A Complete Guide To Starting A Dropshipping Business In 2024

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The post A Complete Guide To Starting A Dropshipping Business In 2024 appeared first on ClickFunnels.

Some people are saying that dropshipping is dead but we would argue that it’s still a viable way to get into ecommerce.

Here’s our complete guide to starting a dropshipping business in 2024…

Introduction to Dropshipping

What is Dropshipping?

E-commerce is a business model where you sell products online.

Dropshipping is an e-commerce fulfillment method where you don’t carry the inventory yourself.

Instead, when a customer places an order on your website, that order is forwarded to the product supplier who then ships the product to the customer.

Making the distinction between the business model (e-commerce) and the fulfillment method (dropshipping) is important.

If your goal is to build a successful ecommerce business then it doesn’t make sense to get attached to any particular fulfillment method!

What are the Dropshipping Pros and Cons?

There are a lot of business gurus on YouTube who promote dropshipping.

They present it as the be-all-end-all solution for aspiring entrepreneurs who want to build a location-independent business that would allow them to leave their 9-5, work from anywhere, and have a luxurious lifestyle.

The problem is that these gurus are painting a rosy picture of dropshipping in order to sell their expensive online courses.

The truth is that dropshipping, like any other e-commerce fulfillment method, has its pros and cons.

Dropshipping Pros

The main pro of dropshipping is that you don’t have to invest money in inventory upfront: you only pay for each product once someone buys it.

This means that if you don’t make any sales, you don’t have to pay anything to the suppliers. That drastically reduces the financial risk.

In addition to that, since the suppliers are handling manufacturing, warehousing and shipping, you don’t need to worry about any of that.

The suppliers can handle returns as well but it’s advisable to do it yourself. After all, if a customer has bought something from you, they will go to you for a refund.

But other than returns, all the logistics are taken care of, which means that you can focus on branding, marketing, and sales.

This combination of low financial risk and logistical support from the suppliers makes dropshipping the ideal fulfillment method for entrepreneurs who don’t have any previous e-commerce experience.

Dropshipping Cons

The main con of dropshipping is the lack of an economic moat.

An economic moat is a set of competitive advantages that protects your business from rivals that want to steal your market share.

Since pretty much anyone can launch an online store with dropshipping, you will always have to deal with competitors that are selling the exact same products that you do.

In fact, you might find that there are literally thousands of stores selling the exact same products as you.

Because it’s so difficult to differentiate yourself from the competition under those conditions, drop shippers often find themselves in a race to the bottom where they are competing on price alone.

Moreover, consumers are becoming increasingly tech-savvy, which means that more and more of them are running reverse image searches to see if they can buy the same products directly from the supplier.

So you might end up in competition not just with other dropshippers but also with the suppliers of your products. This is especially true if you are using AliExpress.

In addition to that, since the supplier is handling all the logistics, it means that you don’t have any control over the products, the packaging, or the customer experience.

However, the customers who bought these products from you are going to blame you if they are unhappy with their purchases.

Finally, since dropshipping suppliers tend to be based in Asia, the shipping times can be a problem if you are targeting European and North American markets.

Consider that consumers in these markets are used to shopping on Amazon and local online stores where they can expect their products to be delivered within a few days.

They might be put off if they order something from your store and then have to wait for a month to get it!

How Much Money Do You Need to Get Started With Dropshipping?

Can You Start a Dropshipping Business With $0?

There are a lot of business gurus on YouTube claiming that you can start dropshipping with $0.

In theory, that may be possible, but in practice, you’d likely struggle to make any sales if your budget is literally $0.

Also, realistically speaking, it will probably take you at least 6-12 months until you get the hang of this whole dropshipping thing and start making some profit.

If you are in a desperate situation and need money NOW, dropshipping is not a viable solution for that. Getting a job is a much better way to stabilize your finances.

How to Set Up Your Life So That You Could Win at Dropshipping

The truth is that e-commerce is a long game so if you are serious about it, you need to set up your life in a way that will enable you to pursue your entrepreneurial dreams regardless of how long it will take to turn them into reality.

What we recommend is cutting your living expenses to the bone, getting a job so that you would have a stable source of income, and saving up enough money so that you could survive for at least three months in case you lose that job.

Ideally, once all that is done, you want to have at least $500/month left over after paying all your bills. That’s your dropshipping money.

If you can’t get a job that pays you enough to have $500/month left over, consider working overtime or picking up an additional part-time job and saving up $6,000. That will cover 12 months of dropshipping expenses at the $500/month rate.

With this setup where you have a job, an emergency fund, and discretionary income that you can allocate to dropshipping, you should be able to stay in the e-commerce game indefinitely.

Financial stability will also help you think clearly, make good decisions, and focus on the long-term growth of your business.

Don’t Fall for the Hype: Setting Realistic Expectations

There’s a lot of selective honesty, questionable storytelling and outright lying in the dropshipping space because the real business model of the YouTube gurus is selling you their online courses.

It’s important to have realistic expectations. No, you probably won’t become a millionaire by age 19, go from homeless to rich in 27 days, build a seven-figure business in 3 months, or whatever the latest clickbait is.

In all likelihood, it will probably take you a few years to get to the point where you can quit your job and focus on your e-commerce business full-time without sacrificing your financial stability.

But once you achieve that, you will be able to be your own boss, set your own schedule, and work from anywhere, hopefully while also making enough money to have the lifestyle you want!

How Much Money Can You Make With Dropshipping?

Dropshipping profit margins typically range between 10% and 30%.

This means that if you generate $1,000,000 in annual revenue, you will probably be making between $100,000 and $300,000 in profit.

Realistically speaking, your profit margins are probably going to be closer to 10% than to 30% because of the aforementioned lack of the economic moat.

After all, it’s extremely difficult to charge premium prices when customers can get the exact same product elsewhere for less.

That being said, you can definitely build an e-commerce business that brings in six or even seven figures in profit by using dropshipping as your fulfillment method!

Why Successful Dropshippers Eventually Move Away from Dropshipping

Dropshipping can be a great way to get into e-commerce.

However, as we already explained, this fulfillment method has some serious problems, most notably the lack of economic moat.

That’s why successful dropshippers tend to eventually move away from dropshipping:

They start working with industrial designers to create unique products, find reliable manufacturers who can produce them, and then gradually switch out their dropshipped offers with their private label ones.

All that gives them much more control over their businesses and enables them to widen their economic moats by offering unique, high-quality products at premium prices with fast shipping.

We would argue that building a private label e-commerce brand that you can then sell for at least seven figures should be your goal right from the start!

How to Start a Dropshipping Business

Step #1: Choose an Industry

The approach to dropshipping that you see on YouTube isn’t sustainable because it revolves around “winning products” aka trend hopping.

While you can certainly make money that way, it’s important to understand the difference between capitalizing on temporary arbitrage opportunities and building a real business.

For example, back in the spring of 2017 fidget spinners were the hottest ecommerce trend, and dropshippers who caught that wave early made a ton of money.

However, since it was just a temporary arbitrage opportunity, that revenue quickly dried up because consumers lost interest and moved on.

We would argue that if you want to build a real e-commerce brand that you can eventually sell, trend hopping is a waste of resources.

After all, just like the fidget spinner craze, most of these trends only last a few months, so you’d probably be better off ignoring them entirely.

Instead, we recommend choosing an industry that you are already familiar with, launching an e-commerce store that sells products that have proven demand, and committing to making it work no matter what.

For example, if you love hiking and camping, going into the outdoor clothing and gear industry might be a good idea. Why?

Because:

• You are already familiar with this industry as a consumer so you won’t have to learn everything from scratch.
• You belong to your target audience which will make it much easier for you to create offers, copy and marketing campaigns that resonate with potential customers.
• You are passionate about the outdoors which will help you stay consistent when building traffic-generating assets.

In theory, you could start an e-commerce business in some random industry that seems lucrative but you have no familiarity with.

In practice, though, why would you do that when you can instead go into an industry where you already have a bunch of advantages?

Keep in mind that building an e-commerce brand is going to be a long and arduous journey regardless of the industry that you choose.

However, if you have a genuine interest in something, it can help you endure the grind.

Ask yourself: am I okay with my entire life revolving around this industry for the next ten years?

That might help you put things in perspective!

Step #2: Niche Down

Okay, so now that you have decided on the industry, you want to niche down. What does that mean?

Choose a specific demographic that you are going to cater to initially. Ideally, it should be a demographic that you belong to yourself.

For example, if you are a female outdoor enthusiast, you could niche down to selling outdoor clothing and gear to women.

Generally speaking, the narrower your target audience, the easier it will be to get your business off the ground because you will be able to tailor everything to that particular demographic.

That’s why we recommend starting with the narrowest possible target audience and then gradually expanding from there!

Step #3: Build Your Online Store

You can easily build an online store with our software even if you don’t know how to code. Simply choose a store template and customize it with our drag-and-drop website editor.

Jakob’s Law is something to consider here. It’s a UX design principle which states that:

“Users spend most of their time on other sites. This means that users prefer your site to work the same way as all the other sites they already know.”

For example, if you are building an online store that sells outdoor clothing and gear, you want it to look similar to other online stores that sell outdoor clothing and gear because that’s what your target audience will expect.

Of course, we aren’t saying that you should straight up copy REI’s or Patagonia’s web design, but drawing inspiration from brands like that might be a good idea!

Step #4: Add Products to Your Store

We decided to partner with the dropshipping platform Zendrop to make it as easy as possible for you to find the right products and add them to your store.

Here’s how it works:

If you want to build a successful e-commerce business, it’s important to think in terms of offering solutions to problems as opposed to selling products.

For example, you can create a list of everything that a newbie hiker should take with them on an easy few-hour hike, go to Zendrop, find these products, and add them to your store.

Then you can use them to create a day hike bundle and market it to women who want to get into hiking but don’t know where to start.

That way, instead of selling a bunch of related products, you will be selling a solution to a specific problem that a subset of your target audience has.

You can do the same with clothing and equipment for longer hikes, camping trips, various weather conditions, etc.

Ideally, you want to order the various products that you are considering and test them so that you can pick the best ones.

Step #5: Build a Cart Funnel and Start Driving Traffic to It!

Now that you have added products to your store and created bundles that offer solutions to various problems, it’s time to build a cart funnel. What’s that?

It’s an e-commerce sales funnel designed to convert people in your target audience into paying customers by promoting your most popular offer.

Of course, since you just built your store, you don’t know which offer will be most popular, so choose the bundle that you believe is the most promising.

Once you have your cart funnel, start driving traffic to it with paid ads. Facebook, Instagram and TikTok ads can all work well.

In all likelihood, it will probably take a lot of experimenting to find the winning offer, optimize your cart funnel and figure out how to run ads profitably.

So don’t give up if it doesn’t work right away!

How to Grow Your Dropshipping Business

Okay, so how can you grow your business now that you are making some money with your dropshipping store?

Step #1: Do More of What’s Already Working

The easiest way to make more money is to do more of what’s already working. It’s the obvious solution but entrepreneurs often overlook it because it’s kind of boring.

Say, if you are driving traffic to your cart funnel with paid ads, can you 2x, 5x, or 10x your ad spend while remaining profitable?

In addition to that, you want to not just drive more traffic, but also optimize your cart funnel with A/B testing, which you can do with our software.

Max out your current customer acquisition channel first before worrying about adding more channels!

Step #2: Expand to Other Paid Advertising Platforms

All major social media platforms allow you to run ads so once you have mastered paid advertising on one of them, you can start expanding to others.

After all, you already know that your cart funnel is working. All you need to do now is figure out how to profitably drive traffic to it from several different platforms.

Step #3: Start Building Traffic-Generating Assets

Finally, you want to start allocating resources to building traffic-generating assets such as:

• A social media following
• An email newsletter
• A YouTube channel
• A TikTok channel
• A company blog

We recommend building a social media following first, then leveraging it to launch and grow a weekly newsletter and then finally starting YouTube and TikTok channels.

As for the company blog, SEO has become extremely competitive, so generating organic traffic with it may be difficult.

However, you can write up comprehensive guides on various topics related to your niche, publish them on your blog, and promote them on your social media, newsletter, YouTube, and TikTok channels when appropriate.

Building these traffic-generating assets will take time, probably several years but eventually they will enable you to become less reliant on paid advertising.

Also, out of all these traffic-generating assets, an email newsletter is the most valuable one so growing it should be your priority!

How to Move Away From Dropshipping

Okay, so now that you have an established online store that’s doing well, it’s time to start moving away from dropshipping and into private-label e-commerce.

Step #1: Hire an Industrial Designer to Help You Create Your Products

Obviously, if you want to go from dropshipping to private label, you can’t just steal the designs of your dropshipped products and then sell them as your own.

You will need to hire an industrial designer to help you create similar but unique products that are better than the dropshipped ones.

It probably makes the most sense to start with your bestselling product. Say, if your bestselling product is a dropshipped hiking daypack, hire an industrial designer to help you create your own hiking daypack that’s better than the one you are selling right now.

Getting the design right will probably be a difficult process that will require a lot of product testing.

Fortunately, you have the contact details of the customers who have bought the dropshipped backpack so you can ask them for help.

Tell them that they will get to keep the test backpacks that you send them as well as the final version of your private label backpack in exchange for candid feedback.

People love free stuff so you should have no problem finding beta testers!

Step #2: Find a Reliable Manufacturer That Can Produce Your Products

First, you will need to decide between domestic and overseas manufacturing since both have their pros and cons.

Either way, you want to go and visit promising manufacturers in person, talk to the people in charge, and order samples to see whether they can follow the designs that you provided.

Look for manufacturers that have a relatively low minimum order quantity. If you are still in the testing phase, you don’t want to order more than a few hundred products at a time.

Also, be wary of manufacturers that offer extremely low prices because they are likely to engage in various unethical practices. You don’t want your brand to be associated with exploitation!

Step #3: Gradually Switch Out All of Your Dropshipped Products With the Private Label Ones

It will likely take you at least several years to move away from dropshipping by switching out all of your products one by one.

But once you are done with that, you will own a “real” e-commerce brand that you have complete control over!

Ecommerce Secret Sauce: Digital Products

We highly recommend reading our guide to customer acquisition because you need to make sure that your math is on point if you want to succeed with dropshipping.

There’s the obvious stuff that’s just basic common sense: your customer acquisition cost (CAC) cannot exceed your customer lifetime value (CLV) if you want to remain profitable.

And then there’s the principle that few understand: the one that can afford to spend the most to acquire a customer wins.

That’s something that our co-founder Russell Brunson learned from Dan Kennedy. Here’s how Kennedy explains it:

@russellbrunson

Whoever can spend the most money to acquire a customer wins #entrepreneur #entrepreneur101 #businessmotivation #entrepreneurjourney #russellbrunson

♬ original sound – Russell Brunson

But how can you outspend your rivals on customer acquisition when you are all dropshippers selling the same products by running ads?

Simple: if your competitors are only selling physical products, you can get ahead by selling both physical and digital ones.

For example, why not create an eBook guide for newbie hikers, price it at $7, and then add it to your day hike bundle cart funnel as a cross sell?

You can also do the reverse: build a book funnel for the eBook and then cross sell the day hike bundle.

That can help you increase your customer lifetime value. And the higher your customer lifetime value, the more money you can spend on customer acquisition!

A Word of Caution: Be Careful About Lifestyle Inflation Because Dropshipping Can Be Extremely Unpredictable!

Lifestyle inflation is a common trap that successful dropshippers fall into as they start making good money with their e-commerce businesses.

It seems that the ones who luck out and hit it big in less than a year are the most vulnerable to this temptation.

And it’s understandable: if you suddenly find yourself making more in a month than you used to make in a year when you were working a minimum-wage job, of course, you will want to upgrade your lifestyle!

Add to that all the dropshipping gurus who are flexing their homes, cars, and vacations on social media and you might even start feeling that you are missing out if you aren’t keeping up with them.

But the problem is that the world of dropshipping is a kind of Wild West of e-commerce where you can feel like you are printing money one month and then find yourself in the red the next month. It’s extremely unpredictable.

Consider that you might get scammed by a supplier, banned from social media, undercut by one of your myriad competitors, etc. These are all common occurrences. Something like that is bound to happen sooner or later.

Even entrepreneurs who have been dropshipping for years aren’t immune to all this. There are plenty of horror stories on YouTube where experienced dropshippers lost tens or even hundreds of thousands of dollars.

That’s why it’s unwise to inflate your lifestyle under the assumption that the gravy train is going to continue. It can stop at any time.

Of course, we aren’t saying that you should live like a pauper despite making a ton of money from your e-commerce store. It’s okay to go on a nice vacation now and then.

But you might want to hold off on taking on financial commitments that would significantly increase your living expenses: moving to a luxury apartment, buying an expensive car, etc.

Keep in mind that as your e-commerce business matures, the revenue is going to become much more predictable, especially once you move away from dropshipping to private label. You can always upgrade your lifestyle then!

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