How to Start a Dropship Business

Although starting a dropship business can be accomplished in as little as a day, that doesn’t mean the job duties of this type of business are simple to complete. You’re not going to be raking in some big cash by doing some part-time work just a few days per month. It is important to have realistic expectations about your business if you’re going to be able to succeed when you want to know how to start a dropship business.

This means you’re going to need to make at least one investment of a critical resource: money or time. You’re also going to want to follow these additional steps to build a foundation for your business so that you can be successful in the future.

1. Check Your Local Laws Before You Begin.

In Alaska and Washington State, every business entity needs to have a business license. This includes a dropship business. Most other states aren’t as picky about who gets a license, but you will still need to check local laws. Some communities have specific zoning requirements about home-based businesses that could affect your overall structure. You may need to secure a commercial location or request a modification to the zoning of your property.

2. Decide on Your Business Structure.

There four basic forms of business structure from which you can choose for your dropship business.

1. Sole proprietorship.
2. Partnership.
3. Limited Liability Company.
4. Corporation.

The sole proprietorship is the easiest business form to get started. It usually doesn’t require any paperwork and you can start making money the instant you decide to go in business for yourself. You may need to file for permission to collect sales tax and other specific business tasks based on your community, but you won’t have to file or pay for business documents with your local Department of Revenue or similar oversight.

3. Request an EIN from the IRS [optional].

If you have decided that your dropship business is going to hire employees, then you will need to have an Employee Identification Number [EIN] from the IRS. This is the number that you will use for filing taxes each year and is often used to register for dropshipping accounts. Although this isn’t necessary for businesses that don’t have employees, especially sole proprietors who file one combined tax return, it is still free to do and can resolve a lot of potential issues for you.

4. Pick out the Product you Want to Sell.

You can dropship anything with your business, so it all depends on what you’re passionate about. Once you decide on the products, you’ll need to find a wholesale supplier that will give you a fair price on the items. You’ll then turn around and sell these items for a higher price and pocket the difference between the wholesale and retail price.

5. You Must Decide on Where You Will Market Your Products.

The two most common ways a dropship business gets started is to create an eBay account or an Amazon seller’s account. The costs of listing items in this way are usually quite low and the traffic exposure is quite high. This will limit the initial financial risks. Having your own website can ultimately pay more on each sale, but you’ll need to pay to host and maintain the site.

6. Choose Your Sales Strategy.

The way you market your business will determine how successful it will be. You need to put yourself out there in the world of the internet and target specific customer segments that are interested in the products that you’re selling. Be consistent with your sales strategy, but don’t be afraid to tweak it to different demographics to maximize sales.

7. Ship Items Out Quickly.

Being a dropshipper means you must have fast turnaround speeds to satisfy customers. You can’t let an order sit for a week and expect customers to be happy with that type of outcome. When you ship out items, make sure that you can track them as well. A common “complaint” is that items were not received. If you have a record for delivery, then you can fight a chargeback. Insuring packages may be an added expense you’ll want to include.

You’re not going to be able to work full-time as a dropshipper when you first get started. You will, however, be able to slowly build up your business profile and net revenues so that you can eventually start to make some money. When that happens, you’ll find that being a dropshipper is a business that can reward you will for your time and monetary investments.