Start A Drop Shipping Online Business: Everything you need to know
My website’s purpose is to help people find an online business to start. This is because I believe that there is no need to be working on somebody else’s time table anymore. Whether you are looking in to affiliate marketing, copywriting or starting a social media agency, there will be something for you. In this post, I am going to go in to the details on how to start a drop shipping online business.
What Is Drop Shipping?
Drop shipping is a great business model. When done right, you can earn a serious amount of money from it.
The seller doesn’t hold or ship the stock that they sell in their online store. Instead, when a sale is made the seller buys the product from a supplier, who ships it straight to the customer. This means that the seller never actually sees or touches the product itself. It simply acts as a middle man for the supplier. The seller makes money by adding a profit margin on to the supplier’s price and keeps it for their efforts.
Advantages Of Drop Shipping
- Low cost to start
- You only pay suppliers when you sell something
- No need to buy, store or ship products yourself
- You can offer customers a wide range of products
- No delay in starting up
- A lot of the process can be automated
Disdvantages Of Drop Shipping
- Stock shortages
- Increasing prices of products sold
- The more you sell, the higher your fulfilment costs are, reducing your margin
- You are not in control of the delivery process
- High competition if you don’t choose the right products or niche
This all seems pretty great doesn’t it? Well it is, but there is a lot of preparation to ensure that your business will be successful.
How Much Money Do I Need To Start Drop shipping?
OK don’t be scared, I just want to outline the bare minimum costs of starting a drop shipping business. Different people will have different goals that they want to achieve with their business. If you want to buy a mansion with a garage full of super cars, y0ur budget will be a lot higher than someone that just wants to supplement their income. Therefore I am going to be realistic and outline the startup costs that you will need from day 1. if you have this amount of money, you can be confident that you can start up your business straight away.
You will need to sign up to an eCommerce platform in order to build an online shop. An example of this is Shopify or AliDropship. Shopify costs $29 per month and Alidropship is a one time payment of $89.
An eCommerce platform is where you host all of you products, manage payments from you customers. It is basically the system that manages everything for you and is essential for your business.
Domain Name and Hosting
Next you need to come up with a really good domain name for your online store. Here is my guide to choosing a domain name, but in summary it needs to be:
- Relevant to your niche
- Have no digits or hyphens
- Has to be a .com
- Branded to instil trust in your customers
Your website needs to be hosted for it to work. This is something that you need to pay for annually. Luckily it isn’t too expensive, it is roughly $48 per year. Good examples of hosts are:
Also the drop shipping plugin provider will usually have a hosting service. This will make life more convenient as everything is in one place.
Apps are really important for your store, as they drive sales and allow you to run your store more efficiently. There are a lot of apps to choose from, some are free and some you have to pay for. Examples of apps that you should use are:
- A currency converter – this will automatically change the currency to suit the country each customer is in. This will help to convert sales.
- A review app – An app such as Ali Reviews will allow you to import AliExpress reviews of products from real customers to your store. This helps convert sales, as it provide social proof the people have bought the product and are happy with it.
- An up sell app – This will allow you to offer an additional item, a similar item or the same item at a discounted price when the customer proceeds to the cart. This allows you to make multiple sales to one customer.
Some of these apps come with free trials, so you can see how effective they are before you pay for them. For 3 apps, it will cost around $40 per month to run them.
There is a way to make this a bit cheaper though. By using a theme called Debutify, you can add three apps for free, one of which can be an up sell app. Doing this means that you can have 5 Shopify Apps and a nice theme for $30 per month, saving you $10 per month.
There will be other apps you will need later on that will cost you more money, such as re-targeting apps. But, by this point you should be making more than enough money to cover the costs. these are really important further down the road, but you shouldn’t worry about them at this stage.
This is where you can decide on how much you want to spend. It is difficult to say how much money you should spend on marketing, as it all depends on your budget and how much you are willing to spend.
If you don’t have a lot of money to start with for marketing, it doesn’t mean that you will not be successful or less successful than someone with a large budget. It just means that it will take longer for you to get the results.
In the spirit of giving you a good starting point, we need to look at the base rates in the market. The base conversion rate for eCommerce stores is around 3%. This means that for every 100 visits to your website you should be making 3 sales.
To do this you need to market your store on social media. The best way is through Facebook business manager, as it allows you to target users of both Facebook and Instagram at the same time.
On both of these platforms an average click though rate is considered to be about 1.5%. This means to get 100 people to your store, you need to reach 6,700 people. Therefore we need to look at what the cost is per 1000 impressions on Facebook. The industry average is $12.50 for 1000 impressions.
So, this gives us a simple sum to work out how much you need to spend:
Required impressions ÷ 1,000 impression benchmark X CPM = Cost to reach 1,000 people
6,700 – Required impressions
1,000 – Impression benchmark
$12.50 – Cost per 1,000 impressions (CPM)
This means to reach 1,000 people, you need to spend $83.75. This is what you need to spend to get 3 sales.
You may think that this is quite expensive and in many cases will mean that you will make a loss. You would be right.
To make sure that you make money, you need to make sure that your adverts work well, learn where your audiences are located, learn about their demographics and what products sell well. This means that you may make a loss in the early days while getting this information together. Once you learn these things, your marketing costs decrease and your sales will go up. This is because you will be able to target your customers better. You will also be able to utilise your up sell app, which will encourage your customers to buy more from you.
As I said earlier, your marketing budget is totally up to you. If you don’t want to spend $83.75, you don’t have to. It just means that it will take a bit longer to reach your goals. many drop shippers start on a $5 per day marketing budget.
If you can afford these costs, you are capable of starting your own drop shipping business.
What Do I Need To Start Drop Shipping?
I am now going to take you through all the steps you need to follow to start your drop shipping business.
Step 1 - Choose A Niche
Just like affiliate marketing, the drop shipping niche you choose for your store will make or break your business. A niche is a group of people with a common interest and it is recommended that you choose a niche with a narrow focus. This will reduce your competition and increase the likelihood of making sales.
When researching for potential niches you need to consider the following:
- Price point of the products
- Your target market
- Preferably a niche where brand loyalty isn’t at the front of people’s minds
- Low competition is very important. If you pick a niche with too much competition, you will struggle to make good money
- It really should be something that you are actually interested in. This will mean that you can use your knowledge to build a quality online store and it will be more interesting for you
- It needs to be something that isn’t seasonal. You won’t make money all year by selling Christmas jumpers.
- An audience that requires little interaction.
- An audience that rarely returns products.
- An audience that is happy to spend
- Have good suppliers
A useful tool for finding out what people are searching for online is Google Trends. You can search by keywords and geographical location to see what is popular.
Additionally, you should use a keyword research tool such as Jaaxy. This will help you see how popular certain keywords are and how much competition they have.
A bad niche would have the following characteristics:
- Products with lots of details
- Products with legal issues
- Delicate Products
- Heavy products
Step 2 - Choose Your Products
Obviously you need some product in your store to sell. It can be really easy to sell popular products, but it can also be really hard. There is usually a lot of competition for popular products, so if you go for popular products, you need to make sure you are able to make them stand out in your store more than your competitors. You do this by being competitive on price (although this will mean you have a low profit margin), have a better selection, choice or availability.
However, if you play to a focussed niche, you have a better chance of making some good sales. Less popular products are actually easier to earn money from. This is because the customers that have an interest in a specific product are more likely to buy them. This is why you really need to go in to detail when choosing your niche. Think about products that are highly targeted but don’t apply to everyone.
To find products for your drop shipping store, the Drop shipping plugin you choose will give you access to the suppliers and products.
Good products to drop ship are ones that:
- Are unique
- In demand
- Trigger emotions for impulse buying
- Have good delivery times
- Not branded
Bad Products to drop ship are ones that:
- Are copywrited
- Easily damaged
- Technically complex
- Tight fitting clothes and shoes
Step 3 - Build A Semi Automated Online Store
There are a couple of ways to do this but I recommend that you go with Shopify. This isn’t the cheapest way to do it, but it has lots of features and automation that will make life easier when your store starts to be successful. Another popular way is to build a WordPress website and add drop shipping plugins.
Step 4 - Add Upsells
You know the you buy something off amazon and you get other products recommended to you? Well this is a great way to make more money from your audience.
This is called an up sell and there are a few different ways to encourage your customers to buy more. For example, some customers may be tempted to buy more than one of the product, so you can offer a discount on the second one. Also many products will compliment each other, so you can offer a discount for a product that will go well with the initial purchase, to “complete the set”.
Another way of adding up sells, is to email them a discount coupon with a time limit. This will encourage the customer to return and buy something else (and of course you will have another up sell attached to it).
This can easily be done with up sell apps available on Shopify. It is not difficult to add these. Some are really clever and include a “wheel of fortune” style interface, where the customer “spins” the wheel to see what offer they get. Some up sell apps have countdown timers to give the customer a feeling of scarcity, encouraging them to buy quickly so they don’t miss out.
Step 5 - Advertise
Advertising is key to your success as a drop shipper. The best way to promote your drop shipping products is through social media. There are a number of tactics to employ when creating adverts:
Tactic 1 - Use Facebook's Automation Tools
Facebook has some great features on their business pages. These will help you create high performing advertising campaigns. It takes some trial and error to get it right, but when you first start, you need to create 3 different types of ad campaign:
- A different type of image
We do this because different people react to different types of advert. Run your adverts with a budget of $5 per day to keep you risk low and run them for 3 to 4 days.
The Facebook campaign budget optimisation tool will make decisions in order for you to target the necessary audiences.
Tactic 2 - Use Emotions
People buy from theses adverts based on emotions they get from them. If you do this effectively, you will get a good clickthrough rate.
Humour, curiosity, fear, jealousy, practicality, protection, coolness, overcoming obstacles, envy and problem solving are all effective ways of grabbing your audience’s attention.
Tactic 3 - Optimise
Once you have found a winning ad, you can start to optimise and add a sales funnel. This is when you really start pushing your up sells and making your you can earn as much money from your audience as possible.
You then need to create a profit accelerator funnel. This is when you duplicate the advert and start using instagram for bigger reach.
Tactic 4 - Create A High Converting Landing Page
You need to make sure your product page is perfect and optimised. Write a quality product description, use good photos and make the user experience a good one.
Tactic 5 - Pick A Scalable Product
Choose a product that lots of people within your niche will want to buy. Products that could get multiple orders are a great way to increase your sales. So pick products that people will want more than one of, or will buy an extra one for a friend or family member.
Facebook Ads Tips
- Do proper market research – If you test lots of products, you may not find a winner.
- Check Facebook’s rules – Facebook has nothing against drop shippers, but you need to stick to their rules, or they will close down your account
- Don’t become attached to a product – Just because you believe in a product, it doesn’t mean your audience will. Therefore, if you are not making any sales, ditch that product and find another one
- Make sure your store is engaging – Even if your advert works well, you won’t make sales if your store looks unprofessional
- Combine what you learn with experience – The data you get from Facebook is invaluable. Once you have got your targeting optimised, re-advertise and use the data for your next product
Step 6 - Grow Manage And Scale
Once you are starting to become successful, you can start to become more efficient and create more opportunities. You do this by adding apps to your online store, and there are hundreds to choose from.
These apps add different features and functionality to your store, such as:
Scarcity apps will target your customers psychologically. They do this in a number of ways, like giving them a time limit on deals, show stock low levels and creating urgency.
There are apps that help customers to trust in you as an online shop. These apps allow you to add product reviews or add trust badges for credit cards etc.
By streamlining your customer service efforts, you can save time and improve the customer experience. These apps can allow the customer to track their order, fill out their own returns info, translate your shop in to their native language. There is even an app that allow your customers to contact you via Facebook messenger.
I mentioned up sells earlier, but there are other apps that will help you make more money. For example, you can monitor abandoned carts and automatically contact the customer offering them an incentive to complete their purchase. Discount apps will automatically award coupons to customers, help you add special offers for Black Friday etc.
Now Start A Drop Shipping Online Business Yourself
These are all the steps you need to take to get your drop shipping business started. If you don’t have the funds for marketing, you may want to look in to alternative online businesses. For example, affiliate marketing is one of the best and most popular ways to make money online.
If you have any questions or thoughts on this subject or any other online businesses, please leave them in the comments section below.