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How to build a successful online drop shipping business (2022)

Drop shipping is an extremely popular business model for new entrepreneurs in Nigeria, especially Gen Zs and millennials, due to internet marketing skills far outweighing financial capacity. Since you don’t need to stock or handle the items you are selling, it’s possible to start a drop shipping business with limited funds.

Dropshipping is a popular business model in the 21st century because of its low startup costs, zero overhead, and simple business model. It is possible to start a dropshipping company for as little as $100, making it a good option for those keen on bootstrapping a new venture.

Many platforms are available to the drop shipper, offering just about any product you can imagine. Best of all, the drop shipper can sell those products without ever keeping any inventory of them. However, those entering the dropshipping business should test products and product delivery before jumping in and fully marketing a new venture to make sure that they are selling a viable product that will get to people in a reasonable time frame.

If you are ready to start a business that can compete with retail giants, and do so on a limited budget, then follow the steps below. While it doesn’t take a lot of startup funds to launch a drop shipping business, it will require an immense amount of hard work.

How do I start a dropshipping business?

  1. Select a niche for your Dropshipping business
  2. Do competitive research
  3. Choose a dropshipping supplier
  4. Build your e-commerce website or store
  5. Market your dropshipping store or website
  6. Analyze and optimize your store

What Is Dropshipping? – Drop shipping explained

Dropshipping is a business system that allows a company to sell products without ever maintaining an inventory of the products. The customer places an order, and then the company notifies the manufacturer or distributor of the product that an order has been placed and it should be dropped into a shipment for the consumer. The manufacturer or distributor sends the product directly to the consumer on behalf of the dropshipping company.

The order is simple: the consumer pays the drop shipper. The drop shipper pays the manufacturer or distributor. The manufacturer or distributor sends the product to the customer. Essentially, the drop shipper is a marketer.

Because there is no inventory needed, dropshipping is a cost-effective way for new business owners to sell products without a lot of overhead. It also prevents getting stuck with inventory that can’t or won’t sell.

How Does the Dropshipping Business Model Work?

There are three key players in the dropshipping business model: the manufacturer, the retailer (you), and the customer.

The manufacturer’s role in a dropshipping business model includes creating products, carrying inventory, shipping products to customers on behalf of the retailer, replacing defective products, and restocking them. They sell products to the retailer at wholesale prices assuming the risk of unsold inventory.

In the dropshipping business model, the retailer (you), sells the manufacturer’s products on your website under your own brand. You’ll be responsible for choosing and marketing those products. Plus, you’ll also be responsible for their shipping costs and setting prices that make you a profit.

Lastly, in the dropshipping business model, the customer buys the products directly from you, the retailer. If questions or issues arise, they contact the retailer they bought the product from.

How to Start a Dropshipping Business: The 6 Step Dropshipping Business Plan in 2022

STEP 1: Select a niche for your Dropshipping business

The niche you select needs to be laser-focused and something you are genuinely interested in. A product range that isn’t focused on will be difficult to market. If you aren’t passionate about the niche you select, you will be more apt to become discouraged, because it takes a lot of work to successfully scale a drop shipping business. Here are some points to consider when selecting your niche:

  • Seek attractive profits. When you are running a drop shipping business model, your focus is on marketing and customer acquisition, so the amount of work required to sell a $20 item is essentially the same as it would be to sell a $1,500 item. Select a niche with higher-priced products.
  • Low shipping costs are very important. Even though your supplier or manufacturer will handle the shipping, if the cost is too high, it will act as a customer repellant. Find something that is inexpensive to ship, as this also gives you the option of offering free shipping to your customers and absorbing that cost as a business expense in order to attract more sales.
  • Make sure your product appeals to impulse buyers with disposable income. When you are focused on driving traffic to your website, you want to experience the highest conversion rate possible because most visitors will never return. The products you are selling should trigger impulse buys and appeal to those with the financial ability to make a purchase on the spot.
  • Make sure people are actively searching for your product. Use Google’s Keyword Planner and Trends to check some common search terms related to your potential niche. If nobody is searching for what you are planning on selling, you are dead in the water before you even begin.
  • Create your own brand. Your drop shipping business will have more value if you can rebrand whatever it is you are selling and pass it off as your own. Look for a product or line you can white label and sell as your own brand with custom packaging and branding.
  • Sell something that isn’t readily available locally. Pick something your customer can’t find down the street. That way, you become more attractive to a potential customer.

STEP 2: Do competitive research

Now that you know what you’re going to sell in your store, you want to look at who your competitors are and understand the way they work. Your competitors may hold great clues to success and can help you build a stronger marketing plan for your dropshipping business.

If your market has a lot of competitors (which is a good thing in dropshipping), limit your research to about five other dropshipping companies, including one or two big players like Walmart, eBay, or Amazon. It’ll help you keep focused and plan your next steps. 

Some ways to go about your competitor research are:

  • Run a Google search. Search engines are an obvious starting point. Use Google to build a list of your top five competitors. Start with key search terms in a simple search, like “ear plugs.” The top 10 results will show you who your top competitors are and how they are promoting their products. If you want to focus on a specific country, you can use a third-party tool like Ahrefs or SEMRush to find keyword data in those areas. 
  • Use competitor spy tools like Similarweb and Alexa. Online tools like these are great for finding (and keeping track of) your competitors’ online activity. They give you a list of competitor website information, such as their social media profiles, top traffic sources, number of visitors, and who their competitors are.
  • Browse social media. Search for Facebook ads in your niche and check out the top brands in the market. Look at how the business communicates with its customers, how its feed is designed, and how much engagement it gets—you can even follow its feed to never miss a beat. Use this information to find ways for your business to stand out and improve your social media marketing strategy. 
  • Subscribe to competitors’ email lists. Want competitors’ updates straight to your inbox? Sign up for their email list and get a look inside their marketing strategy. You can also learn more about the promotions and deals they use to entice customers to buy. 

Learn everything you can about your top competitors: their website, prices, marketing methods, product descriptions, reputation, etc. 

STEP 3: Choose a dropshipping supplier

Partnering with the wrong supplier can ruin your business, so it’s important that you don’t rush this step. Conduct proper due diligence. Most drop shipping suppliers are located overseas, making communication extremely important, both in terms of response speed and the ability to understand each other. If you are not 100 percent confident in the communication abilities of a potential supplier, move on and continue your search.

Alibaba has become one of the largest online resources to identify and communicate with potential manufacturers and suppliers. Make sure to ask a lot of questions and learn what their production capabilities are in the event that your business grows exponentially. You want to be certain they have the ability to scale with you.

Try to learn from other entrepreneurs who have walked this path in the past. There are plenty of information sources available, from business and tech blogs to this subreddit about drop shipping. It’s a popular topic that can help you avoid costly supplier mistakes.

STEP 4: Build your e-commerce website or store

The fastest way to launch a website that supports a drop shipping business model is to use a simple e-commerce platform such as Shopify. You don’t need to be a designer or developer to use Shopify either. And you can easily change the look and feel of your store with the store builder and Shopify themes.

Even if you have a sizable budget that would allow you to hire a web design and development company to create a custom solution, it’s a much wiser move to use one of the plug-and-play options, especially in the beginning. Once you are established and the revenue is coming in, then you can explore additional website customization.

STEP 5: Market your dropshipping store or website

Now that you know how to start a dropshipping business, it’s time to talk about marketing your new store. To stand out in your market, you may want to put extra effort into your marketing and advertising efforts when building your dropshipping business plan. 

With so many things about dropshipping being automated, you can spend time focusing on marketing and promoting your business in the following ways:

1. Paid ads (Facebook and Google). The average cost for a Facebook ad is around 97¢ per click, which isn’t too bad if you’re newer to advertising on the social media platform. Facebook ads are scalable, products can perform well on them, and they tap into people’s desire to impulse buy. You can run Google Shopping Ads and target long-tail keywords where shoppers are more likely to buy. There’s typically more price competition with Google ads, but it may be worth your time to test it out.

2. Influencer marketing. As a new dropshipper, you may have a limited budget to market your business. Influencer marketing is an affordable way to reach your target audience because people tend to trust influencers more than traditional advertising. If you go this route, negotiate an affiliate fee with the influencer versus a flat rate. It’s a win-win situation because they’ll make money off of each sale and the cost will be less for you. 

3. Content marketing. If you want to build a long-term stream of traffic for your store, add content marketing to your dropshipping business plan. Start a blog around your dropshipping niche and create content that entertains and educates your target audience. You could also start a YouTube channel, create infographics, or start a podcast to help get the word out about your brand.

4. Communities. Get involved with groups of people who are passionate about your niche. You can start conversations with potential customers on Reddit, Facebook Groups, or online forums. Remember not to be too sales-y when engaging with a community. Aim to help and build relationships with potential customers so they trust your brand and want to buy from it.

5. Mobile marketing. Mobile marketing is a broad term that refers to a business connecting with customers on their mobile phones. For example, you can start a VIP text club and encourage website visitors to sign up for exclusive deals and promotions. Or provide customer support in a live chat conversation with shoppers through Messenger. With a mobile marketing platform like ManyChat, you can create automated lead generation, customer retention, and cart abandonment campaigns to drive sales and revenue for your dropshipping business. 

STEP 6: Analyze and optimize your store

You need to track all of the data and metrics available to grow your business. This includes Google Analytics traffic and Facebook conversion pixel data if that is your main customer acquisition channel. When you are able to track every single conversion — to know where the customer originated from and what path they took on your website that eventually led to a sale — it enables you to scale what works and eliminate what doesn’t.

You will never have a set-and-forget advertising or marketing solution. You need to constantly test new opportunities and fine-tune current campaigns, which allows you to know when to optimize or shift campaign spend.

Frequently Asked Questions on Drop Shopping

Is dropshipping still profitable in 2022?

Yes, dropshipping can be a profitable business model for merchants because you are not responsible for shipping or manufacturing. It’s a low-risk business model that doesn’t incur huge costs like a wholesaler would normally have and you can earn a good profit margin with the right suppliers.

How much can you make as a drop shipper?

There are many drop shippers who make up to $100,000 per year with a successful dropshipping store. So, if your idea of being a successful dropshipper is to make $100,000 per year, you’ll need to choose the right suppliers and build a brand. 

How hard is it to start a dropshipping business?

Starting a dropshipping business can be highly competitive. Because you can start a dropshipping business for free, you may face a lot of companies who are selling a specific product at similar prices. 

What do I legally need to start a dropshipping business?

Most states require you to get a sales tax ID, or a reseller’s permit, for the state. You may need to charge, collect and pay the applicable sales tax of any product you sell.

Does Walmart allow dropshipping?

You can register as a Walmart dropshipper and sell dropshipped products directly to Walmart customers. You cannot dropship Walmart products to customers.

How much profit can you make dropshipping?

Dropshippers make between a 20% and 30% profit from each sale or up to $100,000 per year on average. This works out to be between $1,000 and $5,000 per month. The remaining money goes to purchasing the product from the supplier, drop shipping fees, paying to host dropshipping websites and marketing.

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