Dropshipping Definition: The Best Way to Setup a Drop shipping Business Quickly

“Dropshipping! Drop Shipping! Step right up! Find your ultimate freedom as a business owner – sit somewhere on the beach and coordinate your whole business remotely with little effort!” – this is probably what a snake oil salesman would sound like if they were to ever preach drop shipping…

However, setting the preaching aside, there's something that you should know before you throw yourself into drop shipping and build your whole business around it.

In this complete guide,  we'll cover all the ins and outs of drop shipping as a business model  that you should know if you're considering it the path for you.

Dropshipping Guide: Table of Contents:

• Chapter #1: What is drop shipping? (dropshipping definition) (overview)
• Chapter #2: Pros and cons of drop shipping
• Chapter #3: Is drop shipping for you?
• Chapter #4: Picking your niche, market, and finding suppliers
• Chapter #5: Don't think products – think how you can add value
• Chapter #6: Getting a website set up for drop shipping
• Chapter #7: Marketing your Store
• Chapter #8: Managing shipping and returns

If you are looking for Dropshipping Suppliers, better jump to our other article Best Dropshipping Companies.

Chapter #1: What is drop shipping (dropshipping definition)? (overview)

Drop shipping sounds simple on the surface. It entails you setting up your own ecommerce shop and reaching out to suppliers who take your orders and ship those orders to your customers. It's slightly different than ecommerce fulfillment.

In short, it's designed so that you don't have to house any inventory, and you don't have to worry about any shipping costs or logistics.

Sounds great, right? Well, not so fast.

Here's how it works exactly:

As you can see, the most significant difference between drop shipping and the classic way of operating is that you don't hold any product inventory. Instead, you only pay for it when the customer has already given you the money for the order.

This makes  drop shipping one of the few business models where you don't need to spend money before the customer actually pays you,  which minimizes a lot of your risks.

Chapter #2: Pros and cons of dropshipping

Chapter #3: Is drop shipping for you?

The first honest answer that you really need give yourself is whether drop shipping is something you should actually do, and not as much if it's something that you can do. You need to consider all the pros and cons, and also look into whether the model is in tune with your vision, goal, and actual market/niche.

To help you with that, let's start with the most common misconception in the drop shipping land … and also probably the main cause of failure of many drop shipping businesses.

What drop shipping is not

Let's set one thing straight. Contrary to what that fictional snake oil salesman told you, drop shipping is not about doing nothing while sitting on the beach. Far from that!

“Drop shipping = easy money” is a very wrong mindset.

Think of it this way:

 Drop shipping is mainly about outsourcing the most inconvenient parts of production and/or selling a product. 

In a scenario like that, you let the professionals take care of what you're either not good at, or what you can't do yourself in a cost-effective manner.

Just to give you an example – and it will be a recurring example in this guide since it's easy to grasp – if you want to sell designer t-shirts, but you don't know how to sew, you have two options:

• (a) Learn how to sew, or hire someone who can.
• (b) Outsource the production process entirely to someone who's mastered it, and take care of the other aspects of the company.

In other words, the business is still yours – you're the brains behind everything. The only difference is that instead of handling everything in-house, you're outsourcing product development/assembly and order fulfillment.

Drop shipping seems like an awesome concept when you look at it, but in order to truly take advantage of it, you must find your own place in the market, and pick a niche that you can really serve well.

And this might not be as simple as you'd imagine.

Chapter #4: Picking your niche, market, and finding suppliers

Another misconception about drop shipping is that you can start in almost any niche imaginable, and that you'll be able to make it profitable no matter your previous experience.

This is simply not true.

Keep in mind that no matter what market you join, you will come across multiple competitors – competitors that are much more experienced than you, who may have been in this market for years now, and who probably have a much better understanding of the customers and their needs.

The fact that your initial costs are low – due to the drop shipping model – doesn't mean that you are going to be able to compete with them effectively.

That's why you really should pick a niche that you know and understand. This will give you some additional advantages over the competitors who might not have invested the same amount of research or personal experiences.

And don't get me wrong, you don't necessarily need the seller's experience in the niche, but the following would help a lot:

• you're a consumer in that niche yourself – you've bought a number of products in that niche, and you understand what's good/bad about them, and how to make things better;
• you have professional or academic expertise – you're educated in that specific area, which allows you to approach it from a more professional level;
• you've already done research in that niche – even if just among your friends and family, but the point is that you have some first-hand understanding of the target audience;
• you've witnessed other businesses in the niche rise and fall, you know the mistakes + how to avoid them;
• and so on.

Having some sort of understanding of the niche will not only help you to compete and cater to your customers better, but it's also especially important when dealing with your suppliers who send products directly to your customers.

Without any knowledge about the niche, you won't have the ability to pick up on anything fishy about the quality of the products, the process, the pricing, or anything related (read: you will fail).

How to find suppliers / drop shippers

This is the case in most industries, and even more so in drop shipping: You finding quality suppliers is crucial to your success.

Let me say that again … you finding quality suppliers is crucial to your success.

How about we backtrack a bit. If you work in the traditional model – where you hold inventory – and you mess something up, then at least you have the means to fix things and make everything up to your customers. After all, you control the entire process.

But in the drop shipping model, if the orders delivered to your customers are sub-par then it's basically back to the drawing board for you. Since so much depends on your suppliers, you cannot just fix what they did wrong. The only thing you can do is find new suppliers. However, this isn't always doable on the spot, and your brand reputation might suffer in the meantime.

That's why working with the right suppliers is so crucial.

Okay, so how to find those suppliers:

1. Think local

Thinking local is my first recommendation, purely because it's the most manageable solution, and in most cases it makes keeping in touch with the supplier easier.

Specialized drop shopping companies found on the web are great to find suppliers with more competitive prices or to find niche products that may not exist in your local area – and we'll talk more about them in just a minute – but they might not necessarily be the top choice for your specific market.

Sometimes, or rather oftentimes, you might find local vendors willing to drop-ship to your customers if you just have a conversation with them and offer them a good deal.

For example, there's this home-based bakery in my local area that, over the years, has transitioned to the role of a drop shipping supplier. Basically, they started by baking awesome cakes and wholesaling them to local cafes, where they were sold by piece (standard model).

But then, those cafes noticed that the customers loved those cakes so much that they started asking how they can get them whole. So the cafes started collecting orders from the customers, and sending them over to the bakery.

In that model, the cafes get the order, get the payment from the customer, then buy the cake from the bakery, and then the bakery delivers that cake to the customer's doorstep. Classic drop shipping.

This is just one example, and it might not be applicable to your specific situation, but I hope you can see that the possibilities are really endless with local businesses.

The easiest way to begin would be to think about how you can arrange a deal with a local supplier, which would eventually let them sell their products to a larger audience through your online store.

2. Try online suppliers

Another place to look at, once you exhaust all the local possibilities, are various online suppliers.

The good news here is that there are really more of those than you can shake a stick at. The world leader, Aliexpress offers the biggest directories of Chinese suppliers, while platforms like Salehoo or Oberlo not only connect you with suppliers but also provide further value.

Salehoo has great training resources, a supporting forum and market research tools that help you estimating profit margins and look for trends. Oberlo, on the other hand, is Shopify's integrated drop shipping platform.

Here you can find some of our favorite drop shipping companies (suppliers and software) that operate on the web. But don't treat that as gospel, be proactive and do your own research. It's a good start, though.

The things to look out for when choosing suppliers

No matter where you go looking for suppliers, you should also pay attention to some red flags that might indicate that a supplier isn't all that great:

• Browse through online reviews, and sites like Trustpilot, or even Google. Look out for any negative reviews or opinions about your suppliers.
• Be careful with ongoing fees. Suppliers who require ongoing fees just for the possibility to work with them might be a scam.
• Do your math when dealing with minimal order sizes. This is something you might stumble upon with bigger suppliers.

Okay, with suppliers done, it's time to think about the products you can offer. You probably have some ideas already … this is where the next stage comes into play. Hold onto your seat:

Chapter #5: Don't think products – think how you can add value

I'm sorry to be the bearer of bad news, but just thinking that you can be a simple middle man won't work.

If you don't add value, you won't succeed.

“Wait, wait! Isn't this whole drop shipping thing supposed to be about getting someone else to fulfill the order after I collect the payment?! There's no room to add any more value in that, right?!” – you ask.

Well, as a matter of fact, there is a lot of room.

Here are 4 possible approaches:

Method #1: “The Teenager Method”

Among many things that teenagers want – for all I know – is to either be different from their peers, or at least be perceived as different (in the positive way, though).

Translate this into drop shipping … you should position the specific products that you are selling to be in some way different from everyone else's.

The ultimate goal is to be able to stand out and be unique, even if, at some point, a competitor starts using the same drop shipper.

If you don't add value in some way, this will be impossible.

Let's take Teespring as an example.

(Some will argue that Teespring is an affiliate business – where you're just promoting other people's products – but the line between affiliate and drop shipping can be really thin, so let's just go with it for the purpose of this guide.)

Teespring is a place where people go if they want to buy cool t-shirts. But the interesting thing is that the marketplace is community-driven. Everyone can come, design their own t-shirts, and put them on sale. If anyone buys, it's Teespring that takes care of fulfilling the order.

If you want to sell with them, what you bring to the stage are your unique designs. Those unique designs are your added value. It's what makes you unique, and it's what makes one seller different from another, even if they both use Teespring.

The key here is to position your product to be different and/or customizable in some way. Many drop shipping suppliers allow those kinds of things.

Also, you need to think profit margins. In general, the more customization you introduce into the product – the more of your input – the higher your margins can be. Even sticking with the basic t-shirts example. Drop shipping white t-shirts doesn't give you much room for margins, but t-shirts with original designs can go for 3x-10x the asking price of a blank tee.

Method #2: “The Angle Grinder Method”

Make your offers angle-driven, rather than bare-product-driven.

Let me use another example to illustrate what I mean.

And it's going to be a really boring example: selling car insurance.

Now, any type of insurance is technically a virtual product, as in the customer doesn't get a product they can hold. They just get a promise. Nevertheless, it's still a product in its own right.

So, if you're selling car insurance in a bare-product-driven manner, you're probably going to market your offers like everyone else … “cheap, safe, reliable, no payout shenanigans, etc.” Basically, you're focusing on the product.

Another way is to take that generic product and try to look for an angle you can use while marketing it.

For instance, you could investigate all the insurance plans, analyze them deeply, and come up with a list of the ones that are the best for tuned-up performance cars and car modification enthusiasts. The plans offered through your business would cater to that specific customer only – the customer who likes to drive fast and modify their car.

By providing them with tailor-made plans, you're taking an angle in a niche. At the end of the day, you're selling something similar to your competition, but you've invested your time to find out what really suits your target customer.

You can do something similar in most niches.

Method #3: “The Cleanex Method”

The third method is to simply clean up the confusion and make the product clearer overall.

Many suppliers sell products that don't have a well-defined purpose or target market. Other products have unclear user manuals, or even unclear sales materials, so that the customers don't know what they should do with them, or even why they should buy.

You can make all that clear.

Some possibilities:

• Market the product via your own custom-written descriptions and promotional materials.
• Create a “Getting Started Guide” for the product.
• Create a “Best Setup” package where you tell the customer what the best way to set up the product is (while dealing with technological tools, machinery, or even vehicles, for example).
• Offer additional support and customer service packages.

Method #4: “The Supplemental Offer”

This applies to those of you already running an ecommerce store and looking for ways to expand your inventory.

You can treat drop shipping as a good way to supplement your current offer.

A good start would be to research the kinds of products that your customers buy the most often, and try to look for drop shippers that can provide supplemental products (products that go along with what you have).

That way you could add new products to your portfolio, and at the same time don't have to produce them yourself.

Example: Selling custom exercise clothing? How about adding home exercise equipment.

Final thoughts on products

At the end of the day, the product is obviously the most important element and the differentiating factor. Without good products, you won't get very far.

But the message I want to leave you with is not to expect that you will hit a jackpot at first try. Any business – including drop shipping – involves a lot of trial and error.

So once you have an idea for a specific product, just go and execute. Put it on offer. See how the market responds. Then improve. Then repeat.

Chapter #6: Getting a website set up for drop shipping

Okay, so everything above was still what I'd call preparation on your way to launching a drop shipping business. What comes now is the technical, website-related stuff.

First things first,  need a website to make all that work.  That website is going to serve you in a handful of ways:

• It's where your customers see the products and can order them.
• It's where you collect payments from the customers.
• It's where you manage the orders.
• It's where you can configure the pipeline to then send those orders to your suppliers.
• It's where your suppliers can communicate back with you, and let you know that the order has been fulfilled.

In a sentence, the website drives your whole drop shipping business.

Now, before I scare you off, building a high-quality website for this very purpose isn't difficult anymore, and especially in 2016.

You don't need to hire a designer or another “website pro.” You can do most of the work yourself.

For instance, Shopify has a great guide about drop shipping, and they've made it quite clear that they have built a system that caters to those who drop ship products. What this means is that you can safely just sign up with Shopify – a hosted website service – and they will help you build and launch your drop shipping website from A to Z, and with minimal technical hassle.

To find out more about Shopify in general, I send you over to our Shopify review (updated for 2016).

Chapter #7: Marketing Your Online Store

Setting up a successful ecommerce business with dropshipping isn’t just about finding the right suppliers and listing your products online. In most cases, you won’t be able to just list your product and assume audience members will find you, like they would on Amazon or eBay.

Dropshipping works best when you know how to market the products you’re selling successfully online. Once you’ve found your ideal product and built a store that encapsulates your brand, it’s time to get marketing with everything you’ve got.

If you’re starting out with a relatively tight budget, and don’t have a lot of cash to spend on making your company stand out, don’t panic. There are plenty of things you can do to promote your company that don’t cost too much. Here are a few ideas to get you started:

• Social media advertising: You can easily blow thousands of dollars on social media advertising – but you don’t have to take this route. You can advertise your dropshipping store on platforms like Facebook by keeping your budget low and targeting only the most specific people that you know will love your products. It’s a good idea to focus on a small target area with your store initially too. Even if you can ship worldwide, it’s going to be cheaper to work with a dropshipping company in the country that you and they are in. The smaller your target area, the less you spend on both advertising and shipping.
• Retargeting ads: If you’re on a really tight budget, retargeting ads are excellent for keeping your costs down, but still bringing people to your company. Retargeting ads work by re-engaging customers that have already seen your products and online business. There are plenty of tools that can help you with retargeting when you’re setting up your ecommerce platform. The idea is that you re-advertise the products that your customers have already seen, encouraging them to come back to the shopping cart.
• Influencer marketing: Starting a dropshipping business will demand a lot of hard work initially. However, having an influencer campaign set up is an excellent way to give your business a boost. Influencers are brilliant for pushing your product towards the right people. Remember, it’s best to stick to smaller influencers initially, as these people are generally less expensive. The right micro influencers should still help with transforming your retail business, and getting you more customer orders, however.
• Content marketing: Content marketing can be an expensive way to advertise your dropshipping products in some cases. If you’re paying for professionals to write your content, then it’s easy to run out of money quickly. However, if you know your ecommerce site and your brand well enough, you might be able to write your own content, and start there. Although content marketing might not help you to leverage the benefits of dropshipping too much initially, it will improve your standing with the search engines. This means that you’ll get more organic traffic long-term.
• Reviews and testimonials: Finally, if you have a successful dropshipping company’s that’s delivering products as quickly as traditional retail companies, ask your customers to give you some feedback. Reviews and testimonials from happy clients are perfect for generating social proof for your brand and giving you new ways to connect with your audience. You can even ask your customers to leave their reviews on various leading websites.

As you start to master the process of marketing your small business, make sure that you remember to optimize too. Just like content marketing, optimizing your website with things like meta descriptions, backlinks, and other essential SEO signals is crucial. Though SEO is more of a long-term strategy than a solution to get more dropshipped customers instantly, it’s essential if you want to develop a successful brand long-term.

Many of the best online retailers spend a decent amount of time and effort on making sure that they can connect with the middlemen of the search engines when trying to reach customers.

Chapter #8: Shipping and Returns

We have one final point to cover in this dropshipping guide, and it’s an especially important one. Remember, you still need to make sure you’re handling shipping and returns properly, even with dropship suppliers. While it’s true that your dropshipping companies will deliver products to your audience for you, it’s up to you to make sure they’re providing the right experience.

Choose the wrong dropshipping suppliers for your supply chain, and you could end up with products that never reach their customers. Then it’s up to you to handle the complicated refund process.

Make sure that you start by choosing a dropshipping supplier not just based on the wholesale price of their products, but also the kind of service and speedy delivery that they can offer. Picking someone who offers multiple shipping options, like expedited shipping etc, is a good start too.

Once you know which shipping suppliers you can trust, the next step is figuring out how to handle dropshipping returns.

Returns are never fun in any business, but if your customer decides that they don’t want your item in a dropshipping situation, then you’ll need to make sure that you get your money back from your supplier, and you’ll need to re-deliver their products too. That’s one of the few disadvantages of dropshipping. Here are a few steps to get you started.

Know the return policy

When you’re shopping for dropshipping suppliers, pay close attention to the terms and conditions they have on their site. What kind of process do they have for accepting returns. Do they immediately refund your credit card, or are there other issues to consider?

• How long do you have to return the product after a sale?
• Does the customer need to pay the return shipping fees?
• Will mistake orders be returned without any costs?
• How is the return experience handled?

Create your return policy

Once you know how your suppliers handle returns, you can make sure that you have a policy that matches theirs. You should use the policy of your supplier as a framework, and make sure that you’re not giving your customers any promises that you can’t keep. For instance, if your supplier has a 30 day return window, don’t give your customers 40 days.

Ideally, you want to give your customers slightly less time to return their product to you, so you have time to deliver the product to the supplier to account for any shipping delays and issues. If you have multiple suppliers, try and cover all of the demands within your policy. For return times, use the supplier with the shortest period for returns as your guideline. This way, you’ll make sure that you get all products back within plenty of time.

Another good idea is to make sure that you don’t provide an address for returning products on your terms and conditions or contact pages. Instruct your clients that if they want to make a return, they can contact you. This will allow you to provide the customer with the address of the dropshipping supplier, which saves on time and postage. You don’t really want your audience to ship to you first, as this just wastes time.

Only accept returns that have a tracking number too. The last thing you want is for your customer to claim that they shipped your item, but it ended up “lost in the post” with no proof. You need to make sure that there’s a tracking number included so you can track the product every step of the way.

Handling the return process:

With your return policy properly ironed out, the only thing left to do is actually make sure that you know how to handle returns from start to finish. The average return policy should look like this:

• Your customer sends you an email or message requesting a return. You find out why the customer is sending the product back, then you contact your supplier and request a return merchandise authorization number. You’ll need to apologize to the customer and take responsibility for them being unhappy with your product if you want any chance of getting them to come back in the future.
• Your supplier should hopefully approve the return. They will give you the return address and the number that you requested so that your customer can send the product to them directly. Depending on the return policy of the supplier, you might need to include your number on the shipping label, rather than the shipping box. A tracking number will also be essential so you can ensure that your customer actually sends the product.
• When the package arrives, you have a few options. If your customer sends the package to you, inspect the item and take pictures so you know exactly how you’re returning the product to the supplier. If the supplier gets the item, just keep in contact to see when the package arrives. You should be able to pursue a refund then.
• Once you get your refund and everything is squared away, deal with supporting your customer. This could mean that you send a refund to your client or ask for a replacement item to be sent out, if the customer requests this.

Conclusion

Now you know exactly what drop shipping is, and how you can become successful with your own drop shipping website. Just to recap:

• (1) It all starts with finding a niche that is relatively untapped and validate it.
• (2) Then, you must locate suppliers who'll be reliable and helpful in your drop shipping journey.
• (3) Figure out how you can add value through the products you will be offering.
• (4) Launch a website to connect all the dots together.

Just getting into the drop shipping business? Feel free to share your thoughts and concerns in the comments below.