Starting a dropshipping business is a popular method of making money online. Whether you’re interested in creating a side hustle, want to work as your own boss or have a hobby you’d like to pursue as a career, dropshipping can help you make it happen.
If you’re ready to make the leap into dropshipping, here are four tips for getting started.
Research Dropshipping Products
You may already have an idea of what you want to sell. Your interests or hobbies may guide you. Before you commit to selling a product, it’s wise to do some research to see if you can turn a profit by offering the product to customers online.
Say, for instance, you are interested in selling softball gloves in your dropshipping store. Start by checking out the competition. Who else is selling them online? How are they marketing the product? What price ranges are they using?
If you already know your product’s wholesale price, you can use that information to get an idea of what profit margins to expect. See what others are charging and crunch the numbers. Then you can anticipate your profits if you sell similar products.
Before you settle on a wholesale company, spend time researching different places. Some questions to keep in mind as you choose who to work with include:
- What is the quality of their products?
- Do they have various price points?
- How reliable are their shipping times?
- Do they have good reviews?
The more you know about your wholesale company choices, the better informed you are.
Choose a Business Structure
Your business structure determines how you file your company’s taxes. It also sets up your liability if your company loses money. You can protect your personal assets by choosing particular structures.
The four primary business structure options are:
- Limited liability corporation
- Sole proprietorship
The two structures best suited to a dropshipping company are a limited liability corporation, also known as an LLC, or a sole proprietorship. An LLC offers some of the best protection for your personal assets, making filing business taxes easier than other structures. However, it’s a good idea to consult your tax professional before making a final decision.
Determine a Dropshipping Method
Two ways to obtain your product are using individual vendors and going through a dropshipping marketplace.
Working with individual vendors involves establishing accounts with them, agreeing on pricing and relying on them to send your orders. Using this method means you will probably have a higher profit margin.
It may be tempting to take this route initially, but consider the drawbacks. First, you’ll likely need to maintain a minimum threshold by ordering a specified amount of products monthly. It can be challenging for a new business to do that until you know how your product sells. Second, many vendors don’t work with new, unestablished drop shippers, so you may need some experience before working with companies directly.
A dropshipping marketplace provides new businesses with advantages. It allows you to shop for products and add them directly to your store. You can add and remove products quickly, and the commitment level is lower. You have the advantage of seeing what sells and what doesn’t and being able to change your mind quickly.
While you’ll deal with lower profit margins, your risk is lower. You also have the opportunity to develop relationships with vendors.
Open a Business Account
At first, opening a separate account for your dropshipping business may seem like an unnecessary step. However, it’s a smart way to separate your personal and business assets. It also makes things easier for you when tax time rolls around.
Your revenue comes into your business account, which you use to pay expenses. You can pay yourself a salary by moving money from your business account to your personal account. This method clearly separates your assets.
A dropshipping business can be a fun and exciting way to make money or pursue a hobby. With some upfront research, you’ll have your company up and running in no time.