How to Build a Successful Drop-Shipping eCommerce Business
There was a time in my life when I was struggling to figure out how I would support myself and my future family. As a student at Snow College more than 20 years ago, I remember being afraid I was going to get fired from my $5.50/hour job, which involved swapping out hardware and installing a thing they called Zip drives into the computers the school administration owned. I was way in over my head, with little experience in anything besides football, dancing, and dating.
That was in 1997.
I do remember thinking that there had to be a way for me to improve on my earning ability, and I was determined to find it.
I’m going to walk you through the process I followed starting more than 20 years ago, a model that has held up for more than two decades, to go from making so little income that I had to eat oatmeal for breakfast everyday to having several years that I’ve made over half a million dollars. In fact, I still own three drop-shipping ecommerce stores: ProHealthcareProducts.com, SweatshirtStation.com, and OnlineSafetyDepot.com. I use almost the exact same model for those stores as I used to start my first businesses, OuterSports.com and RobbinsSports.com.
If you’re interested in going beyond the outline of how to build a drop-ship ecommerce business that I share in this article and jumping into building your own drop-shipping eCommerce store now, you can enroll in the Udemy course I put together (about 7 hours of video and other content) to take you through the details of specific steps I take to build my stores.
My Own Drop-Shipping Ecommerce Story
An Automotive Store That Didn’t Get Off The Ground
Just after I’d finished my two-year degree at Snow College, my father and brothers showed some interest in starting a business together. My dad and one of my brothers were working as mechanics, and we felt strongly that we could take them out of the notoriously rough, negative environment mechanics often endure, and we could create an alternative that involved building a family business that would support my family, the families of as many of my six siblings as wanted to be involved, and my parents. It seemed like a great idea. We decided to create Robbins Automotive, and I went to work for over a year doing research and feasibility studies, getting my finances in order so I could inject some cash into the project, and working through the legal process for getting a business set up.
We were all new to doing business on our own, and there was a major obstacle for a group of people who had yet to emerge from modest financial circumstances. We’d need to get a loan for about $1.3 million to finance the project, including purchasing property, building the garage/office structure, and purchasing equipment and inventory. The thought of going into that much debt was overwhelming for most of the family, so we ditched the idea as quickly as it had been started.
Looking for Something Low Risk, High Reward
Having realized that there are lots of businesses that require a lot of financial risk in order to break out and become a business owner, I knew that I wanted to be my own boss and operate a business that would allow me to efficiently make more money than working at a job.
I turned my attention to the internet. Together with my brother, I built a website called RandomDeals.cc. We found a few purely random suppliers who would allow us to set up accounts with them without requiring an initial order (as many large wholesalers do), and we set out on RandomDeals.cc selling baseball equipment, outdoor products, truck parts, and something else I can’t even remember. It was certainly random.
The next phase of the operation was a company called OuterSports.com. We found a wholesale supplier of outdoor products in Salt Lake City (Liberty Mountain), and we went to work building a site around their product line, outdoor sports products.
Just over a year after building OuterSports.com, having seen some significant success with it, I split with my brother to open up a new store with my wife, RobbinsSports.com, a drop-ship company that focused on team sports products. Five years after starting that business, we sold it for $400,000, at which point we had reached our goal of having a net worth over $1 million. We were dumbfounded at how we’d gone from impoverished newlyweds to being millionaires. That’s the incredible power of the internet combined with the opportunity to serve as essentially an online sales arm for suppliers who are eager to win new customers. Many of those suppliers are decades behind on learning how to change update their distribution models and take advantage of finding customers through search engines and ecommerce marketing.
Your Drop-Shipping Store: A Checklist
Now that you’ve heard my success story, here is a quick summary of what it takes to build a successful drop-shipping ecommerce store:
- Set up a business entity
- Determine which kinds of products you want to sell
- Find wholesale suppliers and set up accounts with them
- Find hosting and set up a shopping cart system to sell online
- Drive more and more traffic to your website
That checklist seems simple enough, but there are lots of details behind many of those items. I’ll dig into each one.
Setting Up a Business Entity for Your Ecommerce Store
Most wholesale companies require that you have a couple
- A business entity registered with the state in which your business exists
- A federal tax id number
In most states (conservative ones anyhow), it is fairly easy to set up a business entity. For under $100, you can usually file articles of incorporation and set up an LLC with your state. When your state has been created as an entity, you’ll then want to get a tax reseller certificate, which is what most wholesale suppliers ask for when you set up your account with them.
You can obtain a federal tax-id number for your business by going to irs.gov and follow the instructions there to apply online for an EIN (employer identification number).
Determine Which Kinds of Products You Want to Sell
This process can be a fun one. What I typically recommend to people who are choosing their niche is to create a short list of items that they find personally appealing. For instance, my first two stores were outdoor gear and team sports equipment. Both of those were industries I was personally interested in.
You will ultimately spend hundreds of hours marketing your drop-ship store, so it makes the most sense to find a niche that is personally appealing to you. As I’ll discuss later, you’ll be writing product descriptions for your products that require you to know something about the products you’re selling. You’ll also be writing articles related to your product niche.
When determining which products you want to sell, you’ll also want to take a look at how competitive the market is for those products and assess whether you think you can jump in and compete with the others who are selling the same items or very similar ones to the types of products you’re considering.
To this point of product competitiveness, I will say this: I feel like a person who is dedicated enough can compete in almost any industry or niche through being persistent and following the guidelines for achieving success.
I’ve noticed that my choice of product line or niches for lines I decide to “carry” (more appropriately, “advertise”) in my store are driven by how impressed with one or two (sometimes several) suppliers I find whose products seem interesting and whose business seems like a good one to partner with. I’ve kept lists of suppliers in many different industries who I come across in my search for products to advertise, and I’ve built businesses around a specific supplier’s catalog more than once.
Finding Wholesalers and Setting Up Accounts
Once you’ve made a decision about what you’re going to sell, it’s time to set up wholesale accounts with suppliers whose products you can market on your website. It’s possible that you’ve already found these wholesalers as you searched for product niches.
Here are some strategies that I’ve seen work for me when looking for suppliers for the various drop-shipping stores I’ve created in the past:
- Do a Google search for phrases that identify suppliers who publicly advertise that they’re looking for new retailers. Craft your search to narrow down results by adding phrases that commonly exist on wholesalers’ websites that would identify them as open to doing business with you. For instance, if I were looking to sell boat parts, I’d do a search for boat parts “become a dealer”. Other phrases used by wholesalers who are open to online retailers include “dealer login”, “dealer application”, “reseller application”, “credit application” and other similar terms.
- Find an industry association (for example, I found the National Sporting Goods Manufacturing Association when I was searching for sporting goods wholesalers), and talk with them about members of their association about manufacturers or distributors they’d recommend, companies who are open to selling through online dealers.
- Go straight the the manufacturers of the products you want to sell. I’ve found that you can find people who will drop-ship for you by talking directly to the manufacturers/brands themselves. If the actual manufacturer requires you to be more established and purchase a large inventory to get started, ask them if they have distributors they can refer you to.
Avoid Purchasing Drop-Shipping Lists and Coaching
As you go about finding wholesale accounts, you will likely encounter “opportunities” to purchase drop-ship lists or coaching programs.
DON’T DO IT!
If you think about this scenario behind people selling drop-ship lists and providing coaching services, it doesn’t make sense to go that route to be successful with a drop-shipping ecommerce business model. Companies selling drop-shipping lists are selling the same list to thousands of competitors. I’ve seen these lists from people I’ve mentored in business. They are expensive, and the information contained on them are almost always worthless.
Drop-shipping list offerings are often accompanied by ecommerce coaching programs. I’ve never seen a coaching program be successful. I’ve actually tried a couple of them (including a “Mastermind” group from Scott Voelker and the “highly rated” Jim Cockrum coaching run by Nathan Bailey; both of these coaching programs were complete wastes of time and money), and I’m embarrassed to have ever thought they could be useful.
If you step back and think about it, if the stuff being shared in coaching programs worked as advertised, the coaches would be doing what they teach rather than making their money coaching other people on how to make the big bucks.
For many who are just getting started with drop-shipping, finding a good supplier or two can be a challenge, but as you persist and learn how the supply chain works for that industry, you’ll find that there are more suppliers available than you can keep up with.
Finding a Host and Setting Up Your Ecommerce Store
Once you’ve found suppliers who’s products can become the foundation of the content of your new store, you can build your store around their products and the niche you’ve found.
How to Work With Suppliers Who Need Convincing
In some cases, you’ll need to create a website before suppliers will set up accounts with you. This may seem like a chicken and egg situation, where you’re confused about which should come first. However, if you understand that suppliers want to know that you bring something to the table in terms of your ability to find new customers for their products, they’ll be more eager to partner with you and sell you their products at wholesale.
If you find yourself in a situation where you’re having difficulty finding suppliers who don’t want to work with someone starting from scratch, here’s what I recommend. You can go ahead and build a website that has content published on it that would be highly useful for the types of people who would be shopping for the products you want to sell. You can even begin building an email list, allowing visitors to your site to subscribe to your content and ultimately become your initial group for product offerings.
Suppliers are highly motivated to do business with a person or company that has carved out an audience of people who would be likely to purchase their products.
I once had an elusive sports uniform manufacturer that wouldn’t allow me to set up an account with them after repeated requests from me. Their reasoning was that they had a dealer with a big storefront located within a few miles of my home office. On my third attempt, I asked the person responsible for new accounts to Google the term “basketball uniforms”. They saw my site ranked up at the top of Google, clicked through and saw many of their competitors, and decided they wanted some “shelf space” in my store. My account was setup soon afterward.
Which Web Hosting Should You Use for Your Store?
This is an important topic when building your drop-shipping business. There are so many options out there for hosting a website, and so many alternatives for shopping cart systems, which are specific types of websites that make it possible for you to populate your store with products that people can add to a shopping cart and check out with, usually using a credit card for payment.
SaaS Ecommerce Platforms Versus Open Source Shopping Carts
Shopping cart setups come in two different major categories: SaaS (software as a service) ecommerce platforms and open source shopping carts. I’ll explain the difference and give you some examples of the two types.
SaaS ecommerce platforms are shopping cart setups where the web host and the shopping cart system are integrated into one offering. When you sign up for an account with a SaaS ecommerce provider, you are paying for the hosting part of your website as well as for the shopping cart software that the ecommerce platform company has built and set up on their servers.
Pros of SaaS Ecommerce Providers: The major pro you get with SaaS ecommerce providers is the fact that you don’t have to worry so much about handling the technical aspects of keeping your ecommerce store running. SaaS ecommerce businesses have an IT team that handles that, setting up your store on a cloud-based server for which they are responsible to maintain uptime and other aspects of site performance. Another benefit you get with a SaaS hosted ecommerce store is that they typically provide features and tools that draw upon their experience with thousands of stores, making it so that you don’t have to
Cons of SaaS Ecommerce Providers: SaaS Ecommerce providers tend to be much more expensive than alternatives, especially since they often base their pricing on how much your store is selling. For instance, BigCommerce has a standard plan that starts at $29.95/month, but if your revenue is more than $400,000 per year, you have to use their pro plan, which costs $299.95/month.
I have found many instances with Ecommerce SaaS platforms that the functionality lacks some things that seem obvious to me. However, there is really not much I can do about many of those issues with functionality because the platform tends to be a one size fits all.
The most popular SaaS ecommerce platforms include:
The other category for setting up an online store is installing an open-source shopping cart onto a web host that you choose. The most popular setup in this category is running the WooCommerce shopping cart system as a plugin to WordPress. WooCommerce has a ton of functionality, a lot of flexibility, and runs on top of WordPress, which means that you get a shopping cart system and a well-developed content publishing system together in one. I have several stores that
Pros of self-hosted open-source shopping carts include having much more flexibility with your setup and paying (normally) much less to get a similar setup to what you’d get with a SaaS ecommerce solution. You can do a lot of customization with an open-source shopping cart system.
Cons of using a self-hosted open-source shopping cart include needing to have the technical ability and having to spend the time to maintain plugins, keep up with security, and perform other kinds of IT tasks that you wouldn’t have to worry so much about with a SaaS hosted solution.
Marketing Your Drop-Ship Ecommerce Store
After your initial setup, you’ll be spending a lot of time in this section of the game plan: marketing your store.
Marketing your drop-ship ecommerce store is done similar to marketing for other kinds of websites. In my case, I have found that writing content and building links that will draw in traffic from Google is the most efficient way to spend my time. It’s also helpful to develop social media accounts and use them to send traffic to your store.
If you’d like to learn more about what marketing strategies are available to bring traffic to your store, you can check out my Internet Marketing Strategies overview, which explains everything from content marketing and search engine optimization (SEO) to paid traffic from Facebook to using affiliates to send traffic to your website.
Internet Marketing Strategies
Customer Service and Order Fulfillment
As you start getting orders coming in, you’ll need to develop a system for doing order fulfillment and customer service. You’ll want to get good at understanding shipping costs and understand the fulfillment methods used by your suppliers. You’ll want to determine whether you want to have your customers calling you on the phone or if you’ll provide other ways of communicating, such as through email or chat.
Good Luck with Your Store
I hope you’ve found this article helpful and motivational. The methods I’ve explained here are what I’ve used to build over 10 different stores that have provided me with millions of dollars of income over the past 20 years, and they’re still working well for me to this day.