Dropshipping is one way to enter the retail industry without investing in inventory upfront and a place to store it, but it’s not the only way. There are several alternatives to dropshipping, including print on demand, affiliate marketing, and private labeling. Each of these business models has its own advantages and can be considered when drafting your business plan, especially if you’re concerned about upfront costs.
Print on demand
The print on demand (POD) model allows users to upload designs that can be added to various products, including T-shirts, stickes, and coffee mugs. You can focus on creating designs instead of manufacturing products and holding strock. Plus, your selection of designs and products will still be unique custom products that can help you stand out in the market.
Affiliate marketing
With affiliate marketing, you’re not actually selling a product. Instead, you use an affiliate link to a product of your choice and get a small portion of that sale when somebody makes a purchase using the link. While affiliate marketing is easy, it’s a lot less hands-on and engaging than some of the other dropshipping alternatives.
Private labeling
Private labeling, or white labeling, allows you to purchase generic products that you can add your own labels and marketing materials to, effectively creating your own branded products. For example, Costco is a big-name retailer that operates under this model. The Kirkland products Costco stocks on their shelves often come from other producers.
With private labeling, you have a little more control over the image of your brand. However, it’s also a bigger upfront investment.
How to start dropshipping
One of the benefits of dropshipping is that it’s fairly easy to get started. If you want to start a dropshipping business with a small investment, here’s how you can do it:
- Identify products to sell. Look into items that will sell well and don’t have a lot of competition. Consider current market trends and choose a range of products that appeals to your target customer base.
- Find a supplier. The third-party supplier you work with should be reputable to ensure the profitability of your business. Compare suppliers and read reviews carefully. Your dropshipping partner will be your main inventory source, so it’s crucial to choose wisely.
- Select an online store platform. Your e-commerce website will be the home of your products. Look for an online store platform that can support your sales and integrate with your dropshipping services. Some platforms offer an app marketplace where you can find tools and plugins to enhance your store’s functionality.
- Market your business. Now that your website is up and running, you have to develop a marketing strategy to grow your business. Utilize social media, email marketing, and SEO to reach your customer base and drive customer purchases.
Common dropshipping FAQs
Do I have to pay for products before selling them?
No. The biggest advantage of dropshipping is that you don’t pay for products upfront. You only buy the product after you make a sale on your online store and receive payment for it from the customer purchase. This means you have minimal upfront costs.
How much money do I need to start dropshipping?
Creating a dropshipping store is significantly less expensive than opening a traditional retail shop or buying inventory upfront. Still, there are costs involved, including:
- Online store platform: You’ll need to create an online store. Most people use an e-commerce platform with tools to help build and maintain your product catalog. Costs can run from as little as $30 a month up to $300 a month (or more), depending on the size of your business. And if you choose to sell on Amazon, it can cost you $40-$60 per month plus a 15% commission on sales.
- Domain name: Your domain name is the online identity of your business—and a powerful brand-building tool, too. Fortunately, domain names are customizable and affordable, with many costing as little as $20 or less per year. If you’re using an e-commerce platform to sell stuff, you can even redirect the URL, so customers go directly to your store when they type in your web address.
- Website and hosting: Most of the major e-commerce platforms allow you to build your e-commerce website on their platform; they’ll even host it for you, too. If, however, you’d rather go the DIY route, you can expect to encounter additional fees along the way. You’d need to factor in the costs of designing a website (or hiring a pro to help)—including any paid plug-ins, extensions, or add-ons that might be required to get the site up and running. And if you want to choose your own web hosting provider, it can cost you anywhere from $50 to $1,000 per month, depending on volume, features, and services.
- Payment processing: Another thing to keep in mind is that there will be a fee every time someone uses a credit card or electronic payment service to buy products from your store. Besides any bank fees, you can expect to pay slightly less than 3% (plus a small transaction fee) for PayPal, Stripe, or Authorize.net. Visa, Mastercard, American Express, and Discover typically charge between 1.3% and 3.4%.
It may sound like things are starting to get expensive, but many entrepreneurs are able to get into the e-commerce business for $500 to $1,000, all while keeping their monthly fees under $100. When creating your business plan, it’s important to factor in these upfront costs. Compare that to the cost of starting a retail store—you’d pay more than that just for a month’s rent on your brick-and-mortar space
What are the best-selling dropship products?
There are millions of products that can be sourced through dropshippers. According to Grand View Research, the dropship products that bring in the most sales are fashion items (30%), food and personal care products (30%), and electronics and media (22%). Other significant categories include toys, hobbies, DIY, furniture, and appliances.
Who will handle customer service?
People sometimes make the mistake of thinking that dropshipping is a completely automated business and that all they have to do is set it up, turn it on, and let the profits roll in. Unfortunately, that’s not the case. You’ll still need to manage the business, including handling customer support, sales, and marketing. Your dropshipping supplier will sell you the product and ship it out for you, but everything else is up to you.
How do I submit orders to suppliers for dropshipping?
Most dropshipping suppliers accept orders online through a portal or spreadsheets; some will even allow you to place orders by email or over the phone. If you’re using an e-commerce shopping platform that works with dropshippers, there’s a good chance that you’ll be able to submit orders directly from the platform
How big is the dropshipping market?
The global dropshipping market is expected to reach $351.8 billion in 2024 and $435.0 billion in 2025.
Where can I find dropship suppliers?
If you’re working with an e-commerce shopping platform, look to them for recommendations on suppliers. They want to keep you as a customer, so they’re only going to recommend suppliers they trust. If you’d prefer to find a supplier, performing a quick online search for dropshippers will bring up plenty of results, including many suppliers specializing in niche products.
Remember: partnering with a reputable, reliable dropshipping supplier is one of the most important things you can do. Poorly manufactured products or low shipping standards will only lead to dissatisfied customers, so choose carefully.
If you’re sourcing products internationally, there will be a longer delivery time. Will people be patient when they’re used to getting 2-day shipping from other online sellers?
Some shoppers will understand the longer delivery times, especially if you’re selling a unique product. Other folks might not be as willing to accept a longer turnaround time on their order. It’s important to make sure that you’re very clear with customers about delivery timetables and any associated costs. A lack of transparency can lead to complaints and refunds, which add to your expenses.
Many dropshippers include the cost of shipping to their product price. This allows them to offer free shipping for items, which helps mitigate concerns over longer shipping windows. When you handle shipping on your own, it’s a crucial part of the variable cost formula.
Is dropshipping a legitimate way to run a business?
Dropshipping is completely legal. In fact, many of the online stores you visit regularly take advantage of dropshipping to supplement their product lines. Walmart, Sears, Rakuten, Staples, Target, Overstock, and plenty of others are in the dropshipping business.
You can even use dropshipping for order fulfillment at Amazon, but keep in mind that there are some specific rules you’ll need to follow, and you’ll have to pay Amazon a percentage of the sale. It’s also OK to dropship on an eBay store as long as you’re fulfilling orders from a wholesale supplier and not buying it from another retailer or marketplace.
It’s not that different than buying from any other e-commerce store. Most online sellers don’t make the products they’re selling; they buy them from manufacturers or wholesalers. With dropshipping, you’re doing the same thing without having to buy the inventory ahead of time. You will, however, have to pay a higher price to have a dropshipping supplier handle the order fulfillment for you.
Do I need a business plan to start dropshipping?
You don’t necessarily need a full business plan to get started with dropshipping—unless you want to pursue business loans, financing, or investors, of course—but you should take some time to think about your marketing strategy. You’ll need to consider how you’re going to get the word out about your business, grow your audience, and keep customers coming back. You can check out some marketing plan templates if you need a little inspiration.
Think dropshipping might be for you?
Dropshipping can be a profitable business if you pick the right suppliers, the right products, and then market your business properly. You’ll find stories online about people who made their fortunes dropshipping, but you’ll also find plenty of stories about people who didn’t have such positive experiences.
Go into it with your eyes open, do your research, keep your expectations realistic, and you just might find dropshipping success.
If you’re considering starting a dropshipping business, Mailchimp has the marketing tools you need to get started. From an intuitive website builder to smart email marketing tools, Mailchimp helps small business owners do what they need to do to grow.
Also, Mailchimp’s integrations with various e-commerce platforms offer a seamless solution for businesses of all sizes.
Key Takeaways
- Dropshipping allows sellers to list and sell products without holding inventory or managing shipping, as orders are fulfilled by third-party suppliers.
- The global dropshipping market is projected to reach $352 billion in 2024 and surpass $825 billion by 2033.
- Key benefits of dropshipping include reduced operating costs, market testing flexibility, and ease of expansion without significant investment.
- Drawbacks include low profit margins, significant competition, reliance on supplier performance, and potential customer service challenges.