Starting a dropshipping business

Follow these nine steps to get your dropshipping business off the ground. Or, start dropshipping now with this startup guide.

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How to start a dropshipping business

Decide if dropshipping is the right business model

Choose a dropshipping niche

Research competitors

Choose a supplier

Select products and set prices

Build an ecommerce store

Decide on a business structure

Set up finances

Market your dropshipping business

Related article

Discover three easy ways to start dropshipping 

1. Decide if dropshipping is the right business model

Dropshipping is just one way to run an online store. Before diving in, take time to ensure it's the right business model for your goals.

Dropshipping is suited to people with marketing skills who want to run a store with minimal upfront investment. Since you don't need to stock products, it's possible to start with a laptop and an internet connection.

However, this accessibility comes with tradeoffs. Dropshippers may have less contact with products in their catalog, making it harder to ensure quality. Because other retailers may also sell the same items, competition can be tough.

If you plan to focus your efforts on marketing and aren't looking to sell a unique flagship product, then dropshipping could work for you.

2. Choose a dropshipping niche

A niche is a segment of a market. You can target customers in a niche by tailoring your store's brand and product selection to their preferences.

Selecting a dropshipping niche helps you identify a target audience. With specific customers in mind, it's easier to search for products to dropship.

There are two general methods for choosing a niche:

Select a niche you're knowledgeable or passionate about.

Select a niche based on market demand.

The aim of the second method is to find niches with high customer interest where you are able to compete for attention. You can assess market demand by performing keyword research and product research.

Finding a niche with keyword research

Keyword research shows you what people are searching for online.

Tools like Google Trends, Facebook Audience Insights, and Keywords Everywhere reveal popular product-related searches your online store could serve.

When assessing search demand, look at historic interest as well as this month's search volume to find a niche with sustained and increasing popularity.

Interest in "ebikes" over five years. Google Trends

For example, eBike Generation founder John Murphy used keyword research to build a $3 million dropshipping company, by identifying an underserved niche within the ebike market: ebikes for hunters.

Finding a niche with product research

Product research helps you discover trending products and understand consumer demand across product categories.

Many dropshipping apps let you search for products by order volume, so you can gauge potential sales. You can also connect with Shopify brands through Collective to access curated products from established suppliers with transparent pricing and shipping information.

Use product research together with keyword research to build a full picture of a dropshipping niche. Consumer habits change rapidly, so perform regular check-ins on keyword trends and product popularity.

To align your business with product availability, you might also decide to choose your dropshipping supplier before you select a niche.

3. Research competitors

Competitor analysis helps when starting a dropshipping business. Spend time gathering information about rival stores in your niche.

By observing what your competitors, especially other dropshippers, are offering, you can identify potential products and marketing strategies. Review product pages and social media ads to see what appeals to customers.

Conduct competitor research with these tasks:

Run a Google search

Use competitor analysis tools

Browse social media

Check marketplaces

Run a Google search

Start by searching for keywords relevant to your niche to see which businesses appear. For example, if you're starting a dropshipping business in the pet supplies niche, you might search for "pet toys," "pet food," or "pet brushes."

Look closely to see which businesses consistently show up in the search results. These are likely your main competitors. For more in-depth insights, try an SEO tool.

You may find competitors optimize their content for long-tail keywords, which are longer, more specific phrases customers are searching for. Long-tail keywords are often a strategic target for smaller dropshipping websites.

For example, your competitor analysis might reveal the keyword "dog collars" is contested by large retailers, while "LED dog collars" has less competition—and "LED dog collars for small dogs" has room for your new business.

Use competitor analysis tools

Competitor analysis tools are another way to find insights into rivals' strategies. Uncover data by monitoring traffic sources, visitor counts, and social media engagement.

For instance, if you find a competitor relies heavily on paid ads, you could consider a rival campaign, or invest more in SEO content. If they're active on a social platform you've overlooked, starting a channel might be beneficial.

Browse social media

Follow competitors' social media pages to understand how they engage with followers. Pay attention to the types of posts that generate the most likes, comments, and shares.

For example, if a competitor in your pet supplies niche is going viral with DIY grooming videos, consider creating similar content. Also, watch for any gaps—perhaps there's underserved demand for content on pet wellness tips.

Check marketplaces

Marketplace sellers within your niche on platforms like eBay, Amazon, and Etsy also offer insights.

Note how many listings appear for the products you want to sell. If the market looks saturated, consider how you might differentiate your product listings, either by reducing your prices, or offering a premium customer experience.

Track all your competitor research in a spreadsheet to make it easy to search and reference your findings.

Free: Competitive Analysis Template

By evaluating the strengths and weaknesses of your competition, you can begin to formulate how to give your company an advantage. Download our free competitive analysis template and gain an edge over the competition.

4. Choose a supplier

A dropshipping supplier sources products and manages customer orders. When you make a sale, you'll forward the order to your supplier for packaging and shipping to the customer.

With suppliers playing a key role in your dropshipping business, it's important to choose them carefully.

When looking for a supplier, consider these factors:

Delivery speed: Research shipping times for your products based on their storage location and common shipping destinations. Look for suppliers with domestic fulfilment centers and partnerships with trusted carriers.

Inventory reliability: Check a supplier's inventory management practices and systems for minimizing the risk of selling out. Frequent stockouts lead to canceled orders and frustrated customers.

Returns: Understand supplier returns and refund policies. Hassle-free returns procedures will simplify the process for both you and your customers.

Performance history: Read customer reviews and testimonials from other retailers. Check for certifications relevant to your products and industry.

If you're sourcing products internationally, understanding import tariffs and HS codes is essential to avoid unexpected costs and shipping delays that could impact your profit margins and customer satisfaction.

Find suppliers with Collective

Shopify Collective is a free supplier network that connects you with established Shopify brands offering quality products with reliable fulfillment. Browse thousands of products across categories like clothing, beauty, home goods, and electronics, with margins typically ranging from 20% to 40%. Eligible users can view detailed supplier information, verified reviews, and shipping rates before connecting with suppliers to import product listings directly to their stores.

Dropshipping with Collective

Connect with Shopify brands to sell their products. Use Collective to browse thousands of items, list them in your store, and ship them directly to customers.

Learn more

5. Select products and set prices

The products in your store are determined by your supplier's inventory. Remember, rival dropshipping stores may have access to the same products and suppliers, so it's important to curate a production selection that resonates with your niche audience.

A well-chosen product catalog creates opportunities for cross-selling, where shoppers are encouraged to add complementary items to their carts.

When picking products from a dropshipping supplier or marketplace, study reviews from other sellers, as well as the supplier's performance history. Once you have a shortlist, order product samples to assess quality and consistency.

Ensure a satisfying customer experience by stocking products from suppliers located in your region. If you partner with overseas suppliers, consider stocking products eligible for expedited delivery services such as ePacket shipping.

Price your dropshipping products

Whether it's electronics, clothing, or toys, you will need a pricing strategy to keep your dropshipping business sustainable and allow you to make a profit from each sale.

No matter the price point, set a profit margin for every product by calculating your costs. This includes the price paid to the supplier and other operating expenses. Balance this against the price of similar products in the market to ensure your store is competitive.

6. Build an ecommerce store

Your online store is the hub of your dropshipping business, showcasing your product catalog and giving customers a way to buy goods. It's also the destination for traffic from your social media ads.

Beyond product pages, your store can feature content to enhance the customer experience. This includes product reviews, user guides, buying guides, and relevant blog posts. Additional content not only helps customers make decisions, but also improves store visibility in search engine results.

Check out Shopify's store builder.

Shopify's store builder lets you build a dropshipping store with the internet's best-converting checkout and custom branding. Create your store with professionally designed themes that appeal to your audience.

Add a dropshipping app to your Shopify store to simplify product management and order processing.

Build an online store with AI

Create a website in minutes with the AI store builder. Describe your brand or products to generate a free custom theme that fits your idea.

Try it now

7. Decide on a business structure

Writing a business plan that sets out your goals and strategy helps keep things organized as you build your dropshipping business.

As part of your planning, choosing to register your business may also be a necessary step in setting up your dropshipping business for the long term.

Three common business structures for a dropshipping business are:

Sole proprietorship

Limited liability company

C corporation

Sole proprietorship

A sole proprietorship is run by one person. In most regions, operating a sole proprietorship does not require filing tax documents or other legal paperwork. This makes it a popular business structure for dropshippers who want to keep things simple and affordable.

However, sole proprietorships offer no protection of personal assets if the business runs into legal trouble.

Limited liability company (LLC)

Setting up a dropshipping business as a limited liability company keeps personal finances separate from the business, which is not only safer but also makes accounting clear.

Compared to a sole proprietorship, LLCs offer flexible tax benefits, which might help you save money. But you'll need to comply with additional filing requirements and pay incorporation fees.

C corporation

Many established businesses are set up as C corporations (C corps) due to the extensive liability protection. C corps are often expensive to incorporate and are subject to double taxation, as income doesn't pass directly to the shareholders.

Before choosing a business structure, it's advisable to consult with a lawyer to understand the best fit for your situation.

Apply for an EIN

Whatever the structure, most US businesses need an employer identification number (EIN), serving as a Social Security number for your business. An EIN is necessary for filing taxes, applying for wholesale dropshipping accounts, opening a business bank account, and other business activities.

Apply for a free EIN online through the IRS.

8. Set up finances

Separating your personal banking from your dropshipping business helps simplify accounting and keeps your business's financial health visible.

Consider these basic financial tasks as you start dropshipping:

Open a business checking account

Open a business bank account to deposit revenue. A dedicated account for your dropshipping store makes tracking income and expenses easier and ensures financial transparency.

Apply for a business credit card

Consider getting a business credit card to pay for product orders, software subscriptions, ad fees, and other expenses. This helps keep your personal and business expenses separate and can also earn you rewards if you choose a card with benefits.

Check local business license requirements

Even if you operate from home, your city might require a business license. The requirements can vary, so checking with your local government is essential to ensure you comply with all local laws.

Collect sales tax

Collect sales tax if your business operates in a state that requires it. You generally don't need to collect sales tax for orders outside your state, though it's prudent to stay updated on the latest rules.

If your state does charge sales tax, be prepared to collect taxes from eligible customers.

Manage sales tax from Shopify

Shopify Tax puts sales tax insights and collection in your control and makes everything manageable from your Shopify admin.

Learn more

9. Market your dropshipping business

Once your dropshipping store is live, turn your attention to marketing. An active marketing strategy that brings traffic to your store will give your dropshipping business the best chance of success.

Develop a strategy for these essential marketing channels:

Paid ads

Influencer marketing

Content marketing

Communities

Mobile marketing

Email marketing

Paid ads

Experiment with ads on Facebook, Instagram, TikTok, YouTube, and Google. Social media ads help increase your brand's reputation among related audiences, while Google Ads target consumers with specific buying intentions.

Testing ads on both platforms can help you determine the most effective approach.

Influencer marketing

Collaborating with influencers on platforms like TikTok and Instagram can help extend your reach and credibility, potentially leading to increased sales.

Use Shopify Collabs to connect with influencers in your niche and pay them using a performance-based affiliate marketing model.

Content marketing

Developing a content marketing strategy can enhance your brand's visibility. Consider starting a blog, making instructional videos, or launching a podcast related to your niche. Good content can keep customers engaged post purchase.

Communities

Get involved with groups of people who are passionate about your niche. Participating in discussions on platforms like Reddit and Facebook Groups can build trust and foster relationships as long as you're not overly sales-focused.

Mobile marketing

If you can generate a list of subscribers, SMS (text message) marketing strategies tend to receive high engagement levels. Consider creating a VIP group chat, offering live chat support, or sending messages with limited-time promo codes.

Email marketing

Email marketing helps maintain relationships with customers after they exit your website. Sending personalized emails with promotions and useful information can encourage repeat business.

Dropshipping mistakes to avoid

Like any retail business, running a dropshipping store comes with challenges. Avoid these common dropshipping pitfalls to keep your business growing:

Ignoring sales data

A common error among new dropshippers is not paying close attention to sales data.

Continually monitor sales, and don't be afraid to pivot your store to optimize for profit.

Regularly check:

Which products are selling well and which aren't

How much money you're making from ads

Which products are generating the most profit

How trends in sales are changing over time

Where your customers are coming from and what devices they use

Skipping SEO

Whether your customers find you via Google or social media, your online visibility is crucial, as it directly influences traffic and sales. As a result, not working on your website's search engine optimization (SEO) can limit your growth. Be sure to focus on:
Creating original, helpful content for product pages

Improving your website's loading speed

Making your website easy to use on mobile devices

Shopify stores come with fast loading and responsive page design. Use Google Search Console to see how your website performs in search results and where to find areas for improvement.

Not planning for growth

Not preparing to grow can bottleneck your business. Build your store to accommodate next year's order volume, not today's. Avoid limitations such as:

Relying on one supplier: Always look for alternatives to mitigate risks and keep products in stock.

Manually handling orders: Use a dropshipping app that automates order processing.

A benefit of dropshipping is the ability to accept increasingly large order volumes without significant investment. Have the systems in place to handle more orders when they arrive.

Neglecting unhappy customers

While dropshippers don't deal with inventory directly, they are the primary touchpoint for customer support. Failing to focus on customers, especially those with complaints, can lead to negative reviews and high return rates.

To enhance your customer experience:

Create accurate product descriptions

Provide clear contact information

Respond to every customer question and concern

Manage returns and refunds quickly, before reaching out to the supplier

The latest customer service AI tools and chatbots give you the power to answer customers immediately.