TL;DR: Dropshipping is a popular business model. Merchants who dropship on Shopify make up to $100,000 yearly as a side hustle. Experienced Shopify dropshippers earn as much as $2 million to $10 million in just over one year. To dropship on Shopify and make bank, you must choose a lucrative niche, have reliable suppliers, build your Shopify store thoughtfully, get the word out about your store, manage your finances professionally, and automate chargebacks to prevent losses.
Dropshipping is a retail business model where a merchant doesn't hold products it sells in stock. They purchase items from third-party wholesalers/suppliers upon demand and ship directly to customers.
Thus, the dropshipper, the merchant never sees or handles inventory. By sidestepping the cost of upfront inventory purchase, packaging, warehousing, and shipping, one can quickly build a highly profitable eCommerce business without the ancillary overhead expenses.
The dropshipping market size has grown significantly over the years. Analysts predict the vertical could be worth as much as $476.1 billion by 2026. The widespread use of smartphones and mobile commerce also means dropshipping on platforms like Shopify has become one of the most popular online business models.
If you want to break into eCommerce without the hassle of building an online business from scratch, dropshipping on Shopify is a reliable option.
Evolution of the Dropshipping Business Model
You might not know this, but the concept of dropshipping has been around since the 60s and 70s. Companies like JCPenney & Sears used mail-order catalogs to advertise various items. As their business grew, they struggled to meet customer demand. Hence, they developed fulfillment warehouses to speed up the process.
Other companies like CompuCard saw an opportunity to list items (they didn’t have in stock) in their catalog for a makeup price. Upon customer demand, they purchased items from the fulfillment warehouses and delivered them to the customers. That gave birth to the dropshipping model. That was the first form of major-scale dropshipping.
Then came the internet and online shopping era.
As folks embraced the virtual method of buying items, the dropshipping model gradually grew in authority. And with the establishment of eCommerce behemoths like Amazon, eBay, Aliexpress, and Shopify, dropshipping became an integral part of eCommerce. It simplified online commerce, enabling anyone to create, expand, and thrive in business.
Yet, the flexibility and low-entry barrier of dropshipping means increased competition and slim profit margins. But that doesn’t mean a “nail in the coffin” for dropshipping business. In fact, estimates suggest the global dropshipping market could reach $301.11 billion in 2024, indicative of a growing business model. It’s also worth noting that this is the first year the global dropshipping market will exceed $300 billion after a 23.7% uptick in 2023.
The rest of this article will guide you through the ever-changing dropshipping landscape to help you build a successful business.
How to Dropship on Shopify
Shopify has re-invented dropshipping since purchasing Oberlo in 2017. They integrated the app more deeply to connect Shopify merchants directly with AliExpress and their network of suppliers and manufacturers. In 2022, DSers partnered with Oberlo, replacing it as the official Shopify dropshipping partner.
Shopify says many dropshippers on their platform make up to $100,000 yearly as a side hustle. There are also exceptional cases of merchants making $2 million to $10 million in just over one year.
But how does dropshipping on Shopify work? Here’s how:
- Buyer visits your Shopify store and makes an order.
- Your Shopify store automatically transmits the order to your preferred dropshipping supplier.
- Your dropshipping supplier charges you for the product and shipping costs (while you retain the profit –the difference between the sale price and the cost of goods sold).
- The dropshipping supplier prepares and ships the shopper’s order to their preferred address.
That’s the roof-top view of how to dropship on Shopify. However, the step-by-step guide to the dropshipping business isn’t that straightforward. It involves deciding what to sell, sourcing a reliable dropshipping supplier, building your Shopify store, managing your money, getting the word out about your dropshipping store, and managing customer disputes.
Let’s break that up into easily digestible bits.
How to Choose a Dropshipping Business Idea
Choosing a profitable dropshipping business idea is critical in establishing a lucrative online store. There are two ways to go about this:
- Select a niche that aligns with your interests and passions.
- Look at popular products that you can sell with less marketing.
In either case, you must conduct thorough market research to understand current trends, consumer demands, and the competition. Tools like Google Trends and social media insights on TikTok and Instagram can be helpful here. You can also scan the Shopify platform to identify popular and emerging niches. To do that, you can use the Shopify URL Functions:
- Navigate to a preferred popular store
- Add the function "collections/all?sort_by=best-selling" to their standard URL to sort best selling products. For example, https://abcwebsite.com/collections/all?sort_by=best-selling
This quick competitor analysis helps you choose easy-selling products. But it doesn't end there. You must also evaluate the potential profitability of different niches, considering your target market's average profit margins, demographics, preferences, and purchasing behavior.
Other points to consider when choosing your business idea include the following:
- Demand pulse: Check if your niche has seasonal demand fluctuations. Some niches have peak sales during specific times, while others have consistent demand.
- Regulatory climate: Be aware of any legal or regulatory considerations related to the products you plan to sell.
- Scalability: Evaluate the scalability of your chosen niche.
- Branding: Choose a niche that allows for effective branding, as it helps differentiate your store and create a connection with your target audience.
It may be challenging to stand out and build a customer base if you choose a niche with too much competition.Choose a niche, understand what works in the industry, and improve your offering to be better than the convention. The most successful products solve actual user needs.
That brings us to the next step:
How to Find a Reliable Dropshipping Supplier
Finding a reliable dropshipping supplier and wholesaler is tedious due to the quantum of fake suppliers in the market. The survival of your business depends mainly on the wholesaler you choose to work with. Therefore, sourcing a reputable wholesaler is a task you must take seriously. Use these tips to find a reliable dropshipping supplier:
- Research and Identify Potential Suppliers: Do a standard Google search with multiple keywords (e.g., electric bulb wholesalers in x country, electric bulb suppliers in y country), scan industry directories, and attend trade shows or B2B sessions to discover reputable suppliers.
- Check Supplier Reviews and Ratings: Look for reviews and ratings of potential suppliers. Platforms like Alibaba, AliExpress, and other supplier directories often feature customer feedback that can provide insights into the supplier's reliability, communication, and product quality.
- Verify Legitimacy: A legitimate supplier should be transparent about their business details.
- Assess Responsiveness: Contact potential suppliers to assess their responsiveness and dropshipper-friendliness. Some suppliers may offer tailored services for dropshipping businesses, like blind shipping, automated order processing, and inventory management.
- Request Samples: Before committing to a partnership, request product samples to experience the product firsthand and evaluate whether it meets your customers' standards.
- Check Manufacturing Processes: Depending on what you plan to sell, ensure the manufacturing meets regulatory standards and ethical practices.
- Evaluate Shipping Times and Costs: Reliable and efficient shipping with transparent costs is crucial for customer satisfaction.
- Negotiate Terms and Pricing: Ensure the terms are favorable for your business's profitability.
- Understand Return Policies: A reliable supplier should have clear procedures for handling returns and exchanges to help you maintain customer satisfaction.
- Have Multiple Suppliers: Consider working with multiple suppliers to diversify your product sourcing and reduce the risk of disruptions.
With all that said, here are some notable red flags of fake dropshipping wholesalers:
- Vendors offering products to the general public.
- Suppliers with inflated upfront fees or ongoing membership fees to access their product catalog.
- Lack of a clear and reasonable return policy, unrealistic promises, such as guaranteed profits, extremely short shipping times, or product exclusivity.
- Limited business information with no physical presence of the supplier.
- A pattern of negative feedback or bad reputation.
Be aware: Some wholesalers may have a minimum initial order size. This can cause complications if your average order size is below the minimum. In this case, consider pre-paying the supplier to build a credit with them to apply against your dropshipping orders. This allows you to meet the supplier's minimum purchase requirement without placing a large order upfront.
How to Build a High-Converting Shopify Dropshipping Store
Starting your dropshipping business on Shopify is easy and affordable. You don’t have to be a developer to create your store. Shopify has everything you need to set up your eCommerce and grow your business, from marketing automation to product selling and payment processing. You can effectively manage orders with a few clicks while your dropshipping partners handle the rest, freeing up time for you to focus on traffic-building and customer relations.
But to dropship on Shopify and make bank, you need a website that appeals to your target market. Here's how to build your Shopify dropshipping store:
- Create an account on Shopify. Visit the Shopify website and create an account. Shopify will request information about you and the company you want to set up.
- Choose a Shopify theme. With Shopify's plug-and-play system, you can easily customize your store's look and feel using their store builder and themes. Dawn, Sense, and Ride are among the most popular themes.
- Design your brand. Customize your Shopify store with your business name and logo, add product collections, create your navigation and checkout, and add other essential aspects of your store, such as a contact page, FAQ, about us, and policy pages. You can easily change photo backgrounds without Photoshop experience using Shopify's AI editor. The editor can suggest backgrounds and styles that match existing product images in your library.
- Set up DSers and connect your AliExpress account. Dsers is a dropshipping tool for AliExpress, which you can easily integrate with Shopify. You can install Dsers from the Shopify App Store. You must link your AliExpress account with Dsers to import products to your Shopify store.
- Import products to your Shopify store. Import your niche products on AliExpress with Dsers directly to Shopify.
In today's competitive market, you can only stand out by building a solid brand identity and offering unique selling propositions. It's essential to consider your target audience's preferences when developing these strategies to attract and appeal to them effectively.
Pay attention to each product photo and description. You can also use AutoDS to automate the entire dropshipping process, product finding, importing products, monitoring inventory, order fulfillment, and more.
How to Manage Your Finances
The fundamental principle of business finance is to treat your business as a distinct entity from you. That has legal and sustainability implications, as mixing personal and business accounts is a significant red flag for the IRS.
Ideally, you should create a separate business account, establish a clear operating budget, monitor cash flow, set sustainable pricing, use technology to manage cash flow, have a fair returns policy to avoid excessive chargebacks, conduct regular financial analyses, plan for sales tax as applicable to your state, maintain an emergency fund, and stay informed about industry trends for sustained growth.
Again, consolidate all your business finances into a single checking account. That account should serve for revenue deposits and expenses. Consider obtaining a dedicated business credit card solely for business expenses and dropshipping inventory acquisitions. That’s especially useful in maximizing rewards, especially with travel-centric reward cards, given the frequent supplier transactions.
Regarding incorporations and business licenses, the regulations may vary depending on whether you dropship on Shopify from a home office or exclusively online. Research the local laws and regulations in your area to determine what kind of permits or licenses, if any, are necessary for your business.
How to Market Your Dropshipping Business
While no one-size-fits-all marketing strategy exists for every dropshipping business, you still have proven marketing best practices that secure the bag. Leverage these strategies to drive traffic to your store and maximize results:
Content marketing is one of the most rewarding and sustainable marketing strategies. Consider blogging and creating social media content around your niche. The caveat is to refrain from overselling. Keep your content mostly entertaining and educational. But don’t forget to add a call to action to every content.
Email marketing produces great results in helping you build lasting relationships with customers and generating repeat purchases. Create funnels on your website and content to collect emails. And boost sales by sending personalized newsletters like promotional offers, product recommendations, and informative copies. You can integrate Shopify Inbox for free in your Shopify store to transform one-off engagement chat into repeat interactions via emails.
Facebook, Instagram, and Google Ads.
Running paid ads on major platforms that align with your niche products helps you reach prospects who might not ordinarily interact with your product. But for your ads to yield needed results, you must be intentional about the metrics that matter, target the right keywords, and use organic post performance as a test run for ads. That is, only boost posts/content that have already received significant organic attention.
Suppose you're like most dropshippers operating on a limited marketing budget. In that case, influencer marketing on TikTok, Instagram, or Twitter can be an affordable way to reach your target audience. Research shows that people trust humans more than brands. If you choose influencer marketing, though, it's best to negotiate an affiliate fee with the influencer instead of a flat rate. This way, they'll earn money for each sale, which will cost you less.
Participate in Communities.
It's a great idea to connect with groups of people who share your interests. You can initiate discussions with potential customers on Quora, Reddit, LinkedIn, Facebook Groups, WhatsApp, or other online forums. Don't be too pushy while interacting with the communities. Focus on providing value and building long-term relationships with potential customers. If you can establish trust in your brand, customers are more likely to purchase from you.
Use Mobile Marketing.
Mobile marketing for dropshipping involves promoting and selling products through mobile devices. Mobile marketing is essential due to the widespread use of smartphones. Businesses reach users conveniently through SMS marketing or optimize for mobile search and leverage social media dominance on mobile. The goal is to tap into the growing mobile user base, enhance visibility, and drive sales for a dropshipping business by catering to the preferences and behaviors of mobile users.
How to Manage Dropshipping Customer Disputes
Like every eCommerce vertical, chargebacks are a significant concern for dropshippers. They impact your cash flow and have long-lasting adverse effects. Too many chargebacks lead to payment holds or even getting banned from Shopify.
Some chargeback cases are unavoidable, especially when someone makes a transaction and comes back to dispute it as unauthorized because they have buyer’s remorse.
However, there are many chargebacks you could avoid by setting realistic expectations for customers, providing excellent customer service, and preventing technical errors like double billing.
Again, ensure your products are of high quality and beware of con artists and liar buyers. Further, set realistic delivery expectations, use reliable payment gateways that understand dropshipping, and ship products with tracking to eliminate confusion on order arrival.
Above all else, use chargeback automation to recover those unavoidable chargebacks, save time in dealing with customer disputes, and reduce their impact on profits. Chargeflow offers advanced fraud prevention techniques and tools to prevent chargebacks before they occur, which is ideal for boosting the defense system of your dropshipping store. Check out Chargeflow today and seize this excellent opportunity to kick chargebacks out of your dropshipping business!
Dropship on Shopify: Final Words
Dropshipping is the easiest way to start a profitable online business with less investment. It’s also a great way to test your business model, find what works, and build your reputation before going all in. More so, with dropshipping on Shopify, you can sell globally since many dropshipping wholesalers offer worldwide warehousing and fulfillment.
While building a successful dropshipping business takes time and effort, anyone can do it. It’s not rocket science. If you want to dropship on Shopify and succeed, the tips shared in this article are your answer. Specialize by choosing a niche based on people's needs, avoid inventory hiccups by sourcing from reliable suppliers, build your Shopify store with a great theme, manage your money like a pro, invest in organic and paid ads, and automate customer disputes to prevent losses. Do these things, and you'll soon achieve eCommerce success.
Many others are already enjoying the dividends of the dropshipping economy. Now’s your turn!