eCommerce has become a major business, so it’s no surprise you’re considering joining the 7.9 million online businesses that sell products via the web. Research published by Statista in March 2021 showed revenue from eCommerce in the United States reached $431.6 billion in 2020 and is expected to reach $563.4 billion by 2025. 

Dropshipping can provide a route into online selling. It’s a business type that minimizes risk and allows you to operate a business remotely without needing to manage stock. In this guide, you’ll learn the pros and cons of starting a dropshipping business as well as how to start a dropshipping business in five steps. 

What is dropshipping? 

A dropshipping business is an online business that purchases the inventory it sells from an external manufacturer or distributor who then fulfills and delivers the order directly to the customer. 

Your role as the dropshipping business is to market the products and manage the customer and sales process. Your dropship supplier will handle the inventory, packing, and delivery. 

Sounds good so far? Here’s what you need to know before getting started.

What are the benefits of dropshipping?

Low startup costs and less risk 

One of the biggest attractions to the dropshipping business model is its low capital intensity, as you don’t need to purchase inventory up-front. This means you can start a dropshipping business with relatively little investment at the start, other than to create your website and start marketing. 

If you’re starting a business on a low budget, then dropshipping could be a viable option for you. The startup risk is significantly less than a traditional eCommerce business that manufactures, purchases, and stores its own inventory prior to sale. 

It goes without saying that success is not a guarantee. You still need to invest significant time and effort into creating your website, refining your sales funnel, and marketing your business. All of which can become expensive, and may take time to see results. 

Simple to start 

Dropshipping is an incredibly popular business model for those looking to start an eCommerce business. In part, this is due to the low barrier of entry, and relative ease of operating a dropshipping business — most of which can be done remotely. 

As you won’t need to store or handle physical products, you won’t have any need for storage facilities. You also won’t need to:

• Pack and post orders
• Handle returns (other than customer service)
• Manage inventory for products stored 

This removes a lot of the complexity of the operational side of the traditional eCommerce business model, which enables you to focus on effective sales and great service.

Work remotely

As you won’t be holding stock and most likely won’t have a retail premises, your dropshipping business can operate from anywhere in the world with an internet connection.

Most of your time will be spent working on your website, marketing, and delivering customer service (mostly by email). Because of this flexibility, the dropshipping business model has become incredibly popular. 

Scalable

As your business grows, the dropshipping business model can be scaled to allow you to meet customer demand and expectations. 

Whereas with a traditional eCommerce model, you would be required to scale your warehouse, sales, and service operations to meet this increase in demand. With a dropshipping business, your suppliers handle the ‘heavy lifting,’ so extra resources may not necessarily be required for your business (such as staff and packaging). 

Drawbacks of dropshipping

Tight profit margins 

As it’s so easy to get started with dropshipping, it has become the typical ‘back bedroom’ business model for the masses, hoping to make a quick buck for little work. This has created fierce competition. 

In an attempt to compete and win business, many drop shippers have engaged in a race to the bottom with their pricing strategy, squeezing their margins in order to win the sale by being competitive with price. 

Because of this, many commodity-type products that are easily available to drop shippers have saturated the market, swamped online marketplaces like Amazon, and reduced profit margins. 

Inventory and supplier problems 

Dropshipping businesses tend to have a lack of control, as your inventory is being managed by a third-party supplier. 

If communication between you and your supplier breaks down, or there is no app or system in place for keeping track of inventory, the supply chain may break down. This may cause delays for customers, or even the wrong items being delivered. 

Be cognizant of possible delays due to public holidays if using a supplier from a foreign country, as it may cause a backlog of orders and affect your customers’ experience of your brand. 

Shipping and delivery issues

This is a common problem for any online business, whether it’s a traditional eCommerce business or a drop shipper that uses an external supplier. Unless your business only operates locally, it’s highly likely you’ll use a courier or postal service to deliver your orders. 

You need to be aware that shipping costs may increase and delays may occur at busy times of the year. Your customers will hold you responsible for this, as they’ve ordered from your brand. Make sure you have customer service processes in place to keep communication with your customers open. 

Success is not a guarantee 

Whilst there are no official figures to show the success or failure rate of dropshipping businesses in the US, those who have experienced drop shipping failures attribute it to the following reasons: 

• Selecting the wrong niche — resulting in high competition or low margins 
• Lack of investment — not having sufficient funds for effective marketing 
• Wrong platform — for marketing their products (such as Facebook or Google ads 
• Poor customer service — causing refunds and a negative reputation 
• Delayed shipping — either by the courier or the drop shipper, resulting in refunds
• Unattractive website design — resulting in low sales volume and a high bounce rate

How to start a dropshipping business in 5 steps

Now that you’re aware of the pros and cons of starting a dropshipping business, and what it takes to be successful, here’s how to get started in five simple steps.

1. Identify your product niche

We now know that selecting the wrong niche can be devastating to a new business, and is one of the common causes of failure. 

It’s vital that you choose the right niche for your business. When deciding this, go back to business basics. What’s the gap in the market you want to fill? What problem does your business or product solve? What’s the unique value proposition? 

Furthermore, you as the founder and business manager are going to need a huge amount of enthusiasm for the product. Operating and growing a business is exhausting and incredibly demanding. You’re going to need to select a niche you understand and won’t be bored by. 

You’ll also want to make sure you consider the following when choosing your niche:

• Viable profit margins. Ideally, aim for over fifty percent as an absolute minimum. 
• Shipping costs. Larger heavier products will cost more to deliver, which may affect your margins or the price the customer pays. 
• Is there demand? Using tools such as Google trends will help you figure out if people are searching for what you want to sell. 
• Competitors. Is your market already oversaturated? Check what’s available on Amazon, Etsy, Wish, eBay, and other websites by checking search engines. Look at prices and the quality of the products on offer, as well as shipping services. 

2. Find your supplier

Working with the right supplier is crucial to the success of your business. You don’t want your customers to receive products that are damaged or arrive late, as this will reflect negatively on your business and damage your brand. 

Blaming the supplier is not going to be acceptable to your customers, you will be held accountable. 

When choosing your supplier, make sure you perform due diligence. This can take the form of asking questions and checking certification before you place an order. 

Make sure you check:

• Quality assurance and product safety certifications required for the country and market you will be selling to. 
• Lead times to manufacture and deliver the product to the customer.
• Refund policy for damaged, incorrect or late orders.
• Samples. Make sure you order a sample of the product for quality testing before you start selling. You need to make sure the items are as described. 
• Production capabilities for when your business scales. 

Some of the most common dropship suppliers and websites for connecting with manufacturers include Alibaba, AliExpress, and Oberlo. 

3. Create your website 

Your website will be the most important part of your dropshipping business. It will be your online store where customers browse, consider, and hopefully order products, as well as making payments. 

As we discussed earlier, poor website design is a factor that causes business failure. 

Choosing the best website builder for your new dropshipping business can be confusing as there are so many and the differences may seem subtle. 

When choosing a website builder, make sure you consider:

• Ease of use for designing, updating, and processing orders. 
• Marketing features including customer service features to automate the process, such as email order confirmations. 
• Choice of website templates: You want your website to be clear and effective at showcasing products and making them easy to buy. 
• Try before you buy: Start a free trial to see how you get on with the website builder before you build your entire site. 

Popular choices include Shopify, BigCommerce, WordPress, Magento, and Weebly. Monthly costs and sales commissions vary, as do the transaction fees. Make sure you compare before choosing which to use, as an expensive platform will eat into your profit margins! 

4. Market your business

Once your suppliers are in place and your website established, all your effort should go into attracting customers and making sales. The best way to do this effectively is to create a customer acquisition plan that takes into account your budget for marketing spend. 

You should take a two-pronged approach to market your business; short-term and long-term. 

Short-term marketing

• Pay-per-click adverts on search engines, such as Google and Bing. 
• Social media adverts, Facebook and Instagram for example. 
• Remarketing adverts. 
• Digital marketing adverts, such as banner placements on digital publications. 

Long-term marketing 

• Website search engine optimization (SEO). 
• Consistent email marketing to keep in touch with your customers, gain repeat business and grow your brand recognition.
• Engaging social media content to grow your brand and connect with customers. 

5. Track everything and optimize 

In order to optimize your website for sales conversions, understand consumer behavior, and market effectively, it’s important to track and analyze customer metrics.

The five most important metrics you should track on your website are:

1. Cost per acquisition: How much it costs to gain one new customer. 
2. Conversion rate: The percentage of website visitors that make a purchase.  
3. Average order value: The average sale (or basket) amount. 
4. Customer lifetime value: The average amount a customer spends during the lifetime of their relationship with your business. 
5. Cart abandonment rate: The percentage of visitors that add items to their cart, but don’t complete the purchase. 

In order to track your metrics, you can use data from your website shopping cart, web hosting provider, and platforms such as Google analytics. 

With this knowledge in hand, you can edit your website design, marketing content and update product listings or pricing to streamline your sales funnel and increase your conversion rate (sales). 

Should you start a dropshipping business? 

It may seem popular, even easy to start a dropshipping business, but don’t be fooled by the amount of work involved to make it a success.

With the emergence of Amazon (Amazon FBA), Alibaba, and Shopify over recent years, and the relative ease with which you can start an online business, markets have been swamped with new retailers. 

Business basics still apply. In order to succeed, your business must meet an unmet need, solve a problem, or provide a product so amazing that people can’t help but talk about it. Don’t think you can simply start selling anything online and become successful with your business. You can’t, and you won’t. There’s much more to it than that. Before getting started, ask yourself this — will my business do the following? 

• Solve a problem better than anyone else.
• Meet an unmet need or demand.
• Have a unique value proposition. 

If the answer is yes, you’re ready to follow the advice in this guide and start your new dropshipping business. Good luck! 

With an eCommerce business, your website is everything. It’s the driver of both sales and marketing and establishes a 24/7 representation of your brand. 

When it comes to an online store, how much you put into the store paves the way for how much you’ll make. Unfortunately, many entrepreneurs make the mistake of investing too little into their website while expecting large returns. But if you start with realistic expectations for how much it may cost to launch a successful eCommerce store, you’ll be far more likely to succeed.

So, before starting an eCommerce business, follow these tips to better plan out your site and accurately budget your startup costs. 

Budgeting for the initial website build

In general, eCommerce websites require a larger investment than informational websites because there are more complex systems involved. You’ll need to consider the design and build of product pages, setting up shipping and payment processing, and implementing the proper security protocols to protect customer’s data. All of this work takes more time and resources whether you are building the site yourself or with a web agency. 

Choosing an eCommerce platform 

Your choice of eCommerce platform will determine your initial investment in the site. The two most popular eCommerce platforms are currently WooCommerce and Shopify. 

In a nutshell, WooCommerce is a free platform, which can be integrated seamlessly into WordPress. However, it’s not easy to do this on your own, and you should expect to hire a skilled developer to implement some of the more complex steps. You’ll also typically need 2-3 WooCommerce extension plugins, which can cost anywhere from $50-$100 per year per extension. One large advantage of WooCommerce is that it is an open-source platform, so there are hundreds of thousands of web teams who specialize in this technology. 

Shopify, on the other hand, is a proprietary eCommerce platform where you’ll need to pay for a Shopify account in order to build your online store. An advantage of Shopify is that you have a clear breakdown of costs per month based on your required features whereas different WooCommerce features may require different amounts of development work. One potential drawback of Shopify is that the code is proprietary so you are limited to the customization options offered by Shopify and their support services.

There are numerous pros and cons when comparing WooCommerce to Shopify. Keep in mind, that switching from one eCommerce platform to another often requires rebuilding your site. So take your time, make sure you know what you hope to get out of your site and weigh the differences when deciding on the best platform for your store. 

Template vs. custom design 

After you select your eCommerce platform, you’ll need to decide on an approach for the design and development of the website. There are two options — utilizing a pre-designed template or taking a custom design approach. 

So, which should you choose? Here are some factors you need to consider:

• How competitive the market is for your products
• Your time to market and timeline for the website project
• The complexity and customization required for your products

Working with a web template

Both WooCommerce and Shopify offer pre-designed templates, which give you a starting point for your online store. Customizing a template can be a cost-effective option for a new site because it reduces the website team’s work. It can also reduce the timeline to build the site if you need to get the products to market quickly. 

Working with a custom design

In comparison, a custom design approach means that a web designer is creating mockups from scratch. This option may be worth the larger investment and timeline if you need a high-quality design to differentiate your business from competitors. Or if you want the flexibility to actively update your site on a regular basis.

Your products and store may also require a custom approach if you’re selling products that involve complex development work. For instance, selling a product with a handful of variations, such as t-shirts of various sizes, is more straightforward compared to a paid subscription service where customers are receiving a unique t-shirt design on a monthly basis. 

Consistently rotating products and subscription services often require a lot more design and development work. Which means the custom option will likely make more sense.

Selecting a Merchant Processor 

A payment gateway is a merchant service that allows you to process credit cards on your website. Your choice of payment gateway will also impact your ongoing costs.  

If your eCommerce site is a major pillar of your business, you’ll want to set up a check out process where visitors can pay directly on your site. You want to avoid having them redirected to a third-party site to submit payment, as this can deter purchases.

To help you narrow down your options, the 3 most popular payment gateways are: 

• Stripe
• Paypal
• Authorize.net 

All of these payment gateways integrate with Shopify or WooCommerce. The processing fees for Stripe, Paypal, or Authorize.net are currently 2.9% and an additional $0.30 per transaction. However, there can be additional setup fees, depending on your choice of payment gateway. 

For example, there is a free WooCommerce Stripe plugin available for the setup on WooCommerce sites, while the WooCommerce Authorize.net extension is a paid yearly add-on. Before selecting a payment gateway, you should also consult with an experienced developer or development team about the best solution for your given situation. 

For instance, PayPal does not offer the best options for paid subscription services that require recurring payments. So if you operate as a subscription-based business, you can immediately eliminate it as an option and look into Stripe or Authorize.net instead.

Planning for long-term costs

While the initial build of the website will demand the largest investment, eCommerce sites also require long-term costs to keep the site running smoothly.  

These costs often include: 

• Hosting & SSL certificate
• Security monitoring
• Regular maintenance & development support 

Your choice of eCommerce platform also affects your monthly payments for these services. As a proprietary platform, Shopify offers monthly plans based on your website’s traffic, security, and support needs. WooCommerce websites have similar needs, but you’re given the option to decide which security protocols to set up, and select which hosting service you’d like to use. In this case, you get to shop around for the best hosting solution for your site, while with Shopify, your site only has one hosting option — Shopify’s proprietary servers. 

While it can be tempting to place a WooCommerce site on a cheap hosting platform to save money, this often turns into a critical mistake once the site launches. WooCommerce sites tend to perform poorly on a shared server with limited resources, especially as the traffic to the site increases.

For WooCommerce sites, you’ll also want to budget for a developer or development team to regularly update the plugins on your site. These WooCommerce security updates include critical security patches and failing to update your website can put it and customers’ data at risk. 

Jumpstart your eCommerce business

Sadly, many eCommerce businesses fail because they can’t generate enough sales to offset the above costs. Making the right choices at the beginning though can set you up for long-term success. Be sure to reference your business plan and financial forecasts to ensure you’re making the best and most feasible decision.

While your budget may determine a lot of your choices as to which platform you go for and whether you work off a template or build your own unique site, remember to consider all of the needs of your business while making these decisions. If you find thst funding is a core problem for launching your business, you can always work with a coming soon landing page to validate your eCommerce product or service. Having these results can make it much easier to pitch to investors if you’d rather spend more up front to build out the best website you possibly can.

If a loan or funding is simply not something you’re interested in pursuing, you can still make small strides to build a solid foundation for growth. Just be sure to carefully review your eCommerce site options carefully and look ahead to what you intend your business to be in 6-months, 1-year, 5-years, etc. That way you fully understand what you’re getting into, why you’re investing in the site, and won’t be surprised by any drawbacks or complications as your business grows.

You’ve got a great eCommerce product idea and you’re ready to get started building a new online business venture. But, before you dive headfirst into developing and producing your product you need to do some serious fact-checking.

One of the most valuable things any business owner can do before launching a company is to determine that there’s a demand for whatever they want to sell. Do other people a.k.a your potential customers think your new product is as amazing as you do?

As exciting as it might be to jump into your new life as an entrepreneur, there’s nothing more painful (or expensive) than spending all your time and energy on a venture that just can’t succeed. Did you know a lack of hungry and interested customers is the number one reason new companies crash and burn?

Let’s not let that be you.

The unfortunate truth is that figuring out whether a business is going to be successful or not is easier said than done. There are some bizarre eCommerce product ideas out there that have turned out to be an incredible success – like CBD infused candies for example. There are also products with plenty of merits that just never took off.

Learning how to validate interest in your eCommerce products before you take them to market gives you an incredible opportunity to save money and build better relationships with your target audience.

So, where do you get started?

The Basics of Ecommerce Validation: Understanding Your Product

Before you can begin testing the validation strategies that we’re going to outline below, you need to start with the right information. One of the biggest problems that today’s business owners have is that they don’t fully understand what they’re trying to sell before they jump in head-first.

To start, sit down and answer some questions about the logistics of your product. These questions include:

•   Who you’re trying to sell to: Who’s your target audience? What pain points does your new product idea solve? And are you offering the easiest solution on the market?
•   How are you going to sell: What is your marketing strategy? How are you going to bring your target audience to your website? Maybe it’s through targeting people on Facebook or perhaps you want to attract customers looking for your eCommerce product on Google? 
•   Are there any special requirements to think about: How are you going to store and ship your products?  Are your products fragile and in need of extra packaging? Which companies are you going to use to ship products to your customers? 

Once you have plenty of information about the kind of product you’re going to be selling, and why you’re selling it, you can begin the validation process.

Step 1: Conduct a Competitor Analysis

Research is at the heart of any validation strategy. Exploring what’s going on in the current market helps you to understand what your customers are looking for, as well as the solutions that they already have available to them.

Competitor analysis is one of the most important pieces of research that you can do. With competitor analysis, you can see if there’s already a demand for whatever you’re selling. You can also see if there’s too much saturation in the market. For instance, if you’re selling fidget spinners in a world where there are billions of fidget spinner companies, you’re going to have a hard time standing out.

During your competitor analysis, look at things like:

•  Pricing: What kind of revenue and most importantly profit can you expect to make on this new idea?
• Popularity: Are the items you’re looking into selling currently best-sellers for your competitors?
• Gaps: Is there anything that your product or service can do that your competitors can’t offer?

The easiest way to find competitors is to try a quick Google search. For instance, if you were looking for local marketing companies:

You can also search for #Hashtags on social media or check out what people are saying on forums. Listening to your customer’s complaints and comments about competitors will help you to figure out which features you should be focusing on most with your new product.

Step 2: Check Google Trends

Google is a very valuable tool for business owners validating their eCommerce product ideas. It can give you insight into how popular your products are by showing you things like top-ranking pages, and keyword search volume.

However, Google can also give you insight into whether your product is just another trending idea or something that’s going to deliver a solid and steady return over time. Google Trends allows you to track the search volume for a specific keyword over a period of time. You can use this to check whether people are starting to talk about your products more regularly, whether interest is consistent, or if excitement is dying down.

Let’s take a look at the incredible rise and fall of fidget spinners for instance:

We can see that interest over time quickly peaked at the beginning of March 2017 and immediately fell within a few months. 

The best ideas for your eCommerce site are the ones that can generate revenue and engagement for you over time. This means that you want to look for a trend graph where the line of interest is increasing over time or one that has remained steady over the years. 

Step 3: Get Customer Feedback

There are two ways that you can get customer feedback during the initial validation stage.

First, you can check some of the reviews and testimonials left by customers on review sites for your competitors. This is an excellent way to see what other companies are doing wrong with a specific product, so you can make your offering stand out.

The other option is to send samples of a possible product to a few stakeholders and people that you can trust. Pro tip: don’t try and gather feedback from your friends and family – you need the information that you collect here to be as objective as possible.

You can also see what comes in when you type “best online [Product]” into Google to get feedback from influencers and thought-leaders too.

The feedback that you collect in all of these areas will help you to decide whether:

• People regret purchasing the product in question.
• You can deliver a better product than your competitors.
• If there is enough demand and interest in the product.

Step 4: Build a Landing Page to Accept Pre-orders

Here’s the cool thing about creating landing pages online.

You don’t have to invest in a product before you do it. You can decide on the eCommerce product idea that you want to validate, design your website, and then purchase supplies only if you get a significant response.

You can even run Google ads to drive people to your landing page and then retarget them without making a lot of initial investment.

Running a landing page allows you to get a basic insight into the kind of response you’re going to get from customers when you launch your new product. Keep in mind that various things can affect the performance of your landing pages however, including your wording, layout, and even your CTA buttons.

One excellent option to start generating interest for your product is to add a button to the page that allows customers to sign up to be informed when your new product is ready to purchase. This will give you a list of customers that you can immediately expect sales from when you’re ready to launch. At the same time, you gain greater insight into the kind of people that are interested in your items.

Step 5: Do The Math

Finally, this might be one of the most boring parts of validating your eCommerce idea, but it’s also one of the most essential. You’ll need to figure out exactly how profitable your new product is going to be. You will lose your enthusiasm and interest in the long run if you aren’t making a good profit and maintaining positive cash flow.

Financial plan

You’ll need a few pieces of information to create your financial calculations, including the price of your product, the number of customers you think you’re likely to get (based on your landing page tests), and the cost of your goods sold. Additionally,  consider the cost of any extra expenses like building and running an eCommerce website, logistics, marketing, and paying for staff too. 

Price

If you’re not sure exactly how much you should be charging for your new product, check out the competition. You should be able to get a reasonable idea of how much something should cost by looking at the businesses that came before you. Then based on your financial calculation, check if the price of the competitors can cover all your costs and that you can still make a profit. If not, then maybe you need to increase your price but also consider what extra do you offer to charge a higher price? 

There are even places that you can track down case studies from other growing businesses online that might help you to make a more informed pricing decision.

Startup costs

Finally, once you understand your financials, calculate your startup costs, and how much money you need to get started. Remember that building an eCommerce website can be expensive, especially if you decide to hire a professional company to build it for you. Don’t forget costs such as branding, graphic design, photography, content writing, this all will need to add up to your startup costs. 

Once you have all of the right numbers in place, ask yourself how much money you need to get started and how much money you’ll be left with when you subtract the price of making and selling the product, with the profits from purchases.

Is the effort worth it?

Only you can make that decision.

Are You Feeling Validated?

Validating your eCommerce product idea before you launch your business is a bit like creating a full business plan. It can be a time-consuming process, and it requires some effort. However, it’s also one of the best ways to make sure that you’re investing in something that’s going to pay off. It’s better to know before you’ve spent your life savings on a new product idea, whether it’s going to be a good idea or not.

If you discover that the item you were planning on selling isn’t nearly as valuable as you thought – don’t despair. You can always go back to the drawing board and consider something new. You may even discover new sales ideas when you’re doing your validation process by checking out the gaps in your competitor’s portfolio or examining the latest trends.

Remember: imagine, plan, validate, and then implement.