If you’ve done any kind of research into starting an online business, chances are you’ve come across the term “dropshipping.” Digging deeper, you’ve probably encountered countless articles promising the potential to make millions and achieve financial freedom in no time.
This begs the question: Is dropshipping the golden ticket to financial success? Or is it just too good to be true?
In this comprehensive guide, we’ll take you on a deep dive into all the ins and outs of becoming a drop shipper. With this information, you’ll be able to weigh the pros and cons and decide if it's the right model for you to explore launching an online venture.
What is Dropshipping?
Simply put, dropshipping is a retail model based on an online store that sells products without keeping them in stock. Instead of purchasing inventory upfront, a dropshipper partners with a third-party supplier who manages the inventory and ships products directly to customers when an order is placed.
This contrasts with traditional e-commerce or retail models where the retailer typically buys and holds inventory, manages warehousing, and handles logistics. Instead, the dropshipper only has to focus on marketing, advertising, and promoting their online presence.
The dropshipper and supplier do not have to be part of the same country; they can even be based across the world from each other.
The typical dropshipping process works like this:
- A customer places an order on the retailer's online store.
- The retailer forwards the order details to the supplier.
- The supplier packages and ships the product directly to the customer.
- The retailer earns the difference between the product's wholesale and retail prices.
Imagine you run an online store selling home crystal accessories, furniture, or decorations. First, you need to find a supplier that obtains, warehouses or manufactures these items.
You’ll then create the “business,” along with your own pricing branding, pricing strategies, market focus, etc.
The next step is to build an online store using tools like Shopify or WordPress + WooCommerce that support drop shipping capabilities. Then, start marketing your products via SEO, email, or social media.
Once you get an online purchase, let’s say for a quartz bedside lamp, you automatically route this order to your supplier. The supplier prepares, packages, and ships the lamp to the customer directly. As far as the buyer knows, the item comes directly from you.
If the supplier charges $50 (including shipping) for the item, and you can sell it for $60, you make $10 in profit (minus your operational expenses).
The Pros and Cons of Dropshipping:
Like any business model, dropshipping isn’t the golden ticket to instant success and financial freedom. It has its own ups and downs and may not be suitable for everyone. While we’ll take a deep look into dropshipping, here are some upfront pros and cons you should be aware of:
The Pros
- Low startup costs: Dropshipping doesn’t require a significant upfront investment in inventory, warehousing, and logistics. You can try it out with minimal financial risk or without wasting months of your life.
- Run your business from anywhere: Since products are shipped directly from suppliers to customers, dropshipping businesses can operate from anywhere with an internet connection.
- Wide variety of products: There’s a near-limitless variety of niches and products for you to explore. You also don’t have the same logistical concerns, for example, when it comes to stocking or fulfilling large items.
- Scalability: As the business grows, dropshipping can scale without expanding warehousing or increasing inventory. Orders can increase significantly without proportional increases in overhead costs.
- Simple business model: Dropshipping allows you to focus on core activities like customer service and marketing by outsourcing inventory management and shipping.
The Cons
- Low profit margins: Due to high competition and reliance on third-party suppliers, profit margins in dropshipping tend to be lower compared to traditional retail models. Dropshippers often have to lower prices to stay competitive as well.
- Lack of control over the supply chain: Since you don’t handle the products directly, you have little control over product quality, shipping times, and packaging. However, as the face of the business, you or your brand will take the blame for any issues.
- Intense competition: The low entry barrier in dropshipping means the market is highly saturated. Competing against larger, established retailers who can offer lower prices can make it difficult for a newcomer to gain traction.
- Branding limitations: Products sold through dropshipping often lack unique branding, making it challenging to differentiate your offerings from competitors.
How to Assess the Viability of Your Dropshipping Business
So, if you’ve always felt that you have the ideas but not the time, money, or expertise to start a retail business, dropshipping might seem like the ideal solution.
However, there are certain considerations that are universal to starting any type of business, even a dropshipping one. You need to properly assess the market conditions and the viability of your business model.
According to most sources, the success rate for dropshipping businesses is around 10 to 20%. This is fairly on track with the success rate of most startups and small businesses.
That being said, with careful planning and preparation, there’s no reason why you can’t launch a successful dropshipping business.
With that in mind, we’ll outline some of the essential things you need to consider when evaluating the potential of your dropshipping business.
Market Saturation & Competition
The dropshipping market is highly competitive due to the low barriers to entry. Many niches are already saturated, making it difficult to stand out. In 2023, the global dropshipping market was valued at $268.2 billion and is expected to grow by 23.46% annually until 2030 — reaching a whopping $1,787.4 Billion.
However, the level of activity in different niches can vary greatly. To analyze keyword competition and search volume, you can use tools like Google Trends, SEMrush, and Ahrefs.
It’s all about finding the perfect balance between competition and interest for your ambitions and risk tolerance. You don’t want something that’s too saturated so that there’s no room for newcomers. At the same time, you don’t want to pick something with too little interest.
Rising Advertising Costs
Advertising costs, particularly on platforms like Facebook and Google, have risen significantly in recent years. In 2023, the average cost per click (CPC) for Google Ads in the e-commerce sector was around $1.16, up from $0.66 in 2019.
However, it can be much higher in competitive niches. These also change over time according to the click-through rate (CTR), industry trends, ad quality, etc.
Higher advertising costs can eat into your profit margins, so budgeting and optimising your ad campaigns is essential. Tools like Facebook Ads Manager, Google Keyword Planner, and SpyFu can help you track ad costs and optimize your spending.
Evolving Consumer Expectations
As online shopping becomes the norm for most, consumers are demanding better and better experiences. Fast shipping and hassle-free returns are now considered standard instead of “nice-to-haves.”
A report by HubSpot found that 90% of consumers expect immediate responses to customer service inquiries. 64% expect their orders to be shipped within two days.
However, each niche is different. Customers may be more understanding of longer shipping time for large purchases, such as furniture, than smart watch straps, for example. You need to see what service levels your competition offers, and see if you can match it.
This makes dropshippers even more reliant on finding reliable suppliers that they can trust and partner with long-term. After all, as the face of the product, it’s the dropshipping business that will suffer from any negative experiences.
Dropshippers can also use tools like ShipBob and Easyship to streamline their logistics and ensure a smooth fulfillment process.
Platform policies and restrictions
E-commerce platforms like Amazon, eBay, and Shopify have specific policies that can impact your dropshipping business.
For example, Amazon requires that you be the seller of record, meaning you must handle customer inquiries and returns, even if a third party fulfills the order. Others, like eBay, permit dropshipping only if you source products directly from a wholesale supplier.
You need to check for similar T&Cs when using Shopify, Etsy, or marketplaces offered by Facebook and Walmart. Otherwise, you may make all the effort of starting a business and generating sales, only to get banned.
You can familiarize yourself with platform-specific policies through their official resources, such as the Amazon Seller Central and Shopify Help Center.
Global economic and logistical challenges
While true of any business, Global events can significantly impact your dropshipping business, sometimes without much warning. The COVID-19 pandemic, for example, starkly highlighted vulnerabilities in global supply chains.
Not to mention the 2021 Suez Canal obstruction, which caused massive shipping delays and cost increases.
That’s why it’s typically recommended to have a profit margin of at least 20-25% so that you have a buffer to work with when the unexpected hits. However, this can be challenging to achieve in an industry with tight profit margins, like dropshipping.
Your best bet is to use tools like Freightos and Supply Chain Monitor, which can help you track and mitigate these risks by providing real-time data on shipping rates and potential disruptions. Additionally, consider diversifying your supplier base across multiple regions to reduce your dependency on a single source.
How to Find Your Niche and Research Products
Identifying a profitable niche is the foundation of a successful dropshipping business. With countless products and markets, focusing on a niche allows you to target a specific audience, reducing competition and increasing your chances of getting a positive result.
A well-chosen niche not only aligns with current trends but also meets specific consumer needs. While it’s possible to introduce something completely new to the market, tapping into an existing market with unsatisfied demand is less risky.
Why Niche Selection Matters:
- A clearly defined niche allows for more focused marketing efforts, leading to higher conversion rates.
- Customers are more likely to return to a store that specializes in what they are passionate about or need regularly.
- Specializing in a niche allows you to offer unique products that justify higher prices, leading to better profit margins.
The sky’s the limit when it comes to what you can base your dropshipping business on. To give you some inspiration, here’s an example of niches we researched with a short rationale:
- Bakuchiol Skincare Products: Bakuchiol, a natural alternative to retinol, is experiencing a surge in popularity, with a growth of 867% in search volume. This niche caters to the growing demand for natural and organic skincare, particularly in the US, Germany, and the UK.
- ADHD Supplements: There is increasing interest in natural supplements for managing ADHD, with a growth of 326% in searches. This niche is still relatively new and less competitive, making it a promising option for dropshippers looking to tap into the health and wellness market.
- Eco-Friendly Pet Products: As more consumers seek sustainable options, eco-friendly pet products are becoming a hot niche. Some examples are biodegradable pet waste bags, organic pet food, and eco-conscious toys. The niche is moderately competitive but has a dedicated customer base willing to pay a premium for sustainable products.
- Smart Home Fitness Equipment: With the ongoing interest in home fitness, smart fitness equipment like connected stationary bikes or smart weights is trending. This niche is popular but can be profitable due to higher price points and growing demand in the work-from-home era. Plus, it’s becoming easier to source affordably priced electronics from countries like China.
- Niche Hobby Products (e.g., Model Building Kits): Model building kits, including model trains and cars, cater to a specific but passionate audience. This niche has seen steady growth and remains less saturated, making it ideal for drop shippers looking for a niche with dedicated, repeat customers.
We like using organic search growth as a metric because it shows a growing interest in a niche. Even if the market is pretty saturated, there may be room for more businesses to grow with it and cater to new niche audiences as they get introduced.
Building a Successful Dropshipping Store: A Step-by-Step Guide
Okay, so now that we’ve covered the planning phase, how do you actually launch a dropshipping business?
While it may seem daunting, it becomes much more manageable if you break it down into its individual stages. While every drop shipper's journey will be unique, you can use this as a rough guide to plan your business:
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Choosing the Right E-commerce Platform
Popular platforms like Shopify and WooCommerce offer robust integrations with dropshipping apps like Oberlo and Spocket that help with sourcing and fulfilling products.
Shopify, in particular, is known for its user-friendly interface, extensive theme library, and 24/7 customer support. BigCommerce is another strong option, with built-in features like product reviews and multi-channel selling, which can save on app costs.
For a more customized experience, WooCommerce is a great choice. However, it requires more initial setup and ongoing maintenance.
2. Creating a Compelling Brand and Website
Start by defining your brand’s identity using tools like Branding Compass or Looka, which help you create a brand strategy and visual identity based on your niche and target audience.
Or, use platforms like Canva for easy access to professional-grade graphic design tools. Tools like Hotjar will allow you to analyze user behavior on your site, so you can continue to fine-tune the experience.
Your website should be easy to navigate, mobile-friendly, and optimized for conversions. Tools like Unbounce, for example, help specifically with optimizing landing pages to improve conversions.
3. Implement Marketing and Advertising Strategies
Google Ads and Facebook Ads are the industry-standard services for precisely reaching your target audience. For those new to digital advertising, tools like AdEspresso simplifies ad creation and management across multiple platforms.
Additionally, content marketing is a great way to grow organic traffic, search engine visibility, and engage with your audience. Use BuzzSumo to discover trending topics in your niche and create blog posts or videos that resonate with your audience.
Platforms like Mailchimp allow you to create automated email sequences that nurture leads and encourage repeat purchases.
4. Providing Excellent Customer Service
Live chat tools like Tidio or Zendesk are easy to install on your website and allow you to provide real-time assistance. Additionally, a comprehensive FAQ and informational pages help you proactively address common customer queries, so there are fewer tickets to deal with.
Ensure you have clear return and refund policies, and work closely with your suppliers to quickly resolve any issues.
Dropshipping Success Stories & Lessons Learned
The good thing about entering the dropshipping market in 2024 is a wealth of case studies to learn from. Studying the experiences of those who have achieved success in this industry will help you draw inspiration and avoid common pitfalls.
It also teaches a valuable lesson — that the journey isn’t always smooth and that it’s normal to fail or have to pivot along the way.
That being said, you should be careful when following so-called Dropshipping gurus online. There are many hucksters that pretend to have made it in the dropshipping world, but actually earn money from self-promotion.
Tze Hing Chan - Subtle Asian Treats
This is a perfect example of someone finding a small, unexplored niche and making a success.
Hailing from Malaysia, Tze Hing Chan started his business selling bubble tea-themed plushies through a Facebook group. Eventually, he grew to the point where he launched his own website and expanded his merch to smartphone accessories.
During the pandemic, and after just a year of operation, Tze made $19,000 selling plushies in just two months.
Andreas Koenig and Alexander Pecka - Various Businesses
Long-time friends Andreas Koenig and Alexander Pecka struggled for a year before achieving their first dropshipping success. Initially, they had a modest goal of achieving $1,000 in daily turnover but eventually built a thriving pet niche store.
Within two years, they scaled their business to $10 million annually by leveraging Facebook ads, focusing on a passionate niche, and learning from early failures.
Their story highlights the importance of persistence, niche selection, and mastering digital marketing. Today, they manage a team of 50 and continue to innovate within their niche.
Cole Turner - Various
Cole Turner, then an engineering student, built a successful dropshipping business while completing his degree. After initial failures, Cole found success with a jewellery product that earned $75,000 in sales, leading him to launch multiple profitable stores.
His most successful venture, a homewares store, has generated over $2.1 million in sales since March 2019. Cole himself always attributed his success to persistence, mastering Facebook ads, building a strong brand identity, and offering superior service.
Alternatives to Dropshipping
While dropshipping is popular for its low upfront investment, minimal risk, and lean business model, it’s not the only e-commerce trend out there.
Depending on your interest, skills, and brand vision, you may want to explore these alternative online business models:
Print-on-demand
In this model, you sell unbranded or generic items (like t-shirts or mugs) that you only personalize when ordered. Unlike dropshipping, you have to source, stock, print, and fulfill items yourself.
So, you’re trading higher operational costs for more control over the branding and customer experience.
However, you can operate a print-on-demand business using the dropshipping model if you can find a supplier that’s flexible enough to make the designs you want to offer. The market is valued at $1.98 billion, growing at 27.6% per year.
Private labeling
This is a business where you source goods from third parties but brand and sell them as your own. Like dropshipping, you’re not responsible for manufacturing. However, you still typically need to brand, stock, and fulfill items yourself.
It has similar pros and cons to print-on-demand. The main difference is that you don’t necessarily customize products per order and focus more on selling branded goods.
Because it’s more bespoke, this market is smaller at $742.2 billion, growing at 10.8% per year. However, it does give you the opportunity to create some differentiation from your competitors with your brand.
Wholesaling
Wholesaling involves buying large quantities of products at bulk rates and then selling them individually. The aim is to buy as low as possible and sell as high as possible to create a higher profit margin.
Unlike most other models, the risk is much higher because you need to invest in a large supply, which you then need to store and sell. It’s also a more challenging model, because it’s almost impossible as an individual to compete with the scale of existing wholesalers.
Subscription boxes
In this model, customers subscribe to receive a selection of curated products on a regular basis. It’s become particularly popular in the health and fitness, beauty and grooming, food and snacks, and pet industries.
However, it could work for any long-term human need or hobby, such as toys and comic books or gardening.
The key challenge is in designing a product that people actually want and find valuable. However, the upside is a loyal customer base and a more predictable income.
Is Dropshipping a Viable Business Model?
The short answer is — yes.
However, dropshipping continued to grow in popularity over the last decade, making most niches highly competitive.
The keys to dropshipping success in 2024 rely on:
- Conducting meticulous market research to find the ideal niche, products, and target audience.
- Partnering with a reliable, long-term supplier.
- Distinguishing your brand identity and offering superior service.
- Running effective digital marketing and outreach campaigns.
Nail all of these, and there’s no limit to the level of success you can achieve.
Dropshipping FAQs
Is dropshipping legal?
Yes, dropshipping is totally legal in most countries. Just make sure that you comply with your local business and consumer laws and that you work with reputable suppliers.
What’s the difference between dropshipping and retail arbitrage?
Retail arbitrage involves trying to buy items at discounted rates and then selling them for a profit. For example, they may purchase something at a clearance sale at Walmart for $10 and then sell it on Amazon for $25.
It’s a more opportunistic model that takes advantage of price differences across different markets, a lack of delivery options, or limited-time sales. It’s also popular in the hobby world, where you can find a sought-after item for cheap and then sell it at a huge markup online.
However, you have to buy the item first, inventory it, and then ship it once it sells. It’s also not usually as scalable or consistent as dropshipping.
What dropshipping niche is the most profitable?
The answer to this question continually changes and depends on your source.
However, at the time of writing, sustainable products, home fitness equipment, and kids' items are some of the best-performing niches. All three have the benefit of consistent demand and growing interest, making them good long-term investments.
Customizable items and unique prints (wall art, e.g.) are also on the rise without being as competitive.
While clothing has its proponents and is a huge market, the issue is that it’s ultra-competitive and saturated.
Can I dropship internationally?
Yes, theoretically, you can dropship from anywhere to anywhere. A growing number of suppliers are set up specifically for this kind of business model, and modern logistics solutions make it easier than ever. However, you should be aware of higher shipping costs and customs regulations.
Do I need any special skills or experience to start dropshipping?
Not really! You only need a basic understanding of e-commerce, running a business, and digital marketing, all of which you can learn online from courses, successful dropshippers, or YouTube videos.
Plus, many e-commerce platforms and online tools take care of most of the logistics for you. You just need to know where to find them and how to set them up initially.
