How to Start a Drop Shipping Business (in 5 Easy Steps!)

 

The idea of drop shipping is that a wholesale drop shipper (the supplier) offers you the option of selling products without buying them first. They also act as service providers who prevent you from having to:

  • Store items
  • Package and ship items
  • Risk money on items when you aren't sure about how they will sell

But they don't do all that for free! When you buy from a wholesaler offering drop shipping services, they add a fee to cover the costs involved with offering this service.

This is usually US$2-US$5 per item, which means you must be careful when you think about the products you want to drop ship, as there are some items which are much more suitable for drop shipping than others. We suggest going for:

  • Deep niches such as rear brake lights for late model Honda Civics
  • Low-volume sell-through rates and high profit margins – meaning you won't sell 150 per week but you will make a decent profit on them when they do sell
  • Low competition. This is important when you are drop shipping as you have to take those drop shipping fees into consideration, which makes keeping up in a competitive market really tough on sellers who are drop shipping.

As promised: Your 5 Step Guide to starting a drop shipping business

Step 1: Find a supplier!

You need to explore a few different possible suppliers. Try our own SaleHoo Directory which is full of reputable sellers stocking a wide range of products from cosmetics to farming equipment.

For local suppliers, try flicking through your Yellow Pages in the Wholesale or Suppliers sections. Look for ones who have plenty of experience in drop shipping and who understand the importance of sending out your items in a timely manner.

Before negotiating a deal with them, ask:

  1. How long it will take for an order to be shipped once you have placed the order with them?
  2. What shipping methods do they offer? E.g. overnight courier, or for international suppliers, which company they use and what their tracking systems are like.
  3. What are their quality control systems? You don't want to be dealing with sub-standard products, it will mean lots of hassles with returns, which wastes valuable time you could spend on making money.
  4. Do they offer warranties?
  5. Can you use their product photos? Large wholesalers often have professional product photos taken which will make your listings all the more professional looking

Step 2: Select products and find the best selling ones

This step could also be Step 1 those who know exactly what they want to sell. Start by trawling through your suppliers product range and pick out a few items which interest you and do some market research. Find the best selling items by:

  1. Using a service like SaleHoo Market Research Lab, which performs market research for you when you input key words into the search tool, and tells you all sorts of valuable information including the average selling price, average shipping price and sell-through rate (ratio of listings which sell in relation to those which do not). It's free with your SaleHoo membership, well worth it to ensure you choose only profitable items to sell!
  2. OR The old fashioned way: Taking a close look through eBay's completed listings. If you haven't used this method before, follow these simple steps:
  • Go to eBay.com (or your local eBay site)
  • Click 'advanced search' (located right next to eBay's search bar)
  • Check the 'completed listings' box
  • Enter your keywords and category and hit the search button
  • Now scroll through around 5 pages of listings and count the number of successful listings (listed in green), compared to the unsuccessful ones (listed in red).
  • When you find an item which sells 60% (or more) of the time you can be pretty certain that you will be successful in selling it. The easiest way to find out whether a product sells 60% (or more) is to scroll right down to the bottom of the page and make sure you're viewing 50 items per page. Then go through and count the number of green listings. When you get to the bottom and have counted at least 30 (60%) green listings out of the 50 listed... that's a good sign! You might be onto something so keep looking through a few more pages to make sure.

If none of your products match up, go back and find something else to research or try searching the same product under different key words and categories.

Step 3: Get a tax ID

Not all eBay sellers need a tax ID (also known as retail or resellers license, tax ID, resale number resale certificate or vendor's license) but some wholesale suppliers require you to have one before they will do business with you.

You need to get a sales tax ID if you are inside the US or Canada and running a business (not just selling items from around the home).

Note that some US states including Alaska, Delaware, Montana, New Hampshire and Oregon do not require sales tax IDs. So let your wholesaler know if that’s the case, as they may have  another form for you to fill out. 

Applying for a tax ID is easy and inexpensive; you can do it by visiting your local county clerk’s office or online – just Google “[your state] + sales tax ID”.

To get a sales tax ID, you may need to be a business entity; a company or a sole proprietor (which applies to a lot of at-home online businesses), and to have a Federal Tax ID number.

Step 4: Choose a selling platform

The obvious selling platform is eBay but there are plenty of other online auction sites out there which are growing rapidly and getting a lot of traffic (and some are even fee-free or much cheaper to use than eBay!)

Check out sites like Bonanza.com or Amazon.com and see if there is a market there for your product range. It's a good idea to diversify when it comes to selling on online auction sites as each site has its own unique visitors (not everyone checks eBay first!) and with most sites being free to join, there is no reason not to give others a try.

For sellers who are really looking to diversify, consider setting up your own eCommerce site such as a SaleHoo Store which is the fastest and easiest way to open your own store. You can get a free 30 day trial of SaleHoo Stores right now and try it for yourself. 

Step 5: Manage your listings

When drop shipping, you will list your items in the same way you would if you had the stock on hand, but when selling on eBay (and some other sites, you must check individual policies), you must disclose in your listing to all potential buyers the location of your item. 

For example, if your supplier is based in Hong Kong, you must display this in your listing so that buyers are aware that there may be longer than expected shipping times. 

Drop shipping orders work a little differently than regular wholesale orders. Here's what a typical drop ship order will look like:

  1. After you have chosen your items from your supplier,  you will list them on eBay or on your  eCommerce site
  2. Once the item is sold, you will collect the money from the buyer and pay your supplier (keeping the profit you make, of course!) by ordering the item you have just sold from their website
  3. The supplier will then send out the item you have sold directly to your buyer. You will soon work out which products have a great sell-through rate and which don't and can begin adjusting which products you list accordingly.

Good luck with your drop shipping business! For more information check out our free drop shipping advice

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18 comments


Posted by kathy on 13:16 30 Nov
I have tried one drop shipper and they wanted to charge me monthly to just be able to use them. Should I stay away from the ones that charge a monthly fee and just go with the ones that only charge me at the time I actually make a sale. IF so, how do I find those dropshippers. I have been researching for months now on a niche to sell and am having a hard time finding that right thing or dropshipper. I have been selling on eBay with some success but only one here and there. I think dropshipping is definitely the way to go but finding the right one is HARD! Reply
Posted by Melissa Johnson on 18:06 4 Dec
Hi, Kathy!

You're right. Finding a good dropshipper is definitely the hardest part of operating. And we're generally not fans of monthly fees for dropshipping.

Our directory (http://www.salehoo.com/directory) has more than 8,000 pre-screened suppliers who sell more than 1 million products, including many dropshippers. And our support team is standing by to help you find a supplier who can help you find what you need. A membership might be exactly what you need to take your business to the next level! Reply
Posted by Brandon on 17:28 2 Feb
I've been researching drop shipping for a while in my small amount of spare time. I just want to make sure this isn't some false get rich quick scheme. Is there any advice for the Don'ters from the Doers? Reply
Posted by Gary on 23:36 22 Aug
Hello,
I have concerns, I don't have a lot of money to start with and I'm not sure on how this works. Will I be in a position to make a few extra dollars with this, I'm a full-time student and a veteran with a family.

thanks
Gary Reply
Posted by Melissa Johnson on 3:54 25 Aug
Hi, Gary!

One of the reasons we at SaleHoo believe in dropshipping as a business model is because there is hardly any start-up capital required -- in some cases, none at all. It just depends on where you list. eBay allows sellers to list a certain number of items for free. Amazon charges a flat fee per listing for small-scale sellers. If you build your own online store, you'll obviously have to pay for web hosting and a domain name (but no listing fees).

If you're not sure about dropshipping, I recommend looking at our in-depth guide to drop shipping: http://www.salehoo.com/dropship

It'll walk you through all the steps.

You can also visit the SaleHoo forum and talk to other drop shippers and get your questions answered: http://www.salehoo.com/forum/

I hope this helps! Reply
Posted by Pakize Taskiran on 10:48 3 Jan
This was by far the BEST and clearest advice i have seen, thankyou so much :) Reply
Posted by richelle monfort on 5:57 14 Jan
Glad to hear you feel that way, Pakize :) Should you need help with anything please feel free to let us know. Flick us an email st support@salehoo.com

Cheers! Reply
Posted by Humphrey Davy on 0:12 23 Jun
Stacy has a good point. I 've been through those customers who just want to complain for no reason at all. Reply
Posted by Stacy on 18:35 5 May
I disagree with Chris (above). Google does not always display the correct information on a supplier. As a business owner, it is IMPOSSIBLE to please 100% of the customers 100% of the time regardless of how a business owner handles the situation. Some customers are natural born complainers and nothing goes right for them. They are the type who will post negative feedback on the internet in hopes of causing damage to your business. I do a high volume business weekly. I might have 1 of these customers out of my 2-3000 customers. It is not fair to judge a business by a single negative comment posted when the satisfied customers just usually come back and do not post. I have about 75% repeat customers in my business and that is a high percentage. I would recommend doing a business with the company and check them out for yourself instead of relying on posted comments via the internet! Reply
Posted by Stacey on 12:57 1 May
The most helpful information i've found so far. Explained all of my uncertainties, answered questions just as my mind thought of them. Now I feel better prepared to venture onto the entrepeneurial highway.... Reply
Posted by crazypetfood on 9:00 1 Apr
Thansk for the article, I am looking to start my own pet food dropshipping business as well. Reply
Posted by Gloria, on 21:33 7 Mar
Thank you for the information. Reply
Posted by John on 16:21 13 Feb
Yes, this info was very helpful. Reply
Posted by JL on 17:58 21 Jan
Thanks for the free information very much appreciated, i believe i will begin my business starting with your model, thanks! Reply
Posted by Keyuri on 14:28 14 Dec
Very useful information. Thank you very much. Saved me weeks of research. Reply
Posted by Roy on 8:53 30 Oct
The article is a good reference for a new biz like me. I am interested to venture into the dropshipping business but still hesitant to do so. I really need articles like this to make me going. Thank you. Roy from www.inboxcashexplode.com Reply
Posted by Dropship on 13:49 20 May
Hello, Salehoo! Really, you have appreciable work done. This is the information, beginners can get themselves in the Dropshipping business viewing all sides of this paradigm. Thanks. Reply
Posted by Wholesale on 11:53 29 Nov
I think it is a very easy way to start your online business if you haven't some money to invest but you are confident about your skills of marketing. Thanks its David from wholesalepges,co.uk Reply
Posted by Chris on 11:03 27 Jul
And research your supplier to death. Google them, check for any controversies they might have been involved in, how they responded to said controversies, reviews etc. Ask yourself if you would buy a used car from them. And if you wouldn't, don't buy anything else either. There are a lot of wholesalers out there and not all of them are reputable. Reply
Posted by John on 3:32 5 Dec
Hi Salehoo, First up great newsletter very useful. The audi mentioned about using a broker. Where would I find a good one. I am mostly interested in sporting/fitness goods. Ta John Reply
Posted by Alfred on 20:22 28 Sep
This is wonderful advice it has saved me hours even weeks of research time . Thanks you very much Reply

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