How to Start Dropshipping in 2022? The trading concept of dropshipping has steadily gained importance in recent years. We explain what the model is all about, show you step-by-step how to set up a dropshipping business, deal with the costs and legal obligations, and compare the advantages and disadvantages of dropshipping. We also show you interesting dropshipping suppliers.
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What is dropshipping?
Dropshipping is always used when a retailer has his supplier deliver the ordered products directly to the end customer. In this way, the pre-financing of inventories, their storage, and the development and operation of your own shipping logistics are no longer necessary. This saves the dropshipping dealer a lot of money and time.
Dropshipping or drop shipping: Two terms for one concept.
By definition, dropshipping is also referred to as drop shipping or direct trade. Regardless of the term, it is always about an alternative to classic retail. While the conventional online retailer buys products in advance, stores them and, if an order is placed, sends them to their customers, the Dropshipper transfers these tasks to their suppliers. These are mostly wholesalers, but sometimes also manufacturers.
Depending on the shop system used, incoming orders are automatically forwarded to the respective supplier. This packs the desired goods and sends them directly to the end customer. The purchase costs only arise when the ordered items have already been paid for by the consumer. The suppliers play a central role. Since the dropshipping dealer himself has no influence on the product quality and delivery time, it is important that he chooses trustworthy and reliable wholesalers and manufacturers.
This is how dropshipping works in the United States.
The idea is that you can sell goods that you don’t need to store, but that you don’t have access to either. Apart from country-specific requirements and costs, the dropshipping process always works the same. You can offer your range of products that you don’t have to have in stock yourself. When your customer places an order, you inform the retailer. This can then be based either in the United States or abroad. He packs the goods for you and delivers them to your customer. Depending on the agreement, the products are packaged neutrally or in boxes with your name on them. The wholesaler himself usually does not make an appearance. The customer pays you for the goods and you pay your wholesaler.
For deliveries from abroad, the delivery time is extended. Therefore, you have to make sure that you indicate a realistic delivery time on your online shop. Customers who want the goods faster prefer to turn to retailers who can deliver them immediately. But that’s a downside you have to put up with. After all, you have no storage costs and no capital commitment.
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10 Steps to start Dropshipping
- Step 1 – The business idea: The business idea not only states that you want to use dropshipping as a trading model. You also define here which products you will sell to which target group and under which conditions.
- Step 2 – Register a dropshipping business: In Germany, you only need a business registration to start a trading company. You can do this for a small fee (10.00 euros to 65.00 euros) at your local city or municipal administration. The business registration then leads to an automatic registration with the tax office and the Chamber of Commerce.
- Step 3 – Finding a partner: With the dropshipping trading model, the focus is on the connected suppliers and they have a decisive influence on how successful the business model is. Potential candidates must be thoroughly screened before starting a collaboration.
- Step 4 – The formalities: If you buy products from a foreign country, you should deal with the legal rules and regulations that apply there. In addition, products offered in this country must comply with local laws. You should also inform yourself thoroughly about taxes and customs duties.
- Step 5 – The shop system: In principle, a dropshipping business can be set up with any shop system, such as Shopify. However, it is better if you choose software that has special dropshipping functions already integrated.
- Step 6 – Find dropshipping products: Now it’s time to choose an appealing and attractive range. First of all, you should analyze your target group. Based on this, you can put yourself in the position of your target group and finally select products that are a good fit for the potential customers.
- Step 7 – Designing the packaging: Therefore, it is best to use neutral packaging or instruct your drop shipper to use boxes with your own advertising or logo. You can find out how to create a logo for your company here. This is associated with additional costs. It is also important that the papers are sent with your name and headline so that everything fits together. You can send invoices from your PC as an e-mail, just like a shipping confirmation.
- Step 8 – The returns and complaints process: Complaints can happen again and again. Or it is defective. Of course, the customer turns to you first. How you then proceed with the complaint depends on the reason for the complaint. Here you need clear agreements with your wholesaler. If he has packed something wrong, he can of course exchange the goods and send them again.
- Step 9 – Advertising and marketing: You should at least partially invest this in the marketing of your shop, and products, and in the individual support of your customers. In this way, you create the conditions for sustainably high sales and stable profits.
- Step 10 – Optimization: After you have set up and published your dropshipping shop, the optimization phase begins immediately. The aim is to continuously improve the product range and service in order to achieve even higher sales.
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How much does it cost to start Dropshipping?
One of the key advantages of dropshipping is that we are dealing with comparatively low costs. A distinction must be made here between start-up costs and operating costs.
Since no inventory is purchased for drop shipping, no warehouse is provided and no special business premises are required, the start-up costs are kept within tight limits. The dropshipping retailer will in many cases run their business from home during the initial period. Nevertheless, smaller amounts have to be budgeted for setting up a workplace or for fees incurred in terms of the shop system or marketplace.
There are also advantages for the drop shipper in terms of running costs. He does not need to pay for storage rent or personnel costs. The financial effort is basically limited to the expenses that are directly related to incoming orders. These are above all the purchase price of the goods, the fees for handling and shipping, and any customs duties that may be incurred. In addition, there are general administration and sales costs, advertising and marketing expenses, fees for shop systems and marketplaces, and fees for payment providers.
Liability for Dropshippers
Most Dropshippers choose the legal form of a sole proprietorship to exercise their independence. Here you are basically faced with the situation that you can be held liable for damage caused by your actions. For the dealer, liability plays a role above all in relation to the products he offers. If these can be proven to cause damage to the end customer, you may have to pay for the damage. As a rule, however, this liability is transferred to the supplier from whom you purchased the product yourself. Exceptions can exist, for example, if you offer products from Chinese dealers that are not approved for the European markets.
In order not to take any particular risks here, firstly you should only offer products with a CE mark and secondly, you should take out commercial liability insurance before you start dropshipping.
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Dropshipping PROS and CONS
Like any other business idea, dropshipping has both advantages and disadvantages. Knowing these is important for you because this is the only way you can use the advantages and minimize the disadvantages.
- No goods risk and hardly any capital for the foundation
- No warehouse, warehouse staff & packaging material required
- Running costs are low
- Arbitrarily large ranges can be offered without this leading to higher expenses
- No effort with logistics and transport organization
- Not regionally limited can easily be expanded internationally
- Possibility to self-regulate the profit margin through good calculation
- The dropshipping products are easily scalable
- Usually poorer purchasing conditions, since you only ever buy individual products
- Dependence on suppliers
- Little control over product quality and delivery time
- Processing returns is difficult because, depending on the location of the supplier, you have to present them yourself
- Usually, only small margins, since customers do not accept inflated prices
- Low customer orientation
- Shipping costs and inventories are not easy to calculate and manage
Dropshipping providers: find suitable suppliers
The supplier plays a crucial role in dropshipping. You select it with great care and check it thoroughly and regularly. In the following, we present some examples of interesting partners for your dropshipping business:
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AliExpress: The Chinese Amazon
AliExpress is comparable to Amazon and, as a Chinese retailer, offers millions of products from every imaginable category.
DHgate: Electronics at Cheap Prices
Located in China, DHgate specializes in trading Electronics and also provides Toys, Cosmetics, and Clothing items.
NEDIS: The European Dropshipping Provider
NEDIS operates from the Netherlands and has branches in many other European countries. The range includes more than 17,000 products and focuses on consumer electronics.
DealExtreme: Everything to do with smartphones from Hong Kong.
Hong Kong-based DealExtreme deals in a variety of electronic products, with a focus on smartphones and related accessories.
Proven practical tips for prospective traders
The following tips and hints will make it easier for you to start your own business based on dropshipping.
Tip 1: Choose suppliers carefully
The reliability and professionalism of the suppliers is one of the important success factors in dropshipping. Choose manufacturers and wholesalers carefully and check their performance regularly.
Tip 2: Keep the shop theme recognizable
Even if you can build up huge assortments as a drop shipper without this leading to increased costs, you should always keep the theme of the shop recognizable for your visitors and customers. This is the only way to build regular customers.
Tip 3: Avoid products with a high return rate
Returns represent a serious disruption to operational processes and are associated with high costs. Therefore, remove products with an increased return rate from your range as soon as possible.
Tip 4: Invest the time you save in advertising and marketing
As a Dropshipper, you save a lot of time in day-to-day business because you don’t have to worry about storage and shipping. Use this time to deal intensively with advertising, marketing, and looking after your customers.
Tip 5: Keep running costs permanently low
One of the main advantages of Dropshipping retailers is the low running costs. Make sure you keep this benefit going by being consistent and disciplined about keeping your spending low.
A Dropshipping online shop can work well if you find a suitable partner with favorable conditions that guarantee reliable cooperation. Automated projects, which save a lot of time, are a great help. International deliveries and the little control you have over the inventory are problematic. Complaints can also be difficult. Here you can contain some problems by choosing suitable suppliers and products as well as quality checks and individual agreements with your wholesaler.