Ultimate Guide to Set up a Dropshipping Business

by | Nov 15, 2019 | Digital Marketing

14 Min Read. |

Thinking about starting an eCommerce business? Then opting for a dropshipping business model can be a lucrative option for you.

Anyone who has an idea about how an e-commerce company works may have heard the term Dropshipping Business. It is a new business model that has come into existence with the rise of online stores and of course, the internet!

It is easier than other methods owing to the following mentioned facts:

(a) This business does not require a substantial capital investment, as compared to the other business setup methods.

(b) Since this business will have an online presence solely, it does not require you to set up a physical store.

(c) Reduced overhead expenses as there is no need to handle inventory or managing warehouses.

(d) It is a scalable business with the flexibility of changing your location.

(e) All the tips and tricks of how to run a dropshipping business are available online and are free of charge. Reference materials ranging from articles to videos, among others, can be easily found online.

Dropshipping makes selling products easy for merchants.

As per the recent reports, more than 27% of online retailers have opted dropshipping.

This supply chain management process provides storage and order fulfillment services so that the merchant can just concentrate on driving the sale of products through their website.

In this article, we are going to educate you on what is drop shipping business and why this is such a lucrative business opportunity in India.

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Furthermore, we will highlight the business model of dropshipping and what constitutes its pros and cons.

These topics will empower you to make informed business decisions and will maximize your chance of success.

Let’s start with…

What is Dropshipping Business?

Dropshipping is a supply chain management process where the merchant selling the product never handles the product himself. The shipping details and the customer orders are all handled by the dropshipping partner.

The dropshipping business enables the merchant to carry out the sale of the goods without the need to maintain an inventory.

Built on supply chain management, it is a method in which the retailer does not have a stock of the products which they are selling.

They instead transfer the incoming order as well as the shipment details to the manufacturers of the products or even other retailers or wholesalers. These people then ship the required products to the customer directly.

The key difference from traditional retail models is that the retailer, or the merchant, does not keep their inventory or stock.

Dropshipping Business & Classic Business

Dropshipping Business & Classic Business

Dropshipping is a lucrative business because one-third of the e-commerce platforms make use of this service, and the e-commerce business is only expected to rise by 17% each year.

Processing of Dropshipping Business

  • The customer buys a product from an online store
  • The retailer transfers the order details and customer shipping address to the dropshipping partner
  • The dropshipping partner takes the responsibility of the product packaging and shipping requirements

How does Dropshipping Business work?

Dropshipping Business Model

Dropshipping Business Model

(i) The first step is to set up your eCommerce website.

(ii) Next, you can start selecting and then, importing products from various marketplace onto your website. You need to find applications that help you synchronize the market in such a way that if in case there are any changes made by the supplier, you are notified of the same.

(iii) Once you receive an order from a customer, you can then proceed to order the same from the supplier and have them ship the product to the customer.

Should You Even Go For Dropshipping?

A plus side of dropshipping is that you never have to buy a product before opting to sell it. Thus, you do not have to set up a stock or inventory.

In case you incorporate below given characteristics then you should go for Dropshipping business without having any hiccup-

  • Having a tendency to doing thorough market research
  • Being able to offer protection from overselling
  • Incorporating strategic shipping system
  • Opting for Dropshipping business for high maintenance products

Selecting Products for your Website in Dropshipping Business 

It is essential to choose the right products to sell on your site.

According to Hyacil Han, the write of Dropshipping Ultimate Guide: The Expeditive and Accessible Scheme to Earn a Substantial Revenue at Home says- 

Don’t find customer for your products,
find products for your customers.

You can start by conducting proper research and generating a list of prospective products to market. You can then refine the list by removing the goods which are not worth testing.

Next, you can choose to test the remaining products or directly advertise them on your website. After this, you can add a few other related products to create a variety of options for your customers.

Also, refer to social shopping websites, for example, Pinterest.

You can find which products are trending on such sites as well. Another idea is to target niche products. These are not readily available on several eCommerce websites or in physical stores. By finding and establishing your niche, you can gain the attention of your prospective audience quickly.

Make sure that your products have the right amount of traction over the internet. One can use Google AdWords for the same. Search Engine Optimization marketing is crucial to gain traffic over your website.

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How to Select a Dropshipping Supplier?

When using the dropshipping method, it is often possible that a wrong or inadequate product is shipped to the customer. This is because you do not get to see the items before they are shipped from the dropshipping center. This way, you can lose out on retaining your customers.

Thus, it is essential to select trustworthy and appropriate suppliers to partner with for dropshipping business. Here are a few suggestions which can help you choose suitable suppliers:

  • Do not opt for the supplier with lower prices
  • Go for suppliers with a good rating and feedback, usually 95 percent or above
  • Give special attention while selected branded products
  • The responsiveness of the supplier also matters
  • Select suppliers with the best delivery options
  • Order samples to check the quality

Pros and Cons of Dropshipping Business

Pros and Cons of Dropshipping Business

Pros and Cons of Dropshipping Business

Pros of a Dropshipping Business

In recent times, dropshipping is gaining immense popularity because it is changing the workings of e-commerce marketing. This change has made starting an e-commerce business easy and a lot less risky.

Minimization of the risk is one of the greatest factors that are leading first-time entrepreneurs to go the dropshipping route.

Why? When shipping, warehousing, and delivery requirements are taken care of right from the get-go, running the e-commerce business becomes simpler.

All that the e-commerce platform has to think about is marketing their products and attracting customers.

Plus, without the need for inventory maintenance, adding and dropping products from the catalog is no longer a big headache.

Another major factor for drop shipping business popularity is its low cost. Drop shipper services are not going to cost you much as there is no extra fee, and the upfront costs are quite low. Your customers will assume that the products are coming directly from you as they will find your label on the products.

Some other notable benefits are-

(i) You will face reduced losses on damaged goods in this business model

(ii) Dropshipping offers you more time & resources, so you can fly high and optimize your business

(iii) With Dropshipping business in India, you will get lots of products of different varieties to sell on the web

(iv) With this kind of business model, you will be able to channelize your dropshipping business from anywhere, as it is fully location independent

(v) You will not be losing anything even if you do not sell any product and hence there will not the headache of selling your inventory

(vi) With Dropshipping business, you need not worry about exorbitant overhead costs, so it is going to be a cost-effective business model for sure

(vii) The spending plan you need to set up your Dropshiping Business is next to nothing and it is quite simple to set up as well

Cons of a Dropshipping Business

Till now, dropshipping business paints a very rosy picture, doesn’t it?

Low risk, great profits, and a potential for huge growth. That is where the downside of dropshipping business lies. Many people before you have found a dropshipping business to be as promising as you and as a result, stiff competition lies ahead in this field.

The existence of stiff competition is reflected in the profit margins, which are quite low. Merchants offer very low prices as they do not have any other option to survive the cut-throat competition.

To get a sale, you need to cut through the competition, and you need to make up for the low-profit margins with increased sales. Another big drawback of the dropshipping business is that you are greatly dependent on the suppliers and manufacturers. Poor management in their part may result in the tarnishing of your reputation since it’s you who is in front of the customer.

Additionally, dealing with customers brings their own set of challenges.

How to Start a Dropshipping Business in India?

The dropshipping business in India is still in its growing stage, which presents a golden opportunity for anyone interested to enter this field.

The cost-effectiveness of the business, along with its future projection of $120 billion in revenue by 2020 are some supporting facts for Dropshipping’s success.

After weighing the pros and cons of dropshipping in India if you are still interested in starting your business, then follow the given below steps.

1. Bureaucratic Requirements

Bureaucratic hurdles are the first hurdle that you have to overcome to start your dropshipping business. This starts with registering your business name.

Then, you have to adopt the most suitable business structure (LLC, sole proprietorship, etc.). When these are taken care of, you need to get an EIN (Employee Identification Number) for tax filings.

Lastly, you need to acquire all the licenses and permits to operate the business. This depends on what products you intend to sell and the location where you want to sell.

2. Identify a Market for Dropshipping Business

After you are done with the basics now, it’s time to identify a market you want to sell to.

Your marketing efforts, niche, and demographics can be the differentiator between you and your competitors. Therefore, it is necessary that you research and choose each one of them carefully.

When it comes to selecting a niche product, it’s better to go with what interests you. Selling products that you already know about gives you an added advantage.

Identify a Market for Dropshipping Business

Identify a Market for Dropshipping Business

(a) Niche

As mentioned above, working on a category that interests you is the best.

In the initial stages setting up your business, it’s advisable to identify a micro-niche such as a basketball or a karate to mold your business to cater to a specific group.

(b) Demand

For business success, you need to identify where there is a demand. To identify a niche that has demand, you can resort to keyword research. This can be done via the Google keyword planner. The greater the volume a keyword presents, the greater is its demand.

Viewing the best-selling list of major e-commerce platforms like Flipkart will also give you an insight into what’s in demand.

(c) Competition Research

The second task that you need to do after choosing a niche is finding out how much competition exists in that niche. If that niche market is already saturated, it’s better to drop that market.

(d) Profitability

Profitability is the main factor to allow you to go with the dropshipping business idea. It is recommended to go with a product that is not sold by a big brand. Further, non-seasonal and cheap to ship products should be selected.

3. Finding a Supplier

When the selection of the niche is made, you should choose a particular product in that niche. After that, the next step is to find a good supplier from whom you can buy that product.

We have enlisted the following criteria to simplify your search for the right supplier:

(a) Fees

Of course, the first criterion that you must consider is the fees. Remember, the profit margins are low in this business. Therefore, you don’t want some hefty fees. Salehoo suggests not going above $5/ item for all the inventory needs. You may also be charged a small monthly fee.

(b) Experience

While choosing a supplier, ensure that he has a good track record. This can be checked via some review websites such as Better Business Bureau and TrustPilot. Also, see that the supplier offers good customer service.

(c) Referrals

Ask suppliers to reveal who they have previously worked with. If they deny telling names, it might be best to drop them.

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(d) Shipping

Customers are usually ready to wait around 1-2 weeks to receive a product, any time beyond that will harm your reputation. Therefore, look for suppliers who can offer fast shipping.

(e) Product

To avoid a downward spiral of your dropshipping business, see to it that your supplier give good quality products. Supplying low-quality products will harm your business. Ask for product samples.

4. Start with Dropshipping Marketplaces

Best Dropshipping Companies

Best Dropshipping Companies

If you want to take an easy route to the dropshipping business, you may want to consider taking the help of dropshipping market places. These are businesses that sell millions of products from manufacturers and importers and sell them to vendors at a profit.

Some popular dropshipping marketplaces are:

(i) AliExpress (Free service) – It is one of the largest players in Dropship marketplaces

(ii) Oberlo (Free service) – This can be easily integrated with Shopify

(iii) Doba ($29/ month) – Available with both Volusion and Shopify

(iv) Dropship Direct (Free service) – Offers 100,000+ products

(v) Wholesale2B ($24.99/month) – Available with both Shopify and BigCommerce

 5. Importer and Manufacturers

If getting higher profits is your aim, you need to ditch the idea of going for the dropshipping marketplaces. For good profit margins, you need to work with the importers and manufacturers. 

It’s preferable to choose the dropshipping marketplaces when you are new to the business. However, when you get a good grip, you should definitely work with importers and manufacturers. This is because here you let go of the middle man (the dropshipping marketplaces) resulting in more profits for you.

When you decide to work directly with the manufacturers, keep the following points in mind:

(i) They have an average threshold of product volume. This makes it difficult for someone new in the business to meet.

(ii) You will need to do a lot of work in terms of managing the inventory because working with manufacturers and importers do not offer integration with the e-commerce platform.

For the above-mentioned points, we recommend you to work directly with the manufacturers only when you have successfully established your business in this field.

When you are ready to cut off the middleman, you can search for manufacturers in the online directories. To find domestic manufacturers use Import Genius, ThomasNet, and Maker’s Row. Again, to find international manufacturers use Sourcify, Alibaba, and IndiaMart directories.

E-Commerce Marketplaces Vs E-Commerce Platforms in Dropshipping Business

There are two options while choosing where you are going to sell your products.

One is the e-commerce marketplaces like Amazon, and the other is building your own website on an e-commerce platform.

With popular marketplaces like Amazon, you get two benefits.

First, it is easy to set up and second, they are popular, and people trust these sites. However, they also come with the limitation of adherence to strict terms of service. Plus, you will lose a lot of freedom as a merchant.

The alternative is the e-commerce platform, where you are free to build your own website and run it as you see fit.

We recommend this option as this will give you an edge over the competition. Just consider your particular dropshipping supplier as some platforms offer direct integration. For example, if you want Oberlo as your dropshipping supplier, you should have your store on Shopify.

Arranging the Finances for the Dropshipping Business

Yes, the cost is low for starting a dropshipping business in India. However, you still need to arrange the finances for running the website, buying inventory, marketing, and shipping. Therefore, we have come up with the following list to help you get your business started.

1. Ecommerce Grant

Ecommerce grant is the best finance avenue as it is free. However, you can only choose to go with this if you are ready to wait for a long time and fill up a long application form.

2. Business Credit Card

You have the option to go for a business credit card if you are not getting approved for a loan. In this option, you can draw money for a pre-defined period of time without interest. After that, you need to pay interest based on the market prime rate.

3. A Business Line of Credit

Here, you will get a pre-approved amount for financing. You can draw an amount as per your requirement (limited by the pre-approved amount) and pay interest only on the amount of money you draw.

4. Inventory Financing

If the wholesale prices of the suppliers are too much for you, you can opt for inventory financing. In this, a lender lends you money with purchased inventory as the collateral. Pay in time to avoid repossession of the inventory.

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Date: Online & 27th Feb (Sat)
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Wrapping it up!

This was all on how to start a dropshipping business in India.

The business model for drop shipping business is easy. However, the competition is tough. Work on a great concept to set you apart from the rest and have a full-fledged marketing strategy in place. These will allow you to achieve success in this field.

Starting a business in Dropshipping Business may seem tedious in the beginning. But you have to remember that success does not come in one day. You have to keep working patiently towards it to start reaping the returns and the profits.

In case of any doubts about what is Dropshipping Business? Feel free to ask us in the comments.

Enrolling in a Digital Marketing Course will help you learn how to start a dropshipping business in India in a conversion-oriented manner.

The dropshipping business model is a stress-free method of building a business, especially for an eCommerce entrepreneur. It has several advantages that can help create a successful business. With careful considerations as well as planning, the benefits of the models can be capitalized upon, and you can henceforth build a profitable business.

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