If you’re considering starting a new business, you may need to look into drop shipping.
More and more entrepreneurs are turning to drop shipping because it’s easy to manage and has little to no start-up costs involved.
It also works no matter where you are, which gives business owners the ultimate freedom – the ability to make money from anywhere in the world.
If that type of lifestyle appeals to you, keep reading this drop shipping guide for beginners.
What is Drop Shipping?
Drop shipping is a type of retail business where the retailer (that’s you) do not own the inventory being sold.
Think of yourself as a middleman (or woman) who receives the order, and then forwards that to your drop shipping company to fulfill the order and ship it to your customer.
How Does it Work?
Drop shipping works like this:
- Your customer visits your online store and buys a product.
- You get the order, which is then automatically or manually sent to your drop shipping company.
- The drop shipping company receives the order from you, packs the product, and ships it out.
- Your profit is the difference between what the customer paid and what you have to pay the drop shipping company.
It seems like a very simple business, which is why it’s such an appealing business model for many business owners.
Do People Really Make Money Doing It?
Yes, if you do it right. Like many retail businesses, your profit margins will be low. You have to advertise your products. It’s very competitive.
Despite those challenges, it’s possible to make money doing it. For example, you can increase your profit margins. Now, there are a few ways you can do this.
You can increase your prices. Raising your prices is an option, but you don’t want to price yourself so high no one will buy. We’ll talk about pricing later in this drop shipping guide.
Another option is to try to negotiate with your drop shipping company. You may be able to leverage your sales to lower the amount you pay to them. That will give you a higher profit margin.
This drop shipping guide will address a few other ways you can consistently profit in your business.
Research and Plan Ahead
If you want your business to thrive, you need to plan ahead. That’s why you need to create a business plan. This is a great way to take the vision of your business and put it down on paper.
This will help you map out your business, and figure out your financials before you start selling. Having a business plan will also help you set your pricing.
The major parts of a business plan include:
- Company Description
- Market Analysis
- Operations Plan
- Management
- Products
- Sales & Marketing
- Financial Projections
This will force you to do some research into your niche, competition, and target market. Ideally, you’ll get an excellent understanding of who you’re selling to, who else is trying to sell to them, and how much you need to sell each month to be profitable.
Pick the Right Products
Before you pick the products you want to sell, you do need to research what people are buying now. A simple way to do that is to check out Amazon’s Best Seller list.
When you do pick products, always keep your target market in mind. If you see something that’s worth selling to your audience, ask yourself how you can put a spin on it to make it compelling enough for people to buy.
There are also tools on the market that can pull product information from drop shippers. These tools are expressfy or Dropified.
When picking your product, you must know why someone would buy from you. If you’re selling a watch, how many other people are selling the same watch?
You need to make sure you communicate why your store or brand is better than all the other ones out there.
Price Your Products Right
If you ran your numbers in your business plan, this part of the process will be easier. There are still important questions you need to ask yourself though.
You should have figured out your direct costs, like what you would pay the drop shipper, and the indirect costs. Advertising, operations, all other business expenses would fall under indirect costs.
The first thing to consider is how much profit you want to make per product sold. Add those up and you have your product price.
Work with the Right Company
Now you have to find a drop shipping company to work with.
The right company is critical to having a successful business. You might think that they’re behind the scenes, but really, they’re the face of your company. If they’re slow in fulfilling orders, have awful customer service or they pack their products haphazardly, you’ll be in trouble.
Good luck retaining your customers. You’re going to be constantly scrambling to find new clients, and that will sink your business.
This drop shipping guide is meant to take you through the steps to help you get the best partner you can.
You want to get a sense of how they interact with customers and their partners. The best way to find that out is to call them. You can get a sense as to the friendliness and helpfulness of the staff.
With drop shipping partners, location does matter because if they’re close to your customers, deliveries can happen quickly.
There are some fees that you’ll want to ask about, such as minimum order requirements, set-up fees, and per-order fees.
When you start negotiating with manufacturers, remember that you bring a lot of leverage to the relationship. According to the Journal of the Operational Research Society, they make 33% more profit from e-commerce than from traditional methods.
You can create a win-win situation.
The Ultimate Drop Shipping Guide
Starting a drop shipping operation is a great way to get into business for yourself without a lot of overhead.
To make a consistent profit, you’ll need the right plan, products, price, and partner.
As with any business, you need resources to help you along the way. FindABusinessThat.com has articles and a directory of businesses that you can use anytime.
Take a look today!