The retail landscape has dramatically shifted in recent years. While traditional brick-and-mortar stores continue to adapt to changing consumer behaviors, online shopping has become the norm for many. This digital revolution has opened up opportunities for entrepreneurs, especially those with limited resources. 

But how can a budding entrepreneur compete with established giants and capitalize on this growing online market? The answer lies in a business model that’s both simple and powerful: dropshipping. 

We’re taking a deep dive into the dropshipping business. It’s a great way to start your online business quickly and easily. In fact, with dropshipping, you can start your business for as little as it costs to create and host a website.  Ready to take the plunge and turn your entrepreneurial dreams into reality?

What is dropshipping?  

Dropshipping is a streamlined form of retail business where the seller accepts customer orders but does not keep goods sold in stock. That may seem a bit confusing at first. How are you supposed to sell products when you don’t have any inventory? Is it a scam?    

When a customer orders, the product is purchased directly from third-party suppliers who ship it straight to the customer. The approach eliminates the need for warehousing or upfront investment in stock, making it a highly accessible option for those new to online business.  

Dropshipping has relatively low startup costs since you don’t need to buy tons of supplies or products to sell. Without investing in inventory, business owners can focus on building their brand, marketing to their audience, and providing excellent customer service.  

This model also offers flexibility. The dropshipping method allows business owners to operate from anywhere with an internet connection, making it an ideal choice for those looking to start a business with minimal risk and maximum scalability. 

How dropshipping works  

The dropshipping eCommerce model takes the order fulfillment process out of your hands. This business model follows a streamlined process that removes the need for inventory management and direct handling of products.  

To help you understand the dropshipping model better, here is a step-by-step breakdown:  

1. Select and list products. Business owners partner with dropshipping suppliers to select products that fit their business niche and add these to their online store. These suppliers can be found through AliExpress, SaleHoo, or Spocket. Doing so makes it easier for retailers to offer various items without holding any stock.  

2. Customer places an order. When a customer visits the online store and places an order, the business owner receives the payment and order details. At this point, the business owner has collected funds but hasn’t yet paid for the product.  

3. Order is forwarded to supplier. The business owner then forwards the order and customer details to the dropshipping supplier, who charges the wholesale price for the product. This cost is lower than the retail price the customer paid, allowing the business owner to profit.  

4. Supplier ships directly to customer. The supplier handles order fulfillment, packaging, and shipping directly to the customer, removing the need for the business owner to manage shipping logistics. This seamless process enables quick and efficient delivery.  

5. Customer receives the product. The customer receives their order, and the business owner continues focusing on marketing, customer service, and scaling the business.  

Dropshipping business example 

Here is an example of what a dropshipping business might look like. We have Renata, a makeup artist living in New York City.  

She wants to grow her career in her industry. In addition to teaching people how to enhance their natural beauty, she wants to provide them with the necessary makeup and tools.  

She browses the internet to learn how to start a business. Then it hit her. Where should she store items in her 300-square-foot apartment? And will she be able find a suitable yet budget-friendly physical store? The property is expensive in the city, and she can’t afford to take out a new lease for storage space and a startup shop. 

Enter dropshipping.  

All Renata needs is an eCommerce store where she can start a dropshipping business. She selects the products she wants to sell, finds a supplier, and every time someone orders makeup or tools from her site, she passes that order along to the dropshipping supplier.  

The supplier then packages and ships the item to the customer. In this scenario, Renata never touches the product (and this process doesn’t have to be disclosed to the end buyer, so they’ll be none the wiser). 

Is dropshipping right for you?  

Dropshipping can be an excellent choice for those new to eCommerce or looking for a low-risk way to start an online business. However, it also comes with unique challenges.   

Here’s a closer look at the pros and cons to help you decide if it fits your business goals.  

Pros of dropshipping  

• Low startup costs. Since dropshipping has low inventory cost, it reduces financial barriers to entry. You can launch your business with minimal capital, investing mainly in your website, marketing, and branding.  

• Location independence. Since dropshipping is managed online and relies on multiple suppliers or contracted vendors for product storage and shipping, business owners can work from anywhere with an internet connection. This flexibility is ideal for those seeking freedom in their work environment.  

• No inventory management. Dropshipping removes the need to handle inventory, packaging, or shipping logistics. This allows you to focus on marketing and customer service. Reliable suppliers handle the fulfillment process, so you only need to manage orders and build your brand.  

• Scalability. Scaling a dropshipping business is more accessible than traditional retail. You don’t need to worry about stocking more products or expanding storage space. As demand grows, you must develop your product offerings and improve customer service.  

Cons of dropshipping  

• Lower profit margins. Since dropshipping products are typically sourced wholesale, profit margins can be slimmer than other retail models. High competition in popular niches can also limit the ability to raise prices without losing customers.  

• Reliance on suppliers. Your business depends on your dropshipping suppliers for product quality, accurate inventory levels, and timely shipping. Since suppliers handle order packaging and shipping, delays or issues can affect customer satisfaction and your brand’s reputation. Even though you aren’t directly handling the product, negative reviews and feedback on the packaging issues and shipment will reflect on your dropshipping store.  

• High competition. Dropshipping is a popular business model with low startup costs and ease of entry. Many sellers may offer similar or identical products, often leading to price wars and the need for unique branding and marketing to stand out.  

• Limited control over branding. Since suppliers handle product packaging and shipping, it can be challenging to personalize your products or create a unique unboxing experience for customers. Building a strong brand identity in dropshipping requires creative marketing and excellent customer service to differentiate your business.  

Setting up your dropshipping business: A step-by-step guide  

Are you ready to start a dropshipping business? Here is the information you need to kickstart your dropshipping journey.  

Step 1: Choose a profitable dropshipping niche  

Select a niche that balances demand and competition. Use tools like Google Trends, social media insights, and industry reports to identify product categories with strong demand but less saturation.  

Consider sustainable niches that are not overly trend-dependent. Doing so draws consistent customer interest and ensures business growth.  

Step 2: Find a trusted and reliable supplier  

Explore leading supplier platforms 

As with most things nowadays, an internet search is a good place to start. If you aren’t finding many options by searching “dropshipping supplier,” try going beyond page one of the search results or expanding your search with other terms like “supplier” or “eCommerce distributor,” along with terms relating to the products you’re interested in selling.  

Popular platforms like AliExpress, Salehoo, and Spocket offer thousands of products across multiple niches. Each platform provides unique features—AliExpress offers low prices and broad availability, while Salehoo provides vetted suppliers and quality assurance.  

Can’t find what you want on the Internet? Try contacting the manufacturer of your desired goods directly. Those manufacturers can provide you with information on their vendors and suppliers, and perhaps even set up a connection. And then there’s always the possibility that they’ll work directly with you, so don’t hesitate to ask! 

If you want to make sure you’re choosing a reliable supplier, consider ordering some of your potential products for yourself and testing them out. 

Evaluate key supplier factors 

Find dropshipping suppliers with competitive wholesale prices, reasonable shipping costs, quality control measures, and reliable delivery times. Ordering product samples from each potential trustworthy supplier can help ensure they meet your standards before launching.  

Review the suppliers’ business license — have other customers left reviews? If so, do they trend positively or negatively? Find out their average shipping time and always read any contracts thoroughly before signing. To avoid potential issues, establish clear pricing, shipping, and returns terms with each supplier.  

Step 3: Build your online store  

Select an eCommerce platform that aligns with your technical skills, budget, and business goals.  

You don’t need to start with anything complex right away. You can begin with a simple, basic eCommerce website to kickstart your dropshipping business. This gives you a solid foundation to start generating sales without overwhelming yourself with too many details. As your business grows, you’ll always have the flexibility to expand and upgrade. 

And if cost and pricing worry you, starting small doesn’t mean sacrificing quality. You can create a simple yet efficient website for less than the price of a few coffees.  

Here are things to consider when planning and creating your website: 

Domain name  

Your domain name is like your site’s digital address and often the first impression someone has of your site. A good domain name is short, memorable, and relevant. Avoid using excessive hyphens or random numbers—these can make it hard for people to remember, and if they can’t recall your domain, they won’t be able to find your site. 

Maybe you’ve heard that .com is king, but that isn’t necessarily true. A key tenant of a good domain name is relevance, so perhaps consider a .store or.shop for your eCommerce site.  

Hosting and bandwidth  

As your website grows and gains more online traffic, you want to ensure everyone has a good experience. If you don’t have a great hosting provider or enough bandwidth for your visitors, it can make for a poor experience. Think of slow-loading pages and pages timing out. 

DIY vs. professional design 

When starting your dropshipping business, one key decision is whether to build your website yourself or hire a professional. If you’re comfortable with a DIY approach, an AI-powered website builder can help you create a professional-looking site quickly and easily, without the need for technical expertise. 

However, if you’d rather focus on other areas of your business, such as sourcing products or marketing, hiring a professional to design your website might be the best choice. It can save you time and ensure that your site is built with a strategic plan tailored to your goals. 

Step 4: Set up your dropshipping business structure and financials  

• Choose a business structure. Form a limited liability company (LLC) or a similar structure to protect your personal assets and simplify sales tax. A limited liability company also lends credibility to your brand and can facilitate future growth.  

• Open a business bank account. Setting up a separate account for business transactions helps streamline finances and reinforces legal protection by separating business and personal assets.  

• Obtain an employer identification number (EIN). Registering for an EIN with the IRS is necessary for tax purposes and enables you to open a business bank account. This small step makes it easier to scale as you grow.  

Step 5: Choose your first products  

Want to know what kind of products you should be selling on your eCommerce website? Well, it depends on your market and, more specifically, your niche. 

Select items that meet high demand, low competition, and have dropshipping supplier availability. Look for high-quality products with solid reviews, favorable shipping options, and strong appeal to your target audience.  

Do a comprehensive market analysis instead of allowing your personal passions and interests to dictate your products. What does your ideal customer look like? By targeting a niche and understanding their spending habits, along with other demographics, you can cater the perfect selection of products to entice them into purchasing from your site.  

Another big thing to remember is that you shouldn’t be thinking about your pocketbook. Just because something may seem a little too expensive for you doesn’t mean there aren’t people willing to pay that amount. This is why market research is vitally important to your success.  

Need some ideas to start identifying products you can sell? Take a look at the following suggestions.  

• Items geared toward hobbyists  

• Hobbyists and side hustlers are booming right now, and many pay a pretty penny for a desirable item in their niche.  

• Clothing and accessories  

• People purchase clothing at unprecedented rates. If you’ve got an eye for style and trends and know your market, this can be a lucrative path to follow.  

• Repeat purchases or subscriber products  

• What’s better than making a sale? Making multiple recurring sales. You’re in a good position if you sell subscription products or products that need to be replaced often.  

Step 6: Optimize your store for SEO and marketing  

• Foundational SEO practices. Start by optimizing your product pages with targeted keywords, clear product descriptions, and compelling images. Ensure each page has a descriptive title tag and meta description for search engine visibility.  

• Leverage Domain.com’s marketing tools. Take advantage of Domain.com’s suite of marketing tools to streamline SEO efforts and grow your eCommerce presence. Tools like email marketing integrations and social media advertising can enhance your reach, attract customers, and build brand loyalty. You can also create brand-centric designs for your website by leveraging website design services.  

• Build your brand identity. Building a solid brand identity is the best marketing strategy for startups. Use consistent brand colors, fonts, and messaging to establish a recognizable brand that stands out in the competitive dropshipping landscape.

Tips to grow your small dropshipping business  

Growing a dropshipping business requires strategic marketing, efficient order management, and a focus on customer satisfaction. Implementing these steps can increase your reach, improve customer experience, and build a strong, recognizable brand.  

Market your dropshipping business  

Effectively marketing your dropshipping store is essential to reaching your target audience and building brand awareness. Here are some top strategies to connect with potential customers and keep them engaged.  

Social media and multi-channel selling  

Social media platforms are excellent for building an audience and showcasing your products. Leverage platforms like Instagram, Facebook, and Pinterest to reach your target audience who spend their time online. Additionally, multi-channel selling lets you attract customers and boost visibility.  

Email marketing  

Email marketing is one of the most cost-effective methods for nurturing leads and encouraging repeat purchases. By using tools to automate and personalize your email campaigns, you can keep customers engaged with your brand and drive more sales over time.  

SEO for dropshipping  

Search engine optimization (SEO) is key to attracting organic traffic and establishing long-term visibility online. Optimizing your store’s content, images, and product descriptions will help you reach more potential customers searching for products like yours.   

Manage order fulfillment  

Efficient order fulfillment is critical in maintaining customer satisfaction and trust. Since we now have the advantage of technology, you should opt to use order management tools and automated notifications to ensure a seamless customer experience.  

Order management tools simplify fulfillment by tracking inventory, orders, and supplier communications in one place. This innovation minimizes delays and helps you process orders efficiently. As a result, you’ll have a positive impact on customer satisfaction.  

Additionally, automating notifications helps you keep customers informed on their order status, enhancing their experience and reducing support inquiries. You know how customers value transparency and timely updates. If your dropshipping store keeps customers informed, they are reassured that their product will arrive safely and securely.  

Scale your dropshipping business  

As your dropshipping business grows, expanding your market reach and providing a stellar customer experience becomes even more important. These strategies will help you scale effectively while retaining the loyalty of your customer base.  

Market expansion  

Growing your reach by selling on multiple platforms and expanding internationally opens new revenue opportunities. Start by identifying new marketplaces or countries with high demand for your products. Adapt your strategy to meet these new customer needs.  

Enhanced customer experience  

A positive customer experience is essential for long-term success. Responsive support, flexible return policies, and proactive customer service can help foster loyalty and build a brand that customers trust and recommend.  

Branding and personalization  

Creating a unique identity helps differentiate your business in a crowded marketplace. Custom domains and professional email addresses lend credibility while adding personal touches. For example, custom packaging builds a memorable experience for your customers.  

Advanced marketing strategies  

Utilizing advanced marketing strategies can help you maintain growth and profitability as you scale. By analyzing customer behavior, running targeted ads, and showcasing social proof, you can refine your marketing strategy and attract high-quality traffic to your store.  

Common pitfalls in dropshipping and how to avoid them   

While dropshipping offers low startup cost, it also comes with unique challenges that can impact your business if not managed carefully. Here are some of the most common pitfalls and actionable solutions to help you avoid them and keep your business running smoothly.  

Inconsistent supplier quality and shipping delays  

Challenge: Relying on dropshipping companies or suppliers for product quality and shipping can lead to inconsistent customer experiences, especially if suppliers vary in reliability.  

Solution: Test multiple suppliers to evaluate quality, delivery speed, and reliability. Build relationships with a few trusted suppliers so you have backup options if issues arise with one. Negotiate clear terms on quality and delivery standards to set expectations and prevent delays.  

Low profit margins  

Challenge: Dropshipping often yields smaller profit margins due to high competition and fixed supplier costs.  

Solution: Focus on branding and targeted marketing to increase perceived value and justify pricing. Offer bundles, upsells, and exclusive promotions to maximize order values. You can also work with suppliers to negotiate better rates as your business scales.  

High competition  

Challenge: Dropshipping’s popularity means facing stiff competition, especially in popular niches.  

Solution: Differentiate your brand by focusing on a specific niche and crafting a unique brand. Offering exceptional customer service, a professional website, and personalized touches like branded packaging can help you stand out.  

Customer service issues  

Challenge: When customers encounter issues, such as product defects or shipping delays, they often contact your business rather than the supplier, which can be challenging to manage.  

Solution: Offer proactive customer support by setting clear shipping expectations, handling issues promptly, and maintaining transparency about timelines and policies. Responding quickly to questions and providing a clear returns process can help maintain trust and satisfaction.  

Start your dropshipping journey with the right tools  

Starting a dropshipping business offers a low-risk, flexible way to dive into the world of eCommerce. With the right tools, a solid plan, and a bit of creativity, you can turn your vision into a thriving eCommerce store. Remember, building a successful dropshipping business takes time, dedication, and smart decisions along the way. 

To set yourself up for success, start with the right foundation—like a professional website that can grow with your business. At Domain.com, we offer affordable, easy-to-use tools to help you create a stunning online store and manage your brand with confidence. From reliable hosting to a user-friendly AI-powered website builder and powerful marketing tools, we’ve got everything you need to get started.