scale with fleets of distribution vans, then you would need to go source for fund to finance the business because it is expensive to start a large scale drop shipping company.
No doubt when it comes to financing a business, one of the major factors that you should consider is to write a good business plan. If you have a good and workable business plan document in place, you may not have to labor yourself before convincing your bank, investors and your friends to invest in your business.
Here are some of the options you can explore when sourcing for startup capital for your drop shipping company;
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell of shares to interested investors
- Applying for loan from your bank/banks
- Pitching your business idea and applying for business grants and seed funding from donor organizations and angel investors
- Source for soft loans from your family members and your friends.
Choosing a Suitable Location for your Drop Shipping Company
Even though you can afford to start a drop shipping business from any part of the world, when it comes to choosing a location for your drop shipping company cum e – commerce business, the rule of thumb is that you should be guided by the access to the products you retail, and easy distribution/shipping network. Of course, if you are able to start your drop shipping company in the right location for such business, you won’t struggle to make headway in the business.
It cannot be overemphasized that the location you chose to start your drop shipping company is key to the success of the business; hence entrepreneurs are willing to rent or lease a facility in a visible location; a location where the demography consists of people with the required purchasing power and lifestyle. If you make the mistake of starting your drop shipping company in an area where you will find it difficult to ship products purchased by customers, you will struggle to grow the business.
Starting a Drop Shipping Business – Technical & Manpower Details
On the average, there are no special technologies or equipment needed to run this type of business except for e-commerce store/website, customized logistics, inventory-management software and also shipping management software applications and other relevant software applications.
So also, you will definitely need computers/laptops, internet facility, telephone, fax machine and office furniture (chairs, tables, and shelves) amongst others and all these can be gotten as fairly used. You would need a distribution truck or van for this kind of business.
As regard leasing or outright purchase of a warehouse facility, the choice is dependent on your financial standings, but the truth is that to be on the safe side, it is advisable to start off with a short term rent/lease while test running the business in the location. If things work out as planned, then you go on a long term lease or outright purchase of the property.
When it comes to hiring employees for a standard drop shipping company, you should make plans to hire a competent Chief Executive Officer (you can occupy this role), Admin and Human Resources Manager, IT Manager, Merchandize Manager, Warehouse Manager, Sales and Marketing Officers/Distribution Van Drivers, Accounting Clerk and Cleaners. These are some of the key employees that you can work with. On the average, you will need a minimum of 5 to 10 key staff members to run a medium scale but standard drop shipping company.
The Service Process Involved in a Drop Shipping business
When it comes to retailing products from an e-commerce store, there are no hard and fast rules about it. Basically, it is the duty of the merchandize manager or marketing manager to help the organization source for retailers who are ready to work for a third party online store.
They go out there to source for good business deals and they also ensure that they do not only retail at the right prices that will guarantee them good profits, but also, they ensure that they ship the goods as at when due without delays.
Once the deal is sealed, then the drop shipping company can freely list the goods/products on their e – commerce store. When a drop shipping company sells a product, it purchases the item from a third party and has it shipped directly to the customer; hence, the merchant never gets to see or handle the product in question.
Stocks are usually taken after the close of business every day and accounts are balanced. This will enable them concentrate their efforts towards promoting the products on their e – commerce store.
It is important to state that a drop shipping company may decide to improvise or adopt any business process and structure that will guarantee them efficiency and flexibility; the above stated drop shipping company business process is not cast on stone.
Starting a Drop Shipping Business – The Marketing Plan
- Marketing ideas and strategies
Generally, running a business requires that you should be proactive when it comes to marketing your goods or services. If you choose to launch a drop shipping company, then you must go all out to employ strategies that will help you attract customers or else you will likely struggle with the business because there are well – known brands determining the market direction for e – commerce industry.
As a matter of fact, your marketing strategy should center on reliability, swiftness, safety, pricing, secured payment platform and above all excellent customer service. You should ensure that whenever your customers purchase goods, they would get it delivered within the stipulated time frame. The truth is that if you are able to put the above stated in place, you won’t struggle to retain your old customers and at the same time win over new customers.
Players in the drop shipping line of business are aware of the power of the internet and which is why they will do all they can to maximize the internet to market their services. In other words, a larger percentage of your marketing effort will be directed to internet users since your business is based on the internet; your website should become your number one marketing tool.
Here are some of the platforms you can utilize to market your drop shipping business cum e – commerce business;
- Introduce your drop shipping cum e – commerce business by sending introductory letters alongside our brochure to third party retailers and key stake holders
- Advertise your business in relevant business magazines, newspapers, TV and radio stations
- List your business on yellow pages ads (local directories)
- Attend relevant international and local expos, seminars, and business fairs et al
- Create different packages for different category of clients in order to work with their budgets and still meet their demands
- Leverage on the internet to promote your business
- Join local chambers of commerce around you with the main aim of networking and marketing your products and services.
- Engage the services of marketing executives and business developers to carry out direct marketing
Factors That Will Help You Get the Right Product Pricing
One key factor that will help you retail your products at rock bottom prices is to purchase your products directly from the manufacturers in pretty large quantities. The truth is that the higher the quantity of items that you purchase directly from the manufacturers, the cheaper you tend to get them.
Another strategy that will help you retail the products listed on your e-commerce store at the right price is to ensure that you cut operational cost to the barest minimum and channel your efforts towards marketing and promoting your brand name. Asides from the fact that this strategy will help you save cost, it will also help you get the right pricing for your products.
Strategies to Boost Your Brand Awareness and Create Your Corporate Identity
If your intention of starting a drop shipping company is to grow the business beyond the city where you are going to be operating from to become a national and international brand, then you must be ready to spend money on promotion and advertisement of your brand.
No matter the industry you belong to, the truth is that the market is dynamic and it requires consistent brand awareness and boosting cum promotion to continue to appeal to your target market. Your corporate identity has a lot to do when it comes to building a business that is profitable.
Here are the platforms you can leverage on to boost your brand awareness and create corporate identity for your drop shipping company;
- Place adverts on both print (newspapers and magazines) and electronic media platforms
- Sponsor relevant community based events/programs
- Leverage on the internet and social media platforms like; Instagram, Facebook, Twitter, YouTube, Google + et al to promote your products
- Install your billboards in strategic locations all around your city or state
- Engage in roadshow from time to time in targeted neighborhoods to create awareness of your drop shipping company.
- Distribute your fliers and handbills in target areas
- Contact active internet users and online shoppers informing them about your business and the products you retail
- List your drop shipping company in local directories/yellow pages
- Advertise your drop shipping company in your official website and employ strategies that will help you pull traffic to the site.
- Position our Flexi Banners at strategic positions in the location where your drop shipping company is located
- Ensure that all your staff members wear your branded shirts and all your vehicles and trucks/vans are well branded with your company logo et al.