How to Make Money With an Online Drop Shipping Business
BY BRIAN EDMONDSON
Updated May 05, 2018
When starting an online business, one of the key elements is having products to sell. In fact, without products… you don’t have a business at all. That’s pretty obvious, right?
So how do you get products… where do you find them… how do you know if they’ll sell… how do you get them to customers?
In the vast world of internet entrepreneurship, there are many answers to all of those questions. You could create your own products — but that can be a long and time-consuming process. Or you could buy in bulk from a manufacturer and then ship out products to your customers as they buy. But that is an expensive solution, and you have to take the risk of investing that money in buying stock and not having sales (we all know somebody with a garage full of inventory of their "big idea" right?)
There is a solution that allows you to sidestep all those hassles. And it makes the whole startup process for your online venture that much easier. It’s called drop shipping. And it has taken the online business world by storm. A drop shopping business is one of the fastest, easiest, and most low-risk ways to get started with an online business.
Let's take a look at how to start a dropship business, how the drop shipping business model works, and the key things you should know before going into it.
Starting a Drop Shipping Business
Estimates vary. But industry watchers have found that between 20 percent to 30 percent of online retailers use drop shipping. So it's a proven business model, and you’ll be in good company if you go this route. Even big retailers like Amazon use drop shipping.
With drop shipping, you can sell just about any product in any niche. And the best part is you don't have to deal with the hassles of traditional businesses, such as:
Storing your products (it can be very expensive to buy massive amounts of inventory, rent warehouse space… and who wants to fill a spare bedroom or garage with boxes)
Packaging or shipping any products (can you imagine the hassle of taking orders and boxing them up multiple times a day… and heading to the post office?) This is definitely not a scalable way to do business.
Most importantly… you don’t have to put down your money upfront to buy products wholesale to resell… that you aren’t sure will sell.
You see, when you run a business through drop shipping, you avoid all of those risks and potential loss of capital investment.
Now that we've taken a look at the benefits of a dropshipping business let's take a look at how the business model of dropshipping actually works.
How Drop Shipping Works
With drop shipping, you work with a wholesaler or distributor that offers this service. Not all manufacturers and wholesalers offer drop shipping, but many do.
You handle all the marketing for your business… you set up your website with a shopping cart (or set up a virtual storefront on Amazon)… write your blog… do social media and email marketing… you contact the prospects and customers. You tell them all about the products and how it will make their lives better. Basically, you do all of the marketing, advertising, and promotion to get the customers and make the sale.
But when it comes time to actually send out the product and fulfill it… the drop shipper takes over. They have the inventory in their warehouse. You send them the orders that come in, paying the wholesale price for each order. This can be done by email, submitted online, or through a spreadsheet file — it depends on the drop shipper. They put the order together and ship it to your customer. Done.
Of course, they do charge a fee for this service. Just how much depends on the product. But usually, it’s about $2 to $5 — a handling fee. That’s on top of the wholesale price for the product itself and the cost of shipping. That can seem like a lot.
But you can still stay profitable as a drop shipping business, despite the thinner margins. If you want to increase your profits you raise your prices — at least as much as your market will bear. You can also sell more volume. And you can always contact your drop shipper to negotiate a lower handling fee.
Remember though, that you aren’t risking your money upfront. You are only paying these fees if you actually sell a product.
What Products Can Be Drop Shipped
As with any online business, you want to be in a market that is “hot” and where there is a large number of people ready to buy the products you sell. In the best-case scenario, the niche you specialize in should also match one of your personal interests.
If you have a passion for a certain market or type of product, that enthusiasm will make your marketing efforts… and by extension your business… will be stronger. Not only that, but you'll actually enjoy what you're doing - making your work seem more like play. What's better than getting paid to do what you love?
Fortunately, there are drop shipping companies that work with just about every market, niche, and type of product. Baby items, yoga clothes, electronics, clothing, art, books, beauty supplies, supplements, home and garden items… it’s wide open.
A great place to check for hot niches is big online e-commerce platforms like Amazon. Whatever items are on the bestseller lists there could be a great fit for a drop shipping business. But also keep an eye on trends you see on Facebook and other social networks. Also, what’s in the news… what your friends and family are talking about.
Here’s a pro tip: during the holiday season, football season, and other special times of the year, related products can do really well.
A big mistake a lot of people make when starting any type of business, dropshipping included, is that if they see other people doing it they think it's too competitive and they can't make any money in it. Nothing could be further from the truth... if you see a lot of competition that's the sure sign of a big, healthy, profitable market.
Picking a Drop Shipper
Before you ever start working with a drop shipper, you should go through the order process yourself from a customer’s point of view. You want to see how easy it is to order the product, how long it takes to ship, how the drop shipper deals with any problems.
Of course, this will also give you the chance to also see the quality of the product. You want to make sure this is something you’ll be proud to offer your customers. In some cases, dropshippers will be willing to send you a complimentary product for evaluation or at least sell it to you at their cost.
If you are into a niche and have used other products that are similar, you can test the product yourself. Use it. Study it. Does it do what is promised? Is it made of quality material or ingredients? Check the reviews of others online to see if your experience matches up.
If you’re not into the niche, have a friend or family member try the product. And also be sure to thoroughly check online reviews, forums in that niche to see any comments from users, Facebook too. Do your research, in other words.
Knowing the product will also help you sell it. Your marketing will be that much more authentic and effective.
Here are some of the top drop shippers and drop shipper directories operational today:
Of course, you can always do a Google search for "drop shipper" or "niche + drop shipper" to find other dropshipping companies.
Key Questions You Should Ask a Potential Drop Shipping Partner
Yes, partnering with a drop shipper is a great way to start an online venture without investing much of your own money. And you make it that much easier to run your business too. By not having to lay out a bunch of cash to buy products wholesale you're not risking your money. You don’t have to store them. And you don’t have to worry about keeping up with shipping your products in a timely manner.
But that doesn’t mean you should just hand off those important elements of your business to just anyone. Working with a bad drop shipper — and they are out there — could sink your business before it ever gets off the ground.
You don’t have to go into the process of finding and negotiating with a potential drop shipping partner blind. Here are some key questions to ask to help you determine if they are the right fit for your business.
Once a customer has placed an order, how long will it take to be processed and shipped out of their facility? (Remember you can also "secret shop" them to verify this as well)
What methods of shipping the products are available? This is especially important if they are located overseas and are shipping internationally. Do they use services like UPS and FedEx? Can a customer overnight an order? Do they rely on the U.S. Postal Service only?
This is a big one: do they have a tracking system so that you and/or your customers can see the status of each order easily? This is one the biggest things customers want to be able to do.
How do they deal with issues like lost shipments? You don’t want customers to get frustrated with issues you can’t control. And keep in mind that as the seller you are ultimately responsible for customer service. Will lost shipments cost you money?
Do the products they offer have warranties/guarantees? What happens if the customer isn’t satisfied with the product — what’s the return policy? And does the drop shipper guarantee the product… what happens if the product fails in some way? You want to make sure this matches up to your philosophy. If a customer feels that they’ve been taken advantage of… you can’t point to the drop shipper and blame them. After all, you are the one that sold the customer the product.
It’s also a good idea to check forums, blogs, and social media for comments about the drop shipping company from other online entrepreneurs. Drop shippers who have a bad reputation or have bad business practices will quickly be exposed, often in detail, so you can avoid them.
Drop Shipping Really Is One of the Easiest Ways to Do Business Online
A drop shipping online business is a quick, easy, and low-risk way to start selling online. You won’t have to put up a bunch of money upfront on inventory that might not sell. And your drop shipping partner will handle delivery.
Pick the right niche market and product, and you could have a profitable venture on your hands. You could even expand into other niches and sell other products, too.
There are many people making healthy six and seven-figures strictly from a dropshipping business... the possibilities really are endless with a drop shipping business.