What Is Dropshipping? The Ultimate Guide to Selling Without Inventory
If you’re an aspiring entrepreneur, chances are you’ve heard the word dropshipping. Dropshipping has become a major player in the ecommerce world. The market for dropshipping worldwide reached 128.6$ billion in 2020 and is set to hit a whopping 476.1$ billion by just 2026. And where there’s so much money, there’s also fierce competition.
To make sure you start your dropshipping business journey on the right foot, I’ve put together this comprehensive guide to dropshipping. Here’s what I’ll cover:
Are you ready to run your own dropshipping business? Then let’s get started!
What is dropshipping?
That means a business owner like you can run a successful online store without having to worry about:
- Order management
- Product manufacturing
- Finding and keeping up a storage space
- Production equipment
Having a professional team oversee these processes saves you time that you could instead spend on planning your product catalog and running marketing campaigns. On top of that, it also saves you money. Most dropshipping suppliers offer on-demand order fulfillment.
That way, you don’t have to risk significant investments in purchasing inventory most small businesses can’t afford. And even if a hefty pre-order doesn’t scare you off, at one point or another, your business might grow out of your hands. Success in retail often means having to store lots of products and hiring staff to help you with orders but with dropshipping, you can run your business at a smooth pace no matter how much you scale.
It’s no wonder that so many business owners choose dropshipping to avoid the hassle before it even begins.
What’s a dropshipping business?
Short answer—your store. The long one:
Your responsibility as a business owner is to set up the store, grow your brand through marketing, and simply close the sale. Since dropshipping suppliers take care of the heavy lifting—manufacturing, storage of products and equipment, as well as shipping—your store’s options are more flexible than with regular product sourcing. You no longer need to scout for large warehouses and hire tons of people just to get the products ready.
You can easily set up an online store as impressive as any established retail brand and run it from anywhere: home, a coworking space, or a travel destination.
How dropshipping works
To illustrate the dropshipping process, let’s imagine I want to start a dropshipping store in the fashion category.
Step 1: Find a product and supplier
I’ve decided to start a jewelry store. However, I’m not good at crafting my own accessories, so I turn to a dropshipping supplier for help. Once I’ve found my ideal product and am satisfied with the dropshipping supplier’s offer, it’s time to build my online store.
Step 2: Set up shop
To sell these dropshipping goods, I need a store. My choices are:
- A storefront on an ecommerce marketplace
- A standalone store website
I’m feeling bold, so I think I’ll go for a website. Unfortunately, I find out I’m no good at programming, let alone creating a whole site from scratch, so I decide to use an ecommerce platform. This way I get to build a store on retail-friendly templates for a monthly fee. Yes, it’s not free, but it’s a price I’m willing to pay to skip the learning curve of coding.
Before making the final decision, I double-check if my dropshipping supplier supports my chosen platform. This is important because automatic order fulfillment might not be possible if my dropshipping supplier’s platform doesn’t integrate with my online store.
Step 3: Connect the store to the dropshipping supplier
After you’ve set your eyes on a product and prepared your store, it’s time to put it all together. Most ecommerce platforms and marketplaces have already prepared integrations for top dropshipping suppliers. The integration process can be different between suppliers and ecommerce platforms, so make sure to check both of their websites for instructions and requirements.
Step 4: Market your business
As I mentioned, most integrations between a supplier and an ecommerce platform provide automatic order fulfillment.
Automation saves you time on the manufacturing, packing, and shipping process. Spend that time wisely by growing your community and recognition through your chosen marketing channels. But let’s not get ahead of ourselves. You’ll find out more about marketing in just a few sections.
As you can see, dropshipping is quite straightforward. But, to make sure it’s the right business choice for you, let’s evaluate some of the main benefits and disadvantages.
Pros and cons of dropshipping
Now that we’ve defined what dropshipping is, the question arises: if dropshipping is so great, why doesn’t everybody use it? Sure, it’s time-efficient and saves money, but the traditional fulfillment and manufacturing model is still going strong and nowhere near extinction. Let’s take a look at the positives and negatives of dropshipping to determine if this business model is right for you.
Easy setup process
One of the most alluring factors for new business owners is that dropshipping doesn’t require past ecommerce experience. Of course, it can help if you know a few tricks of running a business, but it won’t put you at a disadvantage if you’re just a beginner.
The big advantage here lies in the fact that the most challenging parts will be taken care of by professionals. All that a dropshipping business requires on your end is a digital space for selling (your store) and a name to sell the products under (your brand). With the dropshipping model, you can avoid the exhausting and often risky experience of handling everything on your own.
Starting a business is scary since you must go all in. Traditionally, the most significant commitments include:
- Spending a lot of money (that you have no guarantee of earning back)
- Hiring staff
- Buying and storing a lot of products
While dropshipping businesses are usually successful, if yours isn’t, you won’t be losing a crucial part of your investment like you would with a traditional business.
Dropshipping is also quick to adapt if you decide to take your business in a completely new direction. With a few clicks and no extra financial investment, you can completely change your product catalog or even your entire business niche.
Fast speed to market
Not only does dropshipping make trying new products cost-effective, it’s also fast. Since the order fulfillment is done on-demand, you don’t need to wait on large pre-orders. You can go from an idea to ready-to-sell products within the same day. And a fast speed to market increases your chances of turning a profit from emerging market trends.
Such a lucrative business model comes at a cost. Let’s see what that is.
Low profit margins
While dropshipping can make you money, you’ll have to work at it to get there. First, since it’s such a straightforward business model, there are a lot of dropshipping businesses competing with you and selling similar products. To win over the customer, you might have to lower your prices, which means less profit.
Second, when you fulfill your orders on demand, you only pay for the products you sell. On the one hand, every product you pay for is guaranteed to turn a profit. On the other, paying for each product individually creates higher product costs as you can’t benefit from the usual bulk wholesale prices.
With comparatively higher base prices and competitors already trying to undersell you, there’s very little room left for a good profit margin.
Limited product choices
While switching between different niches, products, and designs is highly flexible with dropshipping, there’s a small catch: you’re dependent on your supplier’s product selection.
Let’s say, you sell necklaces and bracelets using dropshipping. You decide to add earrings to your catalog in response to customer demands. But then you find out that your dropshipping supplier doesn’t offer any earrings, or if they do, the earrings don’t match your jewelry brand.
You have only three choices:
- Give up on the earrings and miss out on a business opportunity
- Wait for your supplier to offer earrings, and risk losing customer interest
- Add a new supplier to your store with the exact earrings you want to sell
The third option doesn’t sound as bad as the other two—you get to sell a product you want, and your customers are happy. However, collaborating with multiple suppliers complicates things.
As soon as you source products from more than one dropshipper, you’re dealing with multiple shipping ETAs, pricing and billing processes, return policies, etc. The more dropshipping suppliers you collaborate with, the more important information you must keep tabs on. This can get exhausting and even lead to potential inventory issues and bad reviews.
Lack of control over production
Most people don’t like putting the fate of their business in the hands of others. However, that’s exactly what you’ll have to do when running a store with dropshipping.
Your business depends heavily on your dropshipping supplier’s integrity and quality of work. If their shipping times get longer, their products become faulty, or their customer support starts slacking off, it’ll directly reflect on your business.
At the same time, you can’t micromanage the supplier and hang around their fulfillment centers to make sure they get everything just right. The only thing you can do is perform thorough supplier research before starting a business to make sure you won’t have problems in the future.
A lot of responsibility
Even though you’re not in control of what goes on in the manufacturing process, you’re still held accountable by your customers if something goes wrong. In the end, it’s going to be your reputation that’ll take the hit and not the dropshipping supplier.
Your customers put their trust in you, not your manufacturer. So when a dropshipping supplier sends your clients a damaged product or delays shipping, your customer will blame you.
Luckily, some dropshipping suppliers offer customer support as an extra service. This service includes either taking over your customer support completely or helping you find answers to customer questions and issues.
While the cons of dropshipping are tough, you deserve to know the whole truth upfront. And the good news is, they’re quite manageable, so I hope you’re still motivated to start your online store with dropshipping.
If you’re still up for the challenge, let’s get to the fun part—making money.
Is dropshipping profitable?
Yes, it is. But it’s not a get-money-quick scheme, so you’ll still need to do the work to succeed. Let me tell you about what you can do to make sure your dropshipping business flourishes.
Increase product value
How can you become a customer’s first pick among dropshipping businesses that sell the same thing? Make a better offer. You can do so by:
- Offering free shipping
- Adding freebies to each order
- Including a discount code for the next purchase
- Customizing products
While the first three may add extra costs to your dropshipping business, they’re valuable perks for customers that can turn out to be deal-breakers for them Yes, you may need to raise your product prices to cover these costs, but it’ll put you above your competitors.
The fourth option—product customization—will let you sell the same product but better, at little to no extra cost. Some dropshipping suppliers, like Printful, let you add your design to their products. This way you can elevate dropshipping products with your own design.
Pick a dropshipping niche
While you may be tempted to please everyone and sell all the dropshipping products available, you’ll be spreading yourself thin. When you’re trying to appease all possible audiences, you end up somewhere in the middle and getting lost in the crowd.
You need to think hard and find your niche. Figure out what’s an untapped market that matches your own interests and values. Then, find a suitable product for this niche and market it in an audience-friendly way. Here are just some ideas:
- Custom fanny packs and bandanas for new dog owners and trainers
- Sturdy travel mugs, backpacks, and other gear for hikers and travelers
- Inclusive activewear for workout enthusiasts
- Personalized journals and cards for stationery geeks
To find your destined niche take a minute to evaluate what matters to you, what’s the message you want to send out to the world, and who are your people. While profit is a massive part of what makes a dropshipping business successful, you need to feel connected to your brand on a personal level as well. The hard work will seem way easier if you like what you sell and the people you’re selling to.
Lay out a strong marketing plan
“Accidental” success stories aren’t usually that accidental. In reality, every lucrative business has a powerful marketing strategy behind it.
For your brand to reach its target audience, you need to find the channels your audience hangs around the most. Are your potential customers visual shoppers and love checking out products on Instagram? Do they find their inspiration on Pinterest? Or does your audience need detailed video content on YouTube?
Wherever your customers are, be there. Once you lay out the must-have marketing channels for your dropshipping business, do a little audience stalking (sorry, I mean market research). Explore their interests, main pain points, and vocabulary. Use your findings to create your brand’s tone and communicate in a way that’s relatable to your audience.
Don’t skip SEO
Marketing often includes setting aside a budget for paid ads and promos. While you can’t completely escape opening your wallet for advertising, there’s still a way you can get some recognition for free. And that way is the art of SEO. I’m not going to lecture you about all the ins and outs of SEO, but here’s a crash course of what you need to know.
The best ways to optimize are:
- Including frequent search terms in your product descriptions
- Fixing and avoiding any technical bugs your website might have
- Compressing all visual files on your store
Once you’ve performed some SEO magic on your dropshipping store, it’ll start to appear in more and more search results. In other words, search engines will give you free traffic from potential customers interested in your business.
Keep your brand fresh by regularly monitoring trends and adding new products—surprise customers with new product lines, limited-time offers, and holiday specials. Remember that expanding your catalog and experimenting with product collections is fast and easy with dropshipping. Take advantage of this to optimize your store’s product range.
What are the legal aspects of dropshipping?
Many new entrepreneurs wonder: is dropshipping legal? Yes, of course it is. It’s as much of a business as any traditional retail setup. But as with any business, there are legal requirements for dropshipping as well. You need to:
- Register your business
- Comply with your state’s laws on dropshipping tax
- Be honest and transparent about where your products come from
If a customer asks more about the origins of your products, don’t lie. Explain the product supply chain to them in a transparent manner.
As for tax and dropshipping business registration requirements, the rules are vastly different depending on your location. So, before setting everything up, make sure to get to know your country’s laws regarding dropshipping, taxes, and business management.
Dropshipping with Printful
Printful is a print-on-demand company that specializes in creating customized dropshipping products and fulfilling orders for brands across the world. Here’s how it works: when your customer orders from you, Printful picks the product blank and customizes it according to your desired fulfillment method and design. Then, Printful packs the order and hands it over to a shipping courier who delivers the product directly to your customer.
Printful’s most significant benefits include:
- Product customization
- High-quality product sourcing and fulfillment services
- A well-thought-out shipping process
Thanks to thorough logistics research and years of successful partnerships with its carriers, Printful offers the best rates among its competitors, which can significantly cut your shipping costs (and make more room for profit margins).
On top of adding custom product designs, you can also elevate your merch with unique branding: custom packaging, labels, pack-ins, and packing slips. You can also try using custom tracking pages. This ensures a strong brand awareness during every step of your customer journey.
Is dropshipping worth a shot in 2022?
Yes, definitely! Dropshipping makes opening your own online store more effortless than ever. In just 24 hours, you could be the owner of an ecommerce business. All you need is a dropshipping business idea and an internet connection to start selling products on your online business.
Learn more: Is dropshipping worth it
Just to make sure your dropshipping journey is as smooth as possible, here’s a list of some of the top dropshipping FAQs. Check it out to find answers to your burning questions or ask away in the comments section!
Does Printful offer dropshipping?
Yes. Printful specializes in print-on-demand dropshipping, meaning we offer you the possibility to customize your products and then ship them out for you. This will help you stand out in the crowd and align with your niche.
How much money can you make dropshipping?
There’s no definite answer to how much money dropshippers make on average. Your dropshipping earnings depend on:
- Your marketing strategy—how many shoppers you reach and how fast
- Your products and niche—how many people need your products
- Your profit margin—how much money you make per product
- Your product catalog—how well you adapt to emerging trends
What is branded dropshipping?
Branded dropshipping is when your dropshipping supplier offers the option to place your brand on the product and/or packaging. For example, branded clothing labels, shoe tongues, packaging, pack-ins, and other forms of branding. Custom branding sets your product apart from competitors, makes your business look more professional, and creates a positive unboxing experience for the customer.
Do I need a business license for dropshipping?
The laws may vary depending on your country, but the answer is yes in most cases. Before starting a business, explore your country’s requirements and see if there are any specific rules for dropshippers.
What products should I sell with dropshipping?
That depends on what’s in high demand in your niche. Usually, the top categories across most niches are clothing and accessories. If you decide to dropship clothing, figure out your target audience’s style and fashion requirements:
- Do they wear dressy or casual clothes?
- Do they need warm or light clothing?
- Are they into minimalism or bold features?
- What’s the most practical clothing for your audience?
Picture your target audience and their needs, and use your answers to create high-demand products.
Which countries should I focus on selling to?
That depends on your ecommerce niche and how much time you’re ready to dedicate to learning about taxes and other legal matters.
When looking at your niche, research where most of your target audience lives. If you’re selling dog gear, check out the statistics on where people spend the most money on their pets. Or, if you’re selling travel gear for nomads, check out which nations are the biggest travel enthusiasts. That’s where you’ll have the most successful start.
Now, about legal stuff and taxes. The easiest way to go about it would be to just sell dropshipping products in the same country you’ve registered your business. Adding any new regions to your market will also add a new set of tax rules to your responsibilities. But expanding to new markets will pay off in profit.
Does dropshipping count as passive income?
Yes, dropshipping can be a profitable passive income strategy. That means you can set up a store, add products to it, and afterward control how much time you want to dedicate to your store. You can spend a few hours a week working on it if it’s not your main gig and you just want to earn some extra cash. Or you can make it your full-time job and take complete control over your career. The beauty of dropshipping is that the choice is all yours!
Can dropshipping make you rich?
Yes it can, if you do it right. Instead of shooting in the dark by selling random products to anyone, fix your gaze on a specific niche. To hit the business jackpot, pick a field with a high or newly growing demand that doesn’t have a lot of offers yet. That way your business will have a lot of potential customers without the fierce competition to worry about.
Whatever time (and money) you save on product manufacturing, pour it into your marketing efforts. Make sure your target audience notices you as soon as possible. Afterward, invite them into your store with relatable content and irresistible deals.
Can dropshipping be automated?
With the right dropshipping manufacturer, yes it can. When selecting your dropshipping supplier, make sure to check they offer on-demand order fulfillment and that they integrate with your chosen ecommerce platform.
These two things combined create an automated order flow where you can:
- Avoid pre-ordering product stock in bulk, just pay for what you sell (on-demand fulfillment)
- Let the supplier take care of your orders automatically without having to place each purchase manually