The growth of the dropshipping business is unstoppable, with experts predicting that the market will increase from $150.88 billion in 2021 to $192.31 billion in 2022. Industry professionals anticipate a further increase to $568.74 billion in 2026.
The soaring popularity of the dropshipping business model is often attributed to the low risk it entails, less capital, low overhead, and flexibility.
Dropshipping is a superior business model that many beginner entrepreneurs may find appealing.
While it can be competitive, dropshipping offers significant potential profits if you do it right. Find out how you can successfully start and run a dropshipping business using this step-by-step guide.
What is Dropshipping and How Does It Work?
Dropshipping is a retail fulfillment method that enables e-commerce businesses to outsource the procurement, storage, and shipment of products to a third party, often the supplier. There are two types of dropshipping: low-ticket and high-ticket.
Low ticket dropshipping is the most commonly used type, wherein you sell items that typically cost less than a few hundred dollars.
It is more competitive since it is the simplest method of starting a dropshipping business. This is ideal if you want to test the waters and determine if it is right for you.
High-ticket dropshipping is when you sell items with higher prices, have fewer buyers, but have more revenue per sale.
It is a higher-risk model and often preferred by more experienced entrepreneurs who choose to have more freedom and flexibility due to the smaller market and fewer logistics issues.
The dropshipping model consists of three key players and three basic steps:
- The customer. The customer purchases a product from your online store and pays the retail price.
- The dropshipper. As the dropshipper, you forward the customer’s order to your supplier, pay the wholesale price, and keep the margin as your profit.
- The third-party. The third-party processes the order and ships the product directly to the customer. The third party can either be the supplier, a distributor, or a manufacturer.
Dropshipping Business Examples
The following are some of the best dropshipping business examples that serve as an inspiration for online sellers.
OddityMall is one of the earliest dropshipping stores with an online store and a blog-style site, having seven years of brand-building experience.
Its simple-looking store alone earned around $1.1 million to $2.35 million a month in 2019. In addition, the store benefits from enormous traffic by selling its products using affiliate links on its blog.
Relying mainly on organic traffic, OddityMall showcases its unusual yet best-selling gift ideas, novelty gadgets, and toys sold at affordable prices.
It is also known for its peculiar product designs and weird inventions. OddityMall uses images, product GIFs, well-written product descriptions, product videos, and limited stock indicators.
InspireUplift is one of the top-grossing Shopify dropshipping companies that has maintained its successful dropshipping general store business model for five years.
In 2019, the company scaled its business, with revenues ranging from $4.7 million to $9.6 million a month.
InspireUplift features best-selling products targeted to solve the needs of its primary target audience of women.
The product listings on InsireUplift have professional-level photographs, product reviews, and in-house product videos.
3. Men’s Luxury Boutique
Men’s Luxury Boutique is a top-performing dropshipping company that sells unique men’s sneakers and menswear from AliExpress. It markets itself as the only place to buy the sneakers it features on its online store.
Men’s Luxury Boutique was able to capitalize on the sneaker trend, earning up to $1.47 million per month in 2019. While it named itself a luxury boutique, the store sells its products at low prices, helping it to reach a higher sales volume.
4. Indestructible Shoes
Indestructible Shoes is a niche store that sells what it describes as flexible, light military-grade shoes for men at significantly discounted prices. It features wholesale black-label options and provides a wide selection of shoe sizes per product.
The company began as a single-product Shopify store and has grown as a niche business. In 2019, it attained sales of over $1.9 million per month in less than a year. The achievement followed its successful viral dropshipping Facebook ad campaigns.
NotebookTherapy is a niche dropshipping store that sells Asian-inspired notebooks, stationery, and accessories like pencil cases, phone cases, and pens.
The site presents its products in a clean and stylish custom theme, highlighting their physical attributes.
Notebook Therapy grew its business, earning approximately $350,000 to $700,000 per month in just over two years. Its strong customer base and balance of organic and paid traffic have helped boost its growth.
Likewise, it benefits from its social media marketing, influence marketing strategies, and superior reward and loyalty programs.
Warmly is a dropshipping store that offers a selection of lighting products and home accessories, capitalizing on the trend of purchasing lighting options and decor online.
The store features medium- to high-ticket decor items, with listings that are well-designed and elegantly branded.
Warmly successfully grew its business, earning revenues of over $566,000 to over $1 million each month in 2019, a year after it was founded.
With its premium branding and store design, Warmly remains successful in serving the premium market for expensive decor products.
How to Start a Dropshipping Business
Before starting a dropshipping business, you must develop a strategy that helps set you apart from the competition.
Having a well-prepared dropshipping business plan ensures you are going in the right direction. Below are the steps on how to start dropshipping for free.
Step 1: Come Up With a Business Idea
There are numerous dropshipping business ideas you can consider. Start with an interest or hobby that you are passionate about.
Find a niche not yet saturated with sellers pushing products similar to what you want to offer. Research best-selling products as well since these offer better chances of making money.
Step 2: Research Your Competitors
Learn more about your competitors and analyze their performance using tools like Alexa and Similarweb. Assess the qualities and strategies that give them an advantage in the market.
Check if there are gaps you can fill. Perform a SWOT Analysis to find out their strengths and weaknesses.
Step 3: Find a Supplier
Depending on the type of product you want to sell, you can partner with a private-label supplier, a wholesaler, or an established brand.
Check their online presence and ensure they are reputable. Review the quality of their products, the safety and security of their packaging, and test their customer service.
Step 4: Build an eCommerce Website
Open up an online shop using an established eCommerce platform to start your dropshipping business. Take advantage of its high traffic volumes, solid customer base, and strong infrastructure.
Two of the most popular companies in the dropshipping business, Amazon and Shopify, have long proven how beneficial it is to have a trusted online platform.
If you plan to build a Shopify website for your dropshipping business, follow these steps:
- Create a Shopify account.
- Begin setting up your store. Select a niche for your dropshipping business.
- Choose a store name. It will be used in your default URL, so be sure to include words crucial to your brand.
- Add a logo that represents your business.
Step 5: Register Your Business
The dropshipping business itself does not need a business license. If you are a beginner starting a small-scale dropshipping business, you can skip this step. But if you want to be a legitimate entity and increase your business credibility, you must register your business.
The most common business structures are sole proprietorship, limited liability company (LLC), and corporation. Ask your accountant for guidance on filing for business registration.
Step 6: Market Your Dropshipping Business
Using tools like Google Keyword Planner, identify the keywords and phrases shoppers search for to find your products. Check keyword usage statistics and determine the most profitable ones to use.
Advertise your business on various online and social media sites, such as YouTube, Facebook, and Instagram. Create a social media calendar to schedule and plan your marketing strategy on social media ahead of time.
Related: Learn the ways to make money on social media.
Step 7: Run and Improve Your Dropshipping Store
Depending on your marketing campaign, your audience will gradually respond to your ads and make purchases. Check that your supplier can provide the products promptly.
Also, if you run your dropshipping business on Shopify, expect to pay maintenance fees. Continuously improve your store by listening to customer feedback, implementing effective marketing methods, and adding profitable niche products to your collection.
Aside from setting up your dropshipping business from scratch, you can also buy an existing dropshipping store to save time, skip the trial-and-error phase, and have a more concrete idea of your expected profits.
For some, this is a more practical approach, particularly with the ever-increasing competition in the dropshipping industry.
Some consider it less risky, but buying a dropshipping business for sale involves high start-up costs. Issues with the previous owner and other risks associated with purchasing an existing dropshipping store are also likely.
To avoid this, do your due diligence and learn what you can about what you are buying. Check its profitability, growth potential, technical performance, web traffic, history, and other relevant information.
Related: Read our complete guide on how to start an affiliate marketing business.
How Much Can You Earn from Dropshipping?
Depending on your marketing strategy and the competitiveness of the niche you serve, dropshipping can earn you up to $100,000 on average in your initial year of operation.
If you make between 20% and 30% profit from each sale, your monthly profits can be between $1,000 and $5,000.
The crucial thing to remember is that you can maximize your profits because your money is not tied to inventory and warehousing. Your focus will be on finding the best dropshipping products to market and sell.
Pros and Cons of a Dropshipping Business
Starting a dropshipping business poses both advantages and disadvantages. Learning these can help you navigate your way around this business model.
- Less upfront investment
- Low start-up costs
- Low-risk business model
- No need to purchase inventory before you can start
- Flexibility to change products that do not sell
- No need to deal with shipping logistics
- Scalability, which makes it easy to expand the size of your business without the challenges involved in hiring more people or finding larger storage spaces
- A wide array of selection tools
- Various payment options
- Low-profit margins
- Less control of the product you are selling
- Less potential to customize products or enhance their quality
- High competitiveness
- Unexpected shortages in inventory
- Responsibility for delayed delivery, product mishandling, or bad packaging
- Less profit since dropshippers cannot interfere with product pricing
Is Dropshipping Worth It?
Yes, dropshipping is worth it if you want to start a business but have a tight budget. You can test products and campaigns without investing in inventory until you find the right combination.
Remember, however, that dropshipping is not a get-rich-quick scheme but a business model that requires investment in time and effort.
As a business model, dropshipping is a viable one, whether you are a small business owner with limited experience or a skilled merchant looking to branch out to other fields. You can market your brand or sell more established brands.
While 27% of sellers have shifted to dropshipping, it still presents profit-making opportunities, given that experts predict the number of online shoppers will increase in the coming years.
Is it profitable to do dropshipping?
Yes, dropshipping is profitable if you select the right niche, sell the right products, apply the proper marketing strategy, and provide consistently excellent customer service. With dropshipping, you have a low-risk business model wherein you sell products without the burden of incurring huge expenses.
Can you start dropshipping by yourself?
Yes, you can start dropshipping on your own, especially if you are just starting and are looking for a business model that will work for you. Once you get going, dropshipping can be hands-off. You can conduct your dropshipping business from your home at your convenient hours and set your own pace.
Do I need a license to dropship?
While the dropshipping business is legal, you must have the proper licenses to operate your business. Some states consider it illegal to manage an online business without a business license, which can lead to hefty fines, criminal charges, or imprisonment. To be sure, check the requirements in your location.
What taxes do you need to pay for dropshipping?
The types of taxes you need to pay for dropshipping depend on your location and the structure of your business. In the US, common dropshipping taxes include income tax, sales tax, source tax, and customs duty tax.
Related: You can also make money by starting a blogging business.