Updated: Jan 12, 2019
Drop shipping is an extremely popular business model for new entrepreneurs, especially Gen Zers and Millennials, due to internet marketing skills far outweighing financial capacity. Since you don’t need to stock or handle the items you are selling, it’s possible to start a drop shipping business with limited funds.
An e-commerce website that operates a drop shipping model purchases the items it sells from a third-party supplier or manufacturer, who then fulfills the order. This not only cuts operational costs, but it also frees up your time to focus all of your efforts on customer acquisition.
If you are ready to start a business that can compete with retail giants, and do so on a limited budget, then follow the six steps below. While it doesn’t take a lot of startup funds to launch a drop shipping business, it will require an immense amount of hard work.
1. Select a niche
The niche you select needs to be laser-focused and something you are genuinely interested in. A product range that isn’t focused will be difficult to market. If you aren’t passionate about the niche you select, you will be more apt to becoming discouraged, because it takes a lot of work to successfully scale a drop shipping business. Here are some points to consider when selecting your niche:
Seek attractive profits. When you are running a drop shipping business model, your focus is on marketing and customer acquisition, so the amount of work required to sell a $20 item is essentially the same as it would be to sell a $1,500 item. Select a niche with higher-priced products.Low shipping costs are very important. Even though your supplier or manufacturer will handle the shipping, if the cost is too high, it will act as customer repellant. Find something that is inexpensive to ship, as this also gives you the option of offering free shipping to your customers and absorbing that cost as a business expense in order to attract more sales.Make sure your product appeals to impulse buyers with disposable income. When you are focused on driving traffic to your website, you want to experience the highest conversion rate possible because most visitors will never return. The products you are selling should trigger impulse buys and appeal to those with the financial ability to make a purchase on the spot.Make sure people are actively searching for your product. Use Google’s Keyword Planner and Trends to check some common search terms related to your potential niche. If nobody is searching for what you are planning on selling, you are dead in the water before you even begin.Create your own brand. Your drop shipping business will have more value if you can rebrand whatever it is you are selling and pass it off as your own. Look for a product or line you can white label and sell as your own brand with custom packaging and branding.Sell something that isn’t readily available locally. Pick something your customer can’t find down the street. That way, you become more attractive to a potential customer.
2. Perform competition research
Remember, you will you be competing with other drop shipping operations as well as retail giants like Walmart and Amazon. This is where a lot of potential drop shippers go wrong, because they look for a product that has little to no competition. That’s a sign there isn’t demand for that particular product.
There are many reasons why a product might not have a lot of competition, like high shipping costs, supplier and manufacturing issues or poor profit margins. Look for products that have competition, as it’s a sign that there is a high demand and the business model is sustainable.
3. Secure a supplier
Partnering with the wrong supplier can ruin your business, so it’s important that you don’t rush this step. Conduct proper due diligence. Most drop shipping suppliers are located overseas, making communication extremely important, both in terms of response speed and the ability to understand each other. If you are not 100 percent confident in the communication abilities of a potential supplier, move on and continue your search.
Alibaba has become one of the largest online resources to identify and communicate with potential manufacturers and suppliers. Make sure to ask a lot of questions and learn what their production capabilities are in the event that your business grows exponentially. You want to be certain they have the ability to scale with you.
Try to learn from other entrepreneurs who have walked this path in the past. There are plenty of information sources available, from business and tech blogs to this subreddit about drop shipping. It’s a popular topic that can help you avoid costly supplier mistakes.
4. Build your e-commerce website
The fastest way to launch a website that supports a drop shipping business model is to use a simple e-commerce platform like Shopify. You don’t need a tech background to get up and running, and it has plenty of apps to help increase sales.
Even if you have a sizeable budget that would allow you to hire a web design and development company to create a custom solution, it’s a much wiser move to use one of the plug-and-play options, especially in the beginning. Once you are established and the revenue is coming in, then you can explore additional website customization.
5. Create a customer acquisition plan
Having a great product and a website is great, but without customers looking to buy, you don’t have a business. There are several ways to attract potential customers, but the most effective option is to start a Facebook ad campaign.
This allows you to generate sales and revenue right from the start, which can contribute to quick scaling. Facebook allows you to place your offer directly in front of a highly targeted audience. This gives you the ability to compete with the largest brands and retailers immediately.
You also have to think long-term, so search engine optimization and email marketing should also be a focus. Collect emails from the start and set up automated email sequences that offer discounts and special offers. It’s an easy way to leverage your existing customer base and generate revenue without additional advertising and marketing spend.
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6. Analyze and optimize
You need to track all of the data and metrics available to grow your business. This includes Google Analytics traffic and Facebook conversion pixel data, if that is your main customer acquisition channel. When you are able to track every single conversion -- to know where the customer originated from and what path they took on your website that eventually led to a sale -- it enables you to scale what works and eliminate what doesn’t.
You will never have a set-and-forget advertising or marketing solution. You need to constantly test new opportunities and fine-tune current campaigns, which allows you to know when to optimize or shift campaign spend.