What is drop shipping? In this article, I hope to explain what drop shipping is and how this business model works. I will also provide a brief guide on how to start a drop shipping business with a little upfront cost.
The world of eCommerce is growing at an exponential rate, according to eMarketer, eCommerce sales will rise to nearly $3 trillion by the end of 2018 and account for over 11% of all retail sales. This growth has opened up new avenues for entrepreneurs to start an online business.
Whilst eCommerce is booming, it can be expensive to start a traditional eCommerce business, buying inventory in bulk,storage fees and delivery charges can add up and eat into your profit margins. This is where drop shipping comes in, without any of the mentioned expenses, you can start a drop shipping business on a small budget.
Drop shipping is a very popular eCommerce fulfilment method with some reports saying that it may be used by almost 33% of all eCommerce operations.
What Is Drop Shipping?
Before I go on and explain in detail how the drop shipping model works, I want to answer a few FAQ’s about drop shipping.
Is Drop Shipping Dead?
Despite its growing popularity, this question keeps coming up, the only people who say drop shipping is dead are the ones who maybe tried it once, didn’t succeed and decided it doesn’t work. You have to remember although drop shipping is an easy business to understand and start, that does not mean you will see success quickly. The most important part of starting an eCommerce business is identifying a profitable product, unfortunately, most people rush this part and when their chosen product doesn’t sell, most people tend to give up. Drop shipping is not dead, it is a growing business model and people are having life-changing success with it.
Is Drop Shipping Profitable?
Carrying on from my previous answer, drop shipping can be profitable if you run your eCommerce business properly. That means choosing the correct products, identifying reliable suppliers, having a good pricing strategy and learning how to generate targeted traffic to your store. Drop shipping is just like any other business, it can be profitable but you may also lose money with it. The advantage of drop shipping is that the initial start up costs are low and the risk of a massive financial loss is minimum.
Is Drop Shipping Worth it?
I believe it is, starting any legitimate online business is worth it because the reward can be life-changing but what makes drop shipping especially attractive is that it is a low-cost way of starting a business and profit margins can be substantially higher than in a traditional eCommerce business.
The Drop shipping Business Model
The concept behind drop shipping is reasonably simple. It’s not exactly new, and it’s not exactly rocket science, but it is quite clever.
In a traditional store, the store owner usually keeps stock in their warehouse. When someone orders something the store owner packages it up and delivers it to the customer. To start this kind of eCommerce business will set you back a few thousand dollars with inventory, storage and delivery costs.
In a drop shipping store, there is no need to buy stock in bulk, storage costs or delivery charges.
In fact, in most cases a drop shipping store owner never even touches the stock they are selling. The storage and delivery are taken care of by the supplier/manufacturer of the product.
The process looks a little bit like this.
- A customer places their order on ExampleShop.com
- The owner of ExampleShop.com receives payment from the customer and purchases the item from the supplier
- The supplier directly ships the item to the customer
- The owner keeps the difference between what they paid the supplier and what the customer paid them
What Makes Drop Shipping A Good Business Model?
So as you can see, drop shipping isn’t exactly a super secret advanced business model. The store owner essentially becomes a middleman between the customer and the supplier.
There are several obvious (and a few not so obvious) benefits to doing business this way.
Minimal Investment Required
This is one of the biggest benefits of running a drop shipping store. It’s also one of the biggest reasons the business model was jumped on by snake oil salesmen selling it as a get rich quick scheme.
Drop shipping stores don’t require anywhere near as much capital to set up as traditional stores that hold their own stock.
The beauty of drop shipping is that suppliers can (and do) sell items in individual quantities. You only order exactly the amount you need from the supplier, and you only order it after a customer has already paid you.
This essentially means you need no start-up capital to invest in stock (you’ll have other expenses though).
In addition to not having to pay for any stock upfront, your overheads will be much lower compared to a traditional online store. You’re not going to have to pay for a warehouse to store your stock (which means you save on rent and utilities). All you need is a laptop,a good internet connection and web hosting.
I was hesitant to write this point down as a benefit, it’s what the snake oil “get rich quick” scammers like to trick people with. But it’s true that if you have a successful drop shipping business you can run it from anywhere in the world.
Many people become “digital nomads” with their drop shipping businesses and travel the world while earning their income online.
Perhaps the most exciting thing about drop shipping is the scalable nature of the business model. Traditionally scaling up a normal online store is a big decision that needs a huge amount of planning.
You need to consider additional warehouse costs, inventory costs, and possibly even hiring people to help you run the day to day logistics.
With a drop shipping business, you don’t need to worry about any of this. All your running costs are basically outsourced to the supplier. They have the warehouses, they have the staff, and they do the shipping.
To scale up a drop shipping business, all you need to do is add more products to your website, sit back, and relax.
What Are The Problems With Drop Shipping?
At this point in the article, it all probably sounds a little bit too good to be true. However, there are several downsides to drop shipping that the “get rich quick” scammers won’t tell you about.
None of these downsides prevents drop shipping from being a legitimate business model, but it’s important that you are aware of them before you dive into it.
Although suppliers will give you a discount,it will never be as large a discount you would get should you buy in bulk. Usually, you will get a discount of 15-20%, if you bring in a lot of sales,the supplier may increase the discount.
The profit margins are lower than your traditional stock and ship eCommerce methods,however, this is offset by the fact you have less work to do and low overheads plus once you find a winning product and you can start to scale and grow your business.
However, I must also add that profit margins can be exceptionally high if you decide to source your products from overseas (like China) like many dropshippers now do.
The most important component of a successful drop shipping business is finding a reliable supplier (which is more difficult than it sounds).
Your suppliers are going to be responsible for ensuring your customers get exactly what they ordered (within a reasonable timeframe). The performance of your supplier will directly affect the reputation of your store. The customer usually has no idea it’s the supplier shipping the products instead of you.
If a supplier ships the wrong item (or a defective item), if they have delays, or if anything else happens – it’s going to make you look bad.
You’re going to have to do a lot of emailing and admin every time something goes wrong. When you consider the thin profit margins this quickly becomes something that is not going to be worth your while.
Take the time to ensure your supplier knows what they are doing before you even consider listing their products on your website.
How To Start Your First Drop Shipping Store
First thing is first, you need to find a product to sell, one that is profitable and ideal for drop shipping. This is the most important part of your drop shipping business, identify a product that has a hungry audience, if you can do that, you will be on your way to success.
This is also a time-consuming task, fortunately, there are several places we can look for some inspiration.
So, for a drop shipping business, below is the criteria I follow when doing product research;
- The product should be lightweight.
- No electronic or mechanical products.
- The product should not break easily.
- Should not be too expensive.
- People will buy on impulse.
This is my favourite research method and I use it before anything else, keyword research is an essential part of your research phase and will help you decide if a product has enough market demand for it to be profitable.
I have access to a few premium keyword tools but for this article, I will use Ubersuggest, this is a free keyword research tool from Neil Patel and will provide enough data to help you get started.
One of my passions is Golf, I love watching it and so I decided to do some digging into this niche and see if I could find a product to sell.
So after a bit of research, I found that the search term ‘Golf Gifts’ gets over 14,000 searches per month. The term also gets a massive spike during the Christmas period, however, the search volume over 12 months suggests there is a demand for golf gifts all year round.
After searching through some of the top web results, I noticed that many of the stores were selling personalised golf gifts.
Here are some of the products ideas I came across for golf gifts
- Golf cufflinks
- Personalised gloves
- Personalised golf balls
- Personalised scorecard holder
Of course, you will have different interests but I hope you get an idea of how to come up with product ideas through keyword research.
Apart from keyword research, I also take some ideas from the following sites:
- Amazons Best Seller Rank (BSR)
- eBay Most watched products
- Online gift shops like firebox.com and notonthehighstreet.com
- Consumer trend websites
Remember, to follow the criteria for choosing a drop shipping product, so for example, while I was checking through the best selling items on Amazon, I found the product below that ticks all the boxes.
The price for RFID blocking wallets range between $9.99 – $39.99 on Amazon, on Aliexpress I found similar wallets for less than $5.
Say you mark up the price by 200% and sell it for $15 and shipping with ePacket is $1, that is still a $9 profit!! Sell 10 a day (conservative estimate) and you are close to making $100 per day.
Even if you run Facebook ads and pay around $1-$2 for a paying customer, you are still making $8-$7 per order.
I will give you one more example of how to find good products to dropship. One site I visit regularly for product ideas is notonthehighstreet.com.
As the name suggests, you will not find items listed on that website on any of the popular eCommerce sites. Many of their products are personalised gifts.
Personalised gifts are very popular and one of the most popular occasions for such gifts is for weddings.
A gift idea that caught my eye was wedding guest books, prices started at $52 ( I have converted it from GBP).
For a similar item on Aliexpress, the price is between $16.14 and $18.99, shipping is free for this item.
If you priced this item at $35, you would still be pocketing $16 per order and wedding gifts are a huge niche and sell all year round.
One other place you can brainstorm for product ideas is on the Shopify marketplace, this is where people put up their eCommerce store up for sale.
It’s a good place to get an idea of what kind of products people are actually drop shipping and making money.
The website is called exchangemarketplace.com and it will provide you with another option for product research
Additional Resource – Trending Products To Sell Right Now
Find A Drop Shipping Supplier Through Aliexpress
After you have decided upon a niche, it’s time to go hunting for reliable suppliers. Finding reliable suppliers can be hard, fortunately, through Aliexpress it is made easier.
Aliexpress has thousands of verified suppliers and they are all rated by their clients and you can use these ratings to choose a reliable supplier.
Suppliers on Aliexpress are rated on three points;
- Correct Items
- Shipping Times
Each is scored out of 5 and they are given an overall mark out of 100.
My advice would be to find suppliers that have the following;
- In business for 3+ years
- Lots of feedback on your particular product
- Overall rating of 95+
Avoid suppliers with low amounts of feedback (even if their prices are lower) and low overall rating, the risk is not worth the additional hassle when you are just starting out.
For a more in-depth article on how to find good suppliers on AliExpress read this article.
Alternative To Aliexpress
This article shows you how to find profitable products on Aliexpress for your drop shipping business, but if you cannot find what you are looking for then the same principles can be applied to the following Aliexpress alternatives.
Light in the box
These are very good alternatives and give you further options for suppliers and products. Although the only downside is that there are no drop shipping automation apps that are currently compatible with any of them.
Choosing A Domain Name
Buy a domain name for your store, make it is something relevant to your niche and that you get a top-level domain, preferably a domain name ending with .com.
I usually purchase my domain names from Namecheap, they are as their name suggests, cheap and you receive 1 year free of WHOIS protection.
There are many different eCommerce platforms that have become popular in recent years. Shopify is perhaps the most well-known these days, but there are also platforms like Big Commerce,3DCart, Big Cartel, Presta Shop, Volusion and many more
So which one is best?
Drop shipping apps – I mentioned earlier that there are apps that can make running a drop shipping business much easier and the best ones are only compatible with Shopify and WooCommerce.
Resources and training – Shopify is simply the best when it comes to providing free training and resources on every aspect of running an eCommerce business. WooCommerce doesn’t have such extensive training materials but the drop shipping app that is compatible with WooCommerce has tons of guides and resources to get you started.
If you choose to go with WooCommerce, you will need to sign up with a hosting platform that is optimised for WordPress. Luckily, with WordPress being so popular, you have a wide range of hosting options, I would stick with the following;
WPX Hosting (Slightly expensive but worth all the extra features it comes with)
All the hosting solution I have listed are optimised for WordPress and they all have guides and tutorials on how to install WordPress on your domain.
Of course, if you go with the Shopify option, then your hosting is included, and you do not need to install any other software.
Drop Shipping Automation App
After you have chosen your eCommerce platform, it is time to choose a drop shipping automation app.
Since this article deals with drop shipping from Aliexpress, you have a few choices.
If you decide to build your store on WordPress, I highly recommend the AliDropship plugin.
This is one of the best drop shipping automation apps and will make running your drop shipping business much easier. This is a WordPress plugin and so it is only compatible with a store built on WordPress, so please keep that in mind before you purchase it.
It comes with lots of features including the following;
One-click import from AliExpress – Import multiple products from AliExpress with the click of a button
One-click order fulfilment – Fulfil orders quickly
Pricing automation – Set your own pricing rules in bulk, by product category or individually
Automatic inventory update – Always stay alerted to any inventory change so that you can make the necessary changes to your store
Automatic order tracking – Track your customer orders and automatically send them their tracking data.
Discount coupons – Run sales and discount by offering them coupons.
Multiple payment gateways – Take payments through PayPal, Stripe and 2CO
Free Chrome extension
ePacket filter ( the fastest and cheapest method of delivery)
However, should you decide to go with Shopify as your preferred platform, you have a couple of options.
Although my preferred choice is Alidropship because I know the WordPress platform so well, I honestly believe for people who have no experience in building websites, that Shopify and Oberlo is the best option. Shopify is easy to learn and Oberlo makes it easier to run a drop shipping business.
Just do not spend to much time overthinking it because then you will keep on making excuses to delay taking any action.
Traffic and Sales
There is nothing more exhilarating than seeing your first sale come through, it gives you confidence and belief that your online business will succeed. So the sooner you make your first sale the better and there are a couple of ways to get some sales.
Family and Friends – Don’t be afraid to ask family and friends to check your store out and even if they do not buy ask them to spread the word through social media, at worst you get some free advertising.
Social Media Marketing – Create social media accounts for your store and start posting relevant content around your niche and raise awareness by engaging with your followers. Running multiple social accounts can be time-consuming, luckily there are several apps that will automate a lot of the tasks involved in social media marketing. One such tool is Social Rabbit that has been developed by AliDropship. It will automatically post content on Twitter, Facebook fan pages, Pinterest and Instagram, it will also like and comment on posts by other people which will increase awareness of your store. Find out more about this incredible social automation tool here.
Video Marketing – YouTube is the second biggest search engine and it would be unwise to not utilise this free video platform. Ranking videos on YouTube is actually easier than ranking websites on search engines. Making YouTube videos has never been easier, there are so many ways to create engaging videos without needing to be in front of a camera. There is one such tool I use called Content Samurai and with it, you can create videos for YouTube and social media with little effort. Its a fantastic piece of software and great for those who are camera shy (like me ) and have difficulty creating videos. Click here for more information.
Other ways of generating traffic include SEO, which is a long-term process and will need to be worked on consistently and paid traffic which can get you faster results but you will need a decent budget to test and find winning campaigns.
So there you have it, an honest guide to drop shipping without all the hype. Drop shipping can be a lucrative business for people who put in time and effort and do not give up easily.
I must re-iterate never fall for get rich quick schemes that make it seem drop shipping is easy and will make you rich with little effort.
There are tons of resources that will help you get started with drop shipping, you really do not need to pay a huge sum of money to learn how to start a drop shipping business.
Shopify, which is a billion dollar company, has its own Academy, where you can learn all about starting a successful eCommerce empire. It’s free to join and has tons of resources and training material.
Click here to join the Shopify Academy.
Shopify also owns Oberlo, which is the best AliExpress drop shipping app on the market, it comes with so many features that will help you run your drop shipping business more efficiently.