How To Start a Dropshipping Business: 8-Step Guide

by Jaidyn Farar

Dropshipping is one of the simplest ways to start your own ecommerce business. With hard work, dedication, and an upfront investment of time and money, a dropshipping business can become a great source of passive income. 

In this eight-step guide, we’ll review what dropshipping is, how it works, and how to start a dropshipping business. 

What is dropshipping? 

Dropshipping is a fulfillment method where a store sells directly to customers without holding inventory. When someone makes a purchase, a third party ships the product directly to them. In essence, the seller (that’s you) acts as a middleman between the supplier and consumer. 

The dropshipping model has become popular due to its relatively low barrier to entry. Because you don’t hold inventory, dropshipping doesn’t require much upfront capital—you only pay for products when customers order them. You also don’t have to worry about storing, packing, or shipping items.

Note: While dropshipping lets you avoid the hassle of inventory management, it also means you have less control over product quality, delivery accuracy, and stock availability. If you’d rather store and ship your own inventory, learn how EasyPost simplifies the shipping process.

How does dropshipping work? 

Before diving into how to start a dropshipping business, let’s break down how the model works:

1. A customer buys a product from an online store, paying the retail price. 
2. The store (or dropshipper) forwards the order to a supplier, paying the wholesale price for the product.
3. The supplier processes the order, packs the product, and ships it directly to the customer. 

The difference between the retail price and the wholesale price is the profit the business makes. For example, if you pay a supplier $30 for a watch and sell it for $50, your profit is $20. 

Or is it? 

To accurately calculate profits, you can’t just subtract the wholesale price from the retail price. You need to factor in all the costs of running your business: technology costs, supplier fees, marketing budget, and more. Which leads to the big question:

Is dropshipping really profitable? Yes, dropshipping can be profitable. However, unlike many online gurus would have you believe, dropshipping stores are not set-it-and-forget-it, get-rich-quick endeavors. You’ll need to invest time and money into brand development, website optimization, marketing, and more. Building a thriving store requires commitment, patience, and persistence. 

Read on to learn how it’s done.

How to start a dropshipping business in 8 steps

Dropshipping allows you to focus on marketing and customer experience without worrying about the logistical complexities of order fulfillment. While suppliers handle inventory management and shipping, you’re responsible for everything else. Let’s walk through the steps to get your business up and running.

1. Choose your niche
2. Research your competitors
3. Choose a supplier
4. Create an online store
5. Register your business
6. Organize your business finances
7. Market your dropshipping store
8. Analyze and optimize 

Ready to explore each step in more detail? Let’s start with … 

Step 1: Choose your niche

This is one of the most important decisions you’ll make as a new dropshipper! If your niche is too broad or generic, you’ll be competing (probably unsuccessfully) in an oversaturated market. But if your niche is too obscure, you’ll have a hard time finding interested buyers. 

When selecting your niche, you need to determine two things: what you’re selling and who you’re selling to.

What are you selling? 

The perfect products for your dropshipping store have a market—meaning people actually want to buy them—but aren’t so common that you’ll be competing with lots of other businesses. The best route is to choose a trendy or useful niche but put your own spin on things. What will differentiate your brand and products from other ecommerce stores? If you can answer that question, you’ll be on your way to a profitable business.

To find the right niche, put on your research hat and get to work! You can get inspiration from trending products (check out Shopify's listopen_in_new), do some Google searches, or scroll social media for ideas. After some initial browsing and brainstorming, find out if people are interested in the products you’re thinking of selling. Use Google Trendsopen_in_new to see what people are searching for, then check keyword volume with a keyword tool like Ahrefsopen_in_new, SEMRushopen_in_new, or Keywords Everywhereopen_in_new. 

Remember, the most successful business owners often choose a niche they’re passionate or knowledgeable about. Do you have a knack for interior design? Consider selling high-quality home decor. If you’re a cat lover, try curating a collection of cat toys and accessories. Leaning into your strengths will help you select products people want and market them effectively.

Tip: Start small. The number of products you start with will vary based on your niche, target audience, and business goals. However, it’s generally best to begin with a focused selection of 1-10 products. After testing these initial products, begin adding new items to the lineup. 

Who are you selling to? 

Defining your ideal audience will help you focus your marketing efforts so you don’t spend money on ineffective tactics. Consider the age, gender, income level, and interests of the people you want to sell to. One easy way to determine your target audience is to see who’s buying from your competitors (more on that in the next section).

Step 2: Research your competitors

Once you choose your niche, find thriving competitors and learn what they do to drive success. Without copying them exactly, you can use their techniques to jump-start your own business. 

Start by Googling a product or category you’ll be selling (“bamboo bowls,” “pet toys,” etc.). The top ten results will reveal your main competitors. Choose about five to focus on, including a few larger companies like Amazon or Walmart. 

From there, browse social media and/or use competitor research tools like Similarwebopen_in_new to find out what your competitors are doing. As you research, pay attention to how they approach the following: 

• Website design and functionality
• Products, product descriptions, and prices
• Marketing strategies, including ads
• Customer service

Step 3: Choose a supplier

To have something to sell, you need to form relationships with suppliers—third parties that send products to customers on your behalf. Because suppliers have so much control over product quality, stock availability, and delivery speed, it’s essential to choose reliable partners. As you research, look for answers to these questions: 

• Are the products high-quality? 
• Are the wholesale prices reasonable (so you can turn a profit)? 
• What kind of customer service do they offer? 
• Do they have a return policy?
• Does the supplier have a reputation for reliability?
• Do they offer good customer support?
• What’s the average order fulfillment time?
• What’s the product packaging like?

After narrowing down your options, have conversations with the suppliers you’re considering. Before finalizing anything, send in sample orders. This will give you a firsthand look at product quality and delivery times.

Now that you know how to vet suppliers, here’s where to find them. 

Supplier databases

A supplier database is a collection of information about various suppliers, including their contact details, product catalogs, pricing, reviews and ratings, and other relevant details. Since many of these platforms are designed with dropshippers in mind, they’re a great place to begin your supplier search. 

Check out these popular supplier databases:

• AliExpressopen_in_new
• SaleHooopen_in_new
• Worldwide Brandsopen_in_new
• Dobaopen_in_new
• Megagoodsopen_in_new
• Wholesale Centralopen_in_new
• Wholesale2Bopen_in_new

Print-on-demand services

Print-on-demand services help business owners sell and ship custom products. If you’re looking to sell your own artwork on T-shirts, sweatshirts, or other customizable products, check out Printifyopen_in_new, Printfulopen_in_new, GearLaunchopen_in_new, or a similar service.

Step 4: Create an online store

While you might sell on other channels (like social media), your website will be the most important point of contact for your customers, so it’s essential to get it right. 

Start by choosing a domain name. The following tips will help you choose a name that stands the test of time and helps customers trust your store:

• Avoid including your own name. Including your name could lead to legal difficulties if you ever sell your store. 
• End with .com. Because .com has been around since the early days of the internet, people tend to associate it with credibility.
• Leave room to grow. If you include keywords related to your niche, stick with broad terms. If you end up changing directions with your store, your domain name should still accurately reflect what you sell. 

Next, you’ll need a content management system (CMS) that will help you create your site without having to code from scratch. These platforms are just a few popular options for ecommerce businesses:

• Shopify. Shopifyopen_in_new is the go-to for many ecommerce businesses, and for good reason; it’s known for its user-friendly interface and wide range of features. You can choose from thousands of apps to add more functionality to your store.
• WooCommerce. For WordPress users, WooCommerceopen_in_new is a powerful plugin that seamlessly integrates ecommerce functionality. 
• Squarespace. Squarespaceopen_in_new is known for its elegant and visually appealing templates, making it great for those who prioritize design.
• Wix. Wixopen_in_new is an excellent choice for dropshippers without advanced technical skills. It has a user-friendly interface, drag-and-drop editor, customizable templates, and integrated ecommerce features. 

Note: While some platforms (including Shopify, Wix, and Squarespace) include hosting, others (like WordPress) require users to obtain and pay for hosting on their own. 

As you work on getting your site up and running, remember to develop policies, build trust with shoppers, and look for other opportunities to sell your products.

• Develop policies. Establishing policies helps legitimize your website. Include a return and exchange policy, privacy policy, and terms and conditions.
• Get instant credibility with a shopping guarantee. Since your site will be brand new, some shoppers might worry it’s a scam site. To address these concerns, try adding a shopping guaranteeopen_in_new that confirms your site is verified by a trusted third party. 
• Explore other platforms. In addition to creating your own website, you can sell through platforms like Amazon or Etsy. While you may have to pay platform fees, this strategy can help build brand awareness.

Step 5: Register your business

Before continuing, you’ll want to choose a business structure. In this section, we’ll review three popular business structures—just make sure to consult with legal experts for answers to specific questions.

• Sole proprietorship. Sole proprietorships are the simplest business structure. In a sole proprietorship, a single person owns and operates the business, and there’s no legal distinction between the business and its owner. While it’s fairly easy to set up a sole proprietorship, the structure has its disadvantages. You’ll be personally liable for the business’s debts, which may put your personal assets in danger. 
• Limited liability corporation (LLC). With this structure, the business is considered a separate entity, meaning that your personal assets are protected from business debts and liabilities. It has more filing requirements than a sole proprietorship but is simpler to set up and run than a corporation. 
• C corporation. A C corporation is a legal structure for a business that is established as a separate legal entity from its owners (shareholders). It offers the most personal protection. These businesses have complex formalities and administrative requirements. 

Most small dropshippers choose to set up their business as an LLC or sole proprietorship. If you decide to create an LLC, you’ll need an employer identification number (EIN) to file taxes and open a business banking account. You can apply onlineopen_in_new to receive your EIN from the IRS.

Step 6: Organize your business finances

Keeping your business and personal finances separate (even if you’re a sole proprietorship) will give you full visibility into what you’re spending on your business so you can understand your costs and revenue. Begin organizing your finances by opening a business checking account and applying for a business credit card.

• Open a business checking account. You’ll use this account to pay suppliers and collect payments from customers. 
• Apply for a business credit card. Business credit cards let you earn points when you spend money on certain categories, such as travel or dining. They also help build credit, which will come in handy if you ever need to take out a business loan.
• Follow sales tax laws. Sales tax gets complicated, especially when you’re selling in multiple states. Consult a tax professional to make sure you’re handling things correctly.

Step 7: Market your dropshipping store 

Dropshippers are essentially marketers! You don’t design, build, or even ship products; your main job is to convince people to buy them through outstanding marketing. 

Before you dive into digital marketing strategies, you’ll need to develop your brand identity.

Develop a brand identity

First, decide how you want people to view your store. What adjectives should come to mind when they see your website, ads, or social media? For example, you might want to come across as playful, edgy, or cool. 

Design a visual identity, including a logo, colors, and fonts, that helps support the vibe you’re going for. For written content, like product descriptions, choose a brand voice. Whether you opt for a casual and humorous tone or a formal, refined one, ensure it aligns with your chosen identity. As you make these choices, remember that your brand shouldn’t just appeal to you; it needs to resonate with your target audience. 

Get started with digital marketing

Digital marketing allows you to reach people who might be interested in your products. Some channels are relatively affordable, while others come with a steeper price tag. Start with a small budget and experiment with different channels. As you see what strategies are most successful, you can invest more in those. 

Consider the following digital marketing channels. 

• Paid ads through Facebook and Google. You can run paid ads through many platforms, but Facebook and Google are by far the most popular ones. Starting with an ad spend of $10-$20 per day, create multiple ads to see which products sell best. Retargeting ads are cheaper than normal ones, and they’re an excellent way to boost conversions once you have good site traffic.
• Influencer marketing. Take advantage of influencers’ audiences (and the power of social proof) by collaborating with them to sell your products. Instead of paying a flat fee, offer an affiliate fee so you only pay influencers when they help make a sale. 
• Content marketing. If you have the bandwidth to produce content yourself, you can do it without paying a cent! Creating engaging content related to your niche will attract potential customers. Try writing blog posts, making videos for social media, or even starting a podcast. 
• Email and SMS marketing. Encourage site visitors to sign up for email and text updates, including information about promotions and new products. You can even start a newsletter to grow a wide audience of email subscribers. 
• Communities. Community engagement is another low-budget marketing strategy. Try finding Reddit communities, FaceBook groups, or online forums in your niche. Avoid trying to sell your products, and instead offer helpful comments and advice to others. 

Step 8: Analyze and optimize 

Congrats—you’ve set up your dropshipping store, and now it will produce ever-increasing amounts of passive income on its own! … Said no one ever. 

Completing the initial seven steps in this article will put you on the road to success, but you can’t stop there. Make a habit of analyzing and optimizing your business. Look at sales, customer behavior, and profit margins (Google Analyticsopen_in_new and Google Search Consoleopen_in_new will help you dive into your data). What’s going well? What doesn’t seem to be working? Make changes to improve the less successful aspects of your business, then measure the results. 

As you continue to analyze and optimize, your store will attract and convert more customers.

Is dropshipping right for you? 

You’ve made it to the end of this article and learned how to start dropshipping—now it’s time to decide if this is the right ecommerce strategy for you.

Dropshipping can be a great way to get an online store up and running, especially if you don’t have much capital to begin with. So why doesn’t every small business rely on dropshipping? 

Well, while dropshipping allows you to avoid the hassle of order fulfillment, it also requires you to sacrifice a lot of control to suppliers. Product quality and delivery accuracy are largely out of your hands, and sudden stock changes can throw your business for a loop. And if a supplier messes up, you’re the one dealing with angry customers (and potentially chargebacks). 

If you’re the type of person who prefers to keep quality control in your own hands, consider storing and shipping your own inventory. The EasyPost blogopen_in_new provides lots of articles that can help you through your journey! Get started with these two: A Complete Guide to Ecommerce Shipping and How to Ship Products to Customers: A Step-by-Step Guide.