How to start a dropshipping business in 2024: The ultimate guide

What is a dropshipping business?

Dropshipping is a type of e-commerce business where a seller lists products for sale on its website without actually holding or handling any inventory. When a customer places an order on the seller’s website, the seller then purchases the products from a third-party supplier, who ships them directly to the original customer. A dropshipping business makes money by charging a higher price for the goods than the third-party supplier does, pocketing the difference.

The primary task for the dropshipping business owner is marketing products using an online store. Because a dropshipper doesn’t need to handle complex tasks like warehousing and inventory management, it’s a business model that can be — and often is — managed by a single entrepreneur. 

Note that the term “dropshipper” is sometimes used to refer to the third-party supplier, but we use the term here to mean the retail seller. 

5 steps to start a dropshipping business

1. Decide on a business concept

A business concept for a dropshipping business defines which demographic groups you will target and the types of products they may want. It’s generally easier to target communities or groups of people with whom you have a connection.

Let’s say you are an avid cyclist. You could create a dropshipping business concept around selling cycling gear to other serious cyclists. You would then orient your website design and marketing to this demographic. 

Refining your business concept would also involve doing competitive research on other existing cycling-related e-commerce businesses. Note, however, that you are not just competing with other dropshipping businesses but all e-commerce businesses related to your niche. Consider whether you can do a better job in design and marketing than the current players.

If it looks like your niche is already well-saturated with high-quality sellers, you may want to find a different niche. Or you could carve out an even more specific niche to set your business apart.

2. Source products and select suppliers

The next step is to figure out which products you will list and who will supply them. Choose products that are relevant to your business concept. Your products should ideally have high ratings and good profit margins. 

It is crucial that you ensure the products arrive to your customers in good condition and in a timely fashion. This requires finding reliable suppliers. Look for suppliers that offer quality products and reliable shipping options. You can search for suppliers on popular online marketplaces like AliExpress, SaleHoo or Worldwide Brands.

You may also want to work directly with suppliers. However, it may be difficult to know whether these suppliers are reliable, and they may have stringent requirements.

3. Decide on a business structure

Before getting started building your store, you need to decide on the legal structure of your business. Ideally, you would form a limited liability company (LLC) or corporation (S corporation or C corporation), as these will help protect your personal assets from business risks. But you could also start out as a sole proprietorship (or partnership if there is more than one owner) and switch to another structure later. 

Each structure has its own advantages and disadvantages, so, as you evaluate each, it’s important to consider factors such as:

• Whether it offers liability protection.
• The tax implications of each structure. 
• How easy it is to set up the entity.

Consider reaching out to a business formation company to learn more about these evaluation criteria and get advice on how to select the best business structure for your goals.

4. Build your online store

Now that you have decided on your business concept, sourced products, selected suppliers and a legal structure, it’s time to build your online store. Choose an e-commerce platform that suits your needs. These platforms allow you to:

• Add product listings.
• Create custom designs for your store.
• Select shipping options.
• Take orders and collect payments from customers.

You can also do dropshipping as a seller on Amazon as long as you meet its criteria. However, a major downside of selling on Amazon is that you cannot customize the retail experience.

When setting up your online store, you should automate the order process so that when your customers place an order, the supplier automatically receives the order and can begin fulfillment. Many of the e-commerce platforms provide for this automation, whether through plugins or apps.

Choose a store name and domain name — these should ideally be the same. The name should be unique so it is easy to remember and differentiates your brand. It should also immediately click with your target customers. 

Customize your store’s design and content to align with your brand and audience. Be sure to optimize your website for search engines (SEO) to attract organic traffic.

5. Promote and market your store

Once your online store is up and running, the bulk of your efforts will go into promoting and marketing it effectively. Use various digital marketing strategies such as social media marketing, content marketing and email marketing. 

• Social marketing: Determine where your target customers spend their time and attention online. Collaborate with influencers in your niche to reach a wider audience.
• Content marketing: Ensure your content is search engine optimized to drive desired traffic to your store.
• Email marketing: Set up a system to collect emails from customers and potential customers. Then, periodically send them emails with the latest products and deals.

Consider running paid ads on platforms like Facebook and Google to drive targeted traffic to your store. Although this can get expensive, you can start with a small budget of as little as $1 per day. Continuously analyze your marketing efforts and make adjustments as needed to maximize your reach and sales.

What to consider when starting a dropshipping business

1. Niche profitability

• Select a niche you are passionate about or have an interest in. Your enthusiasm will drive your efforts.
• Analyze market trends, competition and target audience. Choose a niche with demand but one that isn’t saturated with competitors.
• Consider products with decent profit margins to ensure profitability after covering costs. In general, accessories to high-ticket products like computers and TVs have higher margins than the high-ticket items themselves.

2. Supplier reliability 

• Find suppliers who can provide quality products and timely shipping.
• Consider using online marketplaces or reaching out directly to suppliers.

3. Online store quality and automations

• Choose an e-commerce platform that suits your needs and customize it to align with your brand.
• Automate the order process for seamless fulfillment.

4. A marketing strategy

Creating a strong marketing strategy involves:

• Social media marketing.
• Content marketing and search engine optimization (SEO).
• Email marketing.
• Paid advertising.

5. Customer service management

• Create a process for receiving and responding to customer inquiries and issues.
• Consider using help desk software to manage communication with customers.

6. Financial management

• Write up a business plan with your budget, accounting for all likely expenses, including marketing, software, platform fees and other operational costs.
• Be sure you understand your tax obligations, including business taxes and sales taxes.

7. Legal management

• Set up a business structure that works best for you and obtain all required licenses and permits, including a seller’s permit.
• Research applicable business laws and regulations to ensure you stay compliant.
• Determine and clearly describe your returns and refund policies and ensure these are compatible with the supplier’s terms.
• Protect your copyright and trademark rights, and avoid infringing on others’ copyright and trademark rights.

8. Time commitment

• Prepare to spend several hours per week setting up and managing the dropshipping business.
• Manage your time wisely to make sure you complete all of the required tasks and take care of your customers’ needs.

Advantages of a dropshipping business model

• Easy setup: Dropshipping requires less initial setup work and lower upfront costs compared to traditional retail business models.
• Low capital requirements: Since you don’t hold inventory, you don’t need to invest in storage space or manage stock. This can save you a significant amount of money.
• Flexibility: You can run your business from anywhere with an internet connection, be your own boss and set your own schedule.
• Variety of products to sell: Dropshipping allows you to offer your customers a wide range of products.
• Easy to manage: There’s no need to hire staff or optimize inventory levels when running a dropshipping business. Instead, lean on quality suppliers for this.
• Easy testing: With dropshipping, you can quickly test different products and niche markets without major financial risks.

Should you start a dropshipping business?

Starting a dropshipping business has its pros and cons and is not for everyone. It offers low startup costs, flexibility and scalability. However, competition can be fierce, profit margins may be low and you have little control over shipping and fulfillment. It’s important to carefully evaluate your goals, resources and level of commitment before starting a dropshipping business.

Draven McConville, CEO & founder of Klipboard.io said that “dropshipping offers an incredible opportunity for those who are ready to wholeheartedly invest their time and dedication to establishing and nurturing their very own business.”

Offering an alternative perspective, Luciano Viterale, who worked on a dropshipping business for many years before moving into SEO and SaaS consulting, said, “The disadvantages outweigh the advantages by a long shot. It’s competitive, with thin margins, long delivery times, expensive to run ads…It’s not something I would start again.”

Frequently asked questions (FAQs)

Is a dropshipping business easy to start?

Starting a dropshipping business is relatively easy compared to other business models. However, it still requires effort and dedication to succeed. You need to invest time in market research, product sourcing, website development and marketing.

Is dropshipping profitable?

Dropshipping can be profitable, but margins are often low. Your success depends on various factors, such as:

• Your product selection.
• The level of market saturation.
• Your pricing strategies.
• Your marketing efforts.
• The level of customer service you offer. 

It’s essential to find a profitable niche, build a strong brand and provide exceptional customer experiences to maximize profitability.

How do dropshippers get paid?

Dropshippers receive payment when customers place an order on the dropshipper’s online store. The dropshipper then uses a portion of that payment to purchase the product from a supplier at a lower cost. The difference between the customer’s payment and the supplier’s cost is the dropshipper’s profit.

Can you start a dropshipping business with no money?

Starting a dropshipping business with very little money is possible, but there are some minimum costs. These include domain registration and web hosting, and possibly e-commerce platform fees and business license fees.

That said, having some initial capital can give you an advantage. You may want to pay for custom website development, marketing campaigns and sample products to test out for yourself. However, you can always start small and gradually reinvest your profits to grow your business.