A drop shipping business is a type of business where the retailer does not have any of the items available in a physical space for the buyers to purchase. He simply discusses and agrees with wholesalers about the items they have in stock, advertises and promotes these items and when orders are made, he informs the suppliers of the order.
The supplier’s job is to deliver the item to the customer’s chosen place of delivery. Profit of course is made as the retailer gets the item at wholesale prices, but the buyer buys it at market value, plus there could be extra charges for packaging and shipping with small fees for returning items if they are not damaged.
The most popular place where such a business is done is online, the business owner either chooses to build his/her own website or purchases a space on an online platform that offers a great variety of drop ship businesses digital space to function from.
The very first thing one would want to do when intending to start a business like this is to register the business name or entity. You can choose any of the following business identities, Sole proprietorship, Partnership or Limited Liability Company, for your drop shipping business depending on how big you intend to grow or what you want to do with the company.
The next thing you would want to do is apply for a Tax Identification number, this will ensure that you will be able to secure a bank account and tax claims can be made by the government on your business. Of course a bank account is needed for payments to be made when items are ordered on your site.
Some of the challenges you would face in running this type of business is guaranteeing information security for the ones who will buy items at your site. With the wide spread of identity theft and viruses, it would only make sense to guard against such activities on your site. Another challenge of course would be the supply chain management; you have absolutely no power over how the products are delivered to your customers. This is the sole responsibility of the supplier, so if you have a sluggish supplier that takes a lot of time to deliver products ordered; it may have a negative effect on your brand as a whole.
Some drop shipping businesses have taken to having warehouses where suppliers can easily bring their items, then customers can come pick them up by themselves, of course this is not the normal practice, but you can adopt it if you have the finances.
The drop shipping business is a very strong contender when it comes to retail services and more people around the world are beginning to take full advantage of the convenience of shopping online.
18 Steps on How to Start a Drop Shipping Business in Australia
1. Understand the Industry
A great number out of the 23million people in Australia love to shop online. The Market for e-commerce services of which drop shipping is included continues to grow as the years go by. With a market volume of above $11million United States Dollars estimated to be realized by the industry in 2018, it serves as a great inspiration to anyone wanting to get into the e-commerce trade, especially drop shipping as fashion continues to lead the statistics of items bought online.
Purchases done online by 2017 went well above $32million United States Dollars, causing for Australia to enter the top ten categories for major online purchases worldwide. Although China continues to lead the rest of the world in this particular venture, Australia is seeing a rise in online purchases through the years. This could be due to a number of reasons first of which is the general economy of the nation.
Their high disposable income literally means that Australians have more purchasing power, but this is damped by the low range of products available to them because of their location, so shopping online becomes a great way to get things needed from overseas.
More than 80% of people in Australia have access to the internet, and this makes it easy to access drop shipping websites. The convenience that comes along with simply swiping your phone to purchase an item, and have the business in question deliver that item to your door step sounds too savvy to ignore.
Another reason why most Australians are buying things online is because of the increase in the influence of social media, more people of diverse age groups are using social media of which facebook is the most popular in Australia.
It comes as no surprise that drop shipping, a business to customer business would take full advantage of this social media platform that focuses on individual experience with a very effective advertisement campaign option. If more people in Australia are at their social media handles and advertisement constantly comes to their screens for various items, chances are most will shop.
Another reason why most people are shopping online is because of the increase in mobile device usage. In 2015, more than 30% of purchases were made with a mobile device with more than 25% making purchases from a mobile device on a weekly basis.
With more than 80% of the population having a more urban inclination, Australia has a much stronger infrastructure, where people hoping to get into the drop shipping business face less bureaucratic challenges. One of the things that fuel the online shopping culture in Australia is that they anticipate that the shipping or return cost should not be too expensive.
This is looking like a very good venture to get into if you are in the country, however there are challenges that are common to most businesses, which of course include other people doing the same business as you, and those that are also unique to this type of business. A few of the challenges you would have to watch out for revolve around the quality and originality of the items bought.
As a drop shipping company, you would have to figure out a way to vouch for the items on your online shop or put a disclaimer with very obvious terms and conditions, as most times fakes can be placed there or sent to the buyer. Another challenge to watch out for when entering this kind of business is data protection. Your buyers are going to be putting in their very personal information on your site; you want to be able to protect that information.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
One would imagine that those who shop more online are those of a much younger generation, but basically all ages and groups have come to enjoy the convenience of shopping online. Since the increased relevance of the internet on our day to day activities, even those who are in their golden age are inclined to the ease of online chatter.
So it is safe to say that anybody from any walk of life will definitely be a great candidate for online shopping. However the major way to begin to specify the particular sect of people to target as your market option is to pay attention to the type of people who usually buy the products you want to have on your site.
If you are selling men’s fashion for example, then from that stand point you know you are selling to people of the male gender, but the age range may differ according to the items you are selling. Another set of people that may be interested in fashion for the male gender might be those who are looking to buy something for their husbands, fathers, brothers or sons.
The type of people who shop online at your shop may vary from time to time, but you would have to determine how to reach the people by creating targeted marketing campaigns, fashioning them in ways to attract the specific set of people for the set of items you want to promote.
You can also choose to set up your drop shopping business around what most people are quick to buy online due to your market research. It has been shown that the items being sold the most online are Fashion and Mobile devices.
With fashion taking the lead, this says that having more items that center around fashion on display at your online shop with affordable prices, shipping payments and friendly return policy may increase the rate of buys on your site.
3. Decide What Niche to Concentrate On
Well your niche in this kind of business is the unique set of items you want to be predominantly selling at you online shop. It would be best to find out items that you have a natural flare for or passion. Something you regularly shop for that you genuinely have interest in, so you can spot the real from the fake, seeing as you are an authority in the field.
However you need to make sure that this particular niche you have chosen because of passion is one that is commercial enough to make you profits. Do your research to find out if your niche is something many people are buying on a regular basis. Look at your competitors to find out exactly what they are doing in terms of marketing strategy or promos.
Even something as simple as the website design may be the difference between sales and near misses. Whatever way you choose to identify your niche, make sure that in time, your site will be the place where people will always want to come and buy the items you have so carefully chosen to emphasize.
The Level of Competition in the Industry
The level of competition in the drop shipping industry is much. First of all, you have world famous brands like Amazon or Ebay to deal with, not to mention all the other people that have been in the business before you. These businesses have already built customer bases, follower bases and have understood the business on the digital plane.
They know the business too well; they have relationships with suppliers and have loyal visitors who constantly buy from their sites. They have fine-tuned their marketing strategies to make more sales and they know what to do to get customers to buy more.
You will have your work caught out for you if you want to beat these businesses at their own game. Luckily enough the internet is still an evolving platform and from time to time new innovations will come up. These new trends will give you an opportunity to get noticed by jumping on the trend.
As you will already notice, the attention span for a lot of those online is pretty low, in that, trends tend to have a way of creating new attention to a once unnoticed brand. These and many other ways are some suggestions on how to deal with the abundant presence of drop shipping companies online.
4. Know the Major Competitors in the Industry
Those who have already established themselves in the industry are;
- Big Commerce
- Open Source e-Commerce
One of the great things about a drop shipping business is that it doesn’t take much in terms of investment capital. You do not necessarily have to start looking for some office space or showroom to rent. You won’t have to deal with office furniture or equipment to run this type of business, in fact this business can be run from your home.
That being said, you will need to spend money in the areas of registering the company name, getting your tax id or other licenses you may need. Building your website and creating security for your customers are among a few things you may need to spend money on. But apart from fairly minimal items like these, you won’t be spending so much money on setting this type of business up or running it.
Most of what you would be spending money on would be digital marketing and promotion of your business. Website upkeep may also be another expense, if you are not the person who built the website personally. Of course if you would simply open up a profile on an already established website to sell your items, then this cost may be won over, but you will have to pay the host site, in order to have your shop on there.
5. Decide Whether to Buy a Franchise or Start from Scratch
Surprisingly there are lots of drop shipping businesses to buy online, these shops have been fully set up by the person or person’s offering it. They have their items all on it, with the prices and full options for payment. I want to believe that they have sorted out all legalities and security issues that may be inherent with setting up such a site. All the buyer does is buy the site from the designers and begin to trade.
The prices for these already set up drop shopping sites are relatively low when you compare it to buying the franchise of a physical department store or boutique. When buying a franchise, you don’t have to deal with rent, facility maintenance, employee salaries and so one. However there are some very proper, more professional drop shipping businesses that have offices and a few staff.
The office of course is to handle the administration of orders and update the web content. These however may present themselves as more expensive than the former. Whether you want to buy a simple drop shipping business or the more advanced professional one, the choice is yours. It all depends on what vision you have for yourself and the business you want to do.
6. Know the Possible Threats and Challenges You Will Face
One of the major threats you will encounter in running this kind of business is authenticity of items being sold. There are many fraudulent people out there flaunting fake items for the unsuspecting buyer to purchase. As the owner of a drop shipping business you do not want the word going out there that most of the items on your site are fake. It will do you a great good to investigate your supplier thoroughly in order to ascertain if his products are authentic. Because usually the buyer may not know the items are not coming from you directly and may brand your online shop as a sham.
Even if they know you are not the one who has the products, your credibility will still be in question because they would have expected you to do your due diligence in investigating the suppliers you want to showcase on your site. However a disclaimer with clearly stated terms and conditions should be readily available for the customers on the site.
Another threat to look out for is data theft. When a person makes a purchase on your website, they leave very sensitive information with you. You would have to go through a great deal of work personally or by hiring an IT professional to safeguard against data theft. Consumers have things like their names, phone numbers, addresses, emails even credit card numbers on your data base. It would be a great disservice if any of that information reaches the wrong hand.
Protection against Viruses is another thing to look into, or should I say internet viruses are another threat to this kind of business. The internet is swarming with them; they can come into your system or go into your customer’s system through your site. You would have to pay serious attention to making sure no viruses come into your system or leaves your system to others.
7. Choose the Most Suitable Legal Entity
There are few legal entities available to the person that wants to operate in Australia and the first we are going to discuss is the Pty Limited Company, this is the proprietorship Private Company. This company is limited by shares, if you want to establish this type of entity in Australia; at least one of the directors must be resident in Australia and must be above 18 years of age.
You may employ two or more employees to assist you in running the business. Now of course if you are the one in Australia by yourself, you could choose to register your agency under this legal entity.
8. Discuss With an Agent to Know the Best Insurance Policies for You
It is important to set aside some money for the various insurance policies that are required to operate your business. You may need to consult an insurance broker to find out which ones are best for your business. Of course as one just venturing into this field for the first time, you will need to be cautious as not to be tricked into policies that are not relevant to your business.
Some of the basic insurance policies that you should therefore consider purchasing if you intend starting your business in the United States of America are;
- General Insurance
- Payment protection Insurance
- Product Liability Insurance
- Credit Insurance
9. Protect your Intellectual Property With Trademark, Copyrights, Patents
In this kind of business, it is always advisable to trademark your logo in order to protect it from being stolen. It is easy to simply develop a dummy website with all the similar attributes to your original website, especially if you are beginning to make some serious waves. When you protect not just your logo, but your items or services, you keep it safe from theft.
10. Get the Necessary Professional Certification
You do not need any professional certification as an individual to set up and run a business like this. Anyone can get into a business like this, however if you have some type of knowledge about Information Technology or programming, especially for the web, it could be an added advantage, because then you would know how to fix bugs and re-write codes to fit your exact vision for your business.
11. Get the Necessary Legal Documents You Need to Operate
When running any business, there are usually legal documents and licenses that must be in place for the business to run smoothly without violating any laws. Luckily the drop shipping business in Australia does not require so much legalities before it can be operational. A few of the legal documents needed to run a drop shipping business in Australia include;
- Certificate of Incorporation
- Tax ID Number
- Trademark Registration
- Business Plan
- Insurance Policy
- Company Bylaws
- Business License
- Reseller License
- Memorandum of Understanding from Suppliers
12. Raise the Needed Startup Capital
There are basically two levels in which you can get into this type of business. You can choose the simple approach which does not cost so much, as with as little as $200 you can actually kick start this particular style of drop shipping business.
In this type, it isn’t necessary to have a physical office, a staff or even a warehouse to keep some of your items. You just need to pay the legal necessities, build the website and promote your business. Raising money like this may not be too difficult, even the most average person can do that.
However if you want to have a little office to operate the back end of the business from, a place where your developers come to work daily, your customer service personnel come to work daily and other personnel, then raising a substantial amount of money may be required.
When raising money for your drop shipping business, here are a few ideas on how to do it;
- Because of how cheap it can be, you can actually start this business with your own savings
- If you want to start really big, then you can also sell personal property
- If your Company intends to go public you can sell shares of it
- Family members and friends can offer soft loans
- Banks are also a good place to get loans
- Private investors and business partners
13. Choose a Suitable Location for your Business
Except you want to have a bigger administrative back end for your online shop, location does not matter. Once again there is a variation of this business where you by yourself at home, you laptop and your phone are enough to run a business like this. Your home is good enough, because you clients do not come to see you personally, the only interaction you have with your client is on the web or on the phone.
The items are not coming from your physical location; the supplier handles the delivery of the items. Since these items are delivered to the location of the customer himself, it really makes no difference where your company is located.
However you may want to have a full administrative back end. This could now give you a reason to be conscious about where exactly your office is located. However, location will not be a major issue here because 95% of your customers have no business coming to your office.
14. Hire Employees for your Technical and Manpower Needs
In as much as you may not be tech savvy or even be a web designer yourself, you may need to hire a web designer to build your website for you. Of course this aspect has to deal with how big you want to run your drop shipping business. If all you want is a website or web presence, you definitely do not need any manpower to fully operate this business.
However if you imagine your company to be very vast in its range of items, with a very responsive website that also uses web tactics to market items on your websites to users of the web in your area; and you want to handle lots and lots of accounts on your website, you will need a few more hands to make that possible.
Imagine that lots of orders are coming in; it serves well for your company to make confirmatory calls to the buyers, so customer service personnel would have to be hired. IT Specialists and Web Developers would always have to be on their toes to make your online presence stand out from the competition.
Not to mention that the design of you website must be very appealing to the eye, so your web designer and photographer must be very good. Apart from the usual people who make the web experience of your company fluid enough for your customers, other people you may need to run this business on a larger scale are;
- Sales and Marketing Official
- Web Developers
- Graphic Designers
- Chief Executive Officer
The Service Delivery Process of a Drop Shipping Business
The service delivery process of this business is pretty straight forward; the customer finds an item or items they like on your site, they buy the item either directly or by creating a profile, this profile will continue to keep multiple purchases for them as long as they keep on shopping from your site.
Once they buy, they receive a confirmation by e-mail and by calls or text message that the order has been received. Then you relate with the supplier, that an item from their stock has been ordered. The supplier then proceeds to dispatch the delivery of that item to the location of the buyer.
If the buyer is dissatisfied with the purchase, there is usually a return policy. The buyer does not return the item to the supplier; the buyer returns the item to you. You then have to deal with such an occurrence if it happens, in order to keep both parties happy, the supplier and the buyer.
15. Write a Marketing Plan Packed With ideas & Strategies
- Media houses are available for Advertisement, so place adverts on as many as you can.
- The local directories are places where people go to look for companies who offer their needs, make sure you are listed there.
- The yellow pages may seem like a fleeting idea, but make sure your business is here also.
- Attend international expos, seminars and business fairs, especially the ones that center on Digital Marketing, Social Media and the online world in total.
- Direct marketing can be engaged by employing the services of business developers
- Take advantage of the space where your business is the internet and promote your business
- Run promos, discounts and giveaways from time to time.
16. Develop Iron-clad Competitive Strategies to Help You Win
First of all, you would have to investigate the competition, find out what they are doing to make sales. Giving those who buy from your shop discounts and sales is one of the ways to really pull in on your target market. Developing strategies around your niche is also a great way to move ahead of your competitors. Simply putting items on your website isn’t enough anymore to make sales, you could develop more engaging competitions through social media to make your prospective customers have a sense of participation with your brand.
17. Brainstorm Possible Ways to Retain Clients & Customers
In web development, there are things we they call “cookies”, these are little intelligent programs that evaluate the behavior and interest of users when they visit your site. These cookies inform your site about the user’s interests so your site can advertise items the user already has interests in, hence customizing the experience for the user.
This is one way to retain customers, by making their experience on your website more close to their personality. Of course make sure your brand has a sincere concern for users, sales of quality items will develop trust and trust is the winning attribute for this kind of business.
Basically many will continue to buy from your online shop because they trust that their information is safe with you and that they would not be cheated out of their hard earned money. Continuous communication with loyal customers is also key, digital marketing must continue to be a high priority in your business.
Developing a mobile application is one of the ways to retain your customers as a mobile application will make it a lot easier to shop online with their mobile devices. It would be strange to have an online store and not have a mobile app to boot, it just communicates a place of backwardness and sooner or later a competitor with a mobile app may take a loyal customer away from you.
18. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
There would always be the need to boost your brand awareness. The internet brings a very efficient dynamic to the entire idea of boosting your brand awareness. In as much as the place of your business is digital, marketing beyond the digital world can still further emphasize your brand presence.
The usual measure one takes when they are trying to boost any other type of business still maintains its place in the scheme of things with a drop shipping company. Below are a few ideas of how to achieve this even beyond the digital world.
- Utilize all available strategies for Digital Marketing since your business is online.
- Endeavour to have your billboards present all over the focused area of your market.
- Brand all your official cars, for when you visit prospective suppliers and do operations.
- In as much as clients won’t come to your office if you are a much bigger brand, other people will have a chance to see your employees come to work, have them wear branded clothes from time to time.
- Develop ideas that will pull traffic to your website, advertise your business there as well.
- Encourage your loyal customers to download your mobile app, if it’s available.
- Inspire your loyal customers to spread the word about your business.