interactivated blog

magento & ecommerce

How to start a drop shipping business

A lot of people these days are trying to make it big in the world of e-commerce. However, most of you are probably unsure of what to sell, what niche to get into, how to manage inventory and so on.

What if there was an easy way to fix at least half of those problems from the start? There’s one business model you can follow that requires less marketing and financial knowledge and less capital investment to get started.

We’re of course talking about starting a drop shipping business. This is one of the most popular business plans you can follow and it was tailor made for e-commerce. You can take a lot of pressure of your back by acting as an intermediary between a customer and a wholesale supplier.

Understanding the business model

Here’s the quickest explanation of what drop shipping is all about:

  1. A customer buys an item from your online store at a retail price
  2. You forward that order to your supplier and pay him a wholesale price
  3. The supplier will ship the item to the customer using your name

The way you make money is by retaining the difference between retail and wholesale price. That is your profit.

Benefits of drop shipping

A drop shipping business has multiple benefits. It doesn’t cost much to set up and it’s easy to start an online store.

You won’t have to worry about inventory or inventory space as long as you find a steady supply of whatever it is you want to sell.

You can also operate a drop shipping business from anywhere. You’re not restricted by geography as you’re operating in an online medium.

It also allows you to be creative in terms of product selection. You can buy anything online these days from canned air to helicopters. You don’t have to stick to a particular niche if you know you can attract customers, although it is often advised to refrain from spreading too thin.

Here is how you get started

If you want to make the most out of your business you should try to find a niche you can relate to. That will give you a reason to stay interested and keep a close eye on the operations.

If not, you can always try to find an untapped market. Keep in mind though that starting a drop shipping business in uncharted territory can be risky. The financial risk is minimal but if too much time goes by without good sales it may be hard to regain customer’s interest in your store.

At this point you want to take a good look at what you want to offer and how many people can you attract. You should also research your competition and determine if you stand a chance. Going into an oversaturated niche is never a good idea.

Find your supplier

If you know what you want to sell, it’s time to find out who you can partner with. Wholesale suppliers are not that hard to find. There are many online directories with detailed lists that you can use.

You could also seek consultation from other distributors or financial advisors. Of course, if you’re going for minimal financial investment, just search online.

Once you found a couple of suppliers start talking numbers and delivery policies. Certain products demand a fast delivery speed. If the supplier can’t provide that for you and your customers, then maybe it’s a good idea to spend a few more bucks to ensure customer satisfaction.

Sales tax ID

It doesn’t matter if you’re operating an online store or not. Apart from very few states, most US states and foreign countries require businesses to have a sales tax ID. This is also known as reseller’s license or a retail ID.

This is not only important to avoid being held liable for your profits. Some wholesale suppliers might not even agree to do business with you until you have your sales tax ID.

What platform to use?

Although this seems a bit far down the list, it’s a very important step. Choosing the best e-commerce platform is important for a number of reasons.

Your customers should have a smooth experience when browsing your store. This means that you need something that’s fast-loading but also highly customizable so you can tailor it to your needs and brand.

Magento is among most popular platforms for e-commerce. It’s also mobile friendly so it can give you even more exposure to potential clients.

Another cool feature that makes Magento useful especially to startup businesses is its tracking features and algorithms. With Magento, you can keep tabs on your customers and use their tendencies and preferences to push new products. This will increase your chances of making sales.

With Magento, you can also further automate the order process. The platform supports drop shipping stores by allowing for an automated customer – store – supplier chain payment. It also allows multiple online payments and money transfer options which means you can attract customers worldwide.

Advertising

The final step is actually a 2-stage process. First, you’ll want to promote your store. You can do this by offering a referral program and building or buying an extensive email list. It’s one of the best ways of generating traffic when you’re starting out.

The second step involves in-store advertising. This means that ads and notifications should be enabled in order to alert customers of items you’re selling that they might have missed. Luckily with Magento, you can also use targeted advertising that’s less intrusive to the user interface. Call it passive advertising if you will.

Final word

Remember that you’re not the only one thinking of starting a drop shipping business. You might be doing the same thing as four other entrepreneurs at the same time.

Even worse, you might have a strong start and not notice that the business is slowly losing customers. Advertising and promoting are two issues you’ll have to deal with from day 1 and until you close down the shop.

This is what helps you stay ahead of the competition. Especially if you make good use of Magento’s tracking features and predictive algorithms.

By interactivated • on May 31, 2018

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