Dropshipping is an unconventional method of retail business. Contrary to popular belief, the concept of dropshipping business is not too old. It has been in use for quite a while. Items that were sold through ads on the TV and radio often used dropshipping.
The use of dropshipping can be found in both brick and mortar and ecommerce businesses. Brick and mortar businesses often use dropshipping for larger items like furniture and equipment to avoid transport costs. Ecommerce big names including Zappos, Wayfair, and Fab and Gilt had used the same model in their earlier days.
Traditional Retail Model
In the past, it was not easy to open up a retail store. It requires an impressive amount of capital to lay the foundation of your retail business. The owner had to find a supplier to buy items in bulk from them. The items developed the inventory but reasonable space or warehouse was needed to store it. Furthermore, one required a franchise or storefront to sell the inventory to the customers. This storefront could be both online or brick and mortar.
Dropshipping is not established without capital but it still eliminates certain additional costs and hassles. With dropshipping, you don’t need to store inventory so you save considerably by having not to buy any warehouse or storage place. You can invest in an online or physical store to take orders for what you want to sell through other retailers and manufacturers.
How to Start a Dropshipping Business?
Before you plan to launch your own dropshipping business, it is suggested to learn its fundamentals. After you have a good understanding of how a dropshipping business works, you can prepare to launch your own. During your preparation, you will have to complete certain steps to establish a reasonable business.
A dropshipping business may not be like traditional business models but it requires the same commitment and dedication. It is wrong to expect an impressive amount of earnings in a short while. Just like any other business, you need to be patient with this one as well. When launching a new dropshipping business, keep your expectations realistic and keep a reasonable amount of investment in mind.
Time is Key
Apart from financial investment, you also need to invest precious time in a new dropshipping business. The more time you give to it, the better chances you have at excelling. In fact, experts believed that investing time is more important than a hefty stack of money.
With proper time invested, you will have access to learning about how the business works in a practical world. You will have time to identify the crucial aspects of the business and learn about managing the ups and downs.
Time also allows you to connect with the customers. You will eventually have a better understanding of the target market and develop solutions accordingly. You will be able to separate profitable ventures from those that don’t have any financial significance in the long run.
It is obvious that apart from time, a dropshipping business needs the right amount of initial investment. However, this is just a requirement. The more important aspect of building your business from the ground up is you. Instead of depending on marketers, developers and other business partners, in the beginning, make yourself the main part of the business. Of course, you can’t carry the entire heavy lifting on your shoulders but you must take part in every aspect. Make sure you are up to date with all the elements invested n your business.
Dropshipping Shipping Business Structure
Here are three common structures upon which you can start your dropshipping business:
This is the simplest structure you can use. However, since you are the only one responsible, it can create serious risks in terms of personal liability. On the other hand, the paperwork involved in a sole proprietorship is fairly minimal, earnings will be reported on your personal taxes and no federal business filings are required. In case your business fails or gets sued, your personal assets will be at risk.
Limited Liability Company (LLC)
In this structure, your dropshipping will be established as a separate legal entity. This will provide a bit more protection in terms of personal liability as compared to the previous structure. It is not entirely safe but better. You will also need to handle additional filings, and pay the incorporation and ongoing fees.
C corporations offer a good amount of protection for personal liability. However, they take more investment to establish and use double taxation as well. The reason is the income that does not pass directly to the shareholders.
The question is what structure is the best way to begin your dropshipping business. To have more accurate answers, it is suggested to consult a lawyer, an expert in dropshipping business or someone who is already running one. In general, the LLC structure is a better bargain for personal liability protection and provides more freedom for personal finances and costs.
Dropshipping business also depends on your relationships with wholesalers, suppliers, manufacturers and other retailers. You may not be responsible for storing the inventory but your orders can’t be successful without reliable dropshipper partners. In the beginning, you will have to conduct a research to identify partners that are most likely to work well with you. It is significant to stay safe from scams. Find authentic and well-established partners that have the ability to fulfill the orders coming through you effectively and on time.
Dropshipping is not to be taken lightly. Despite less hassle as compared to traditional retail models, you can’t find success overnight. You will have to stay persistent in the initial phase to find strong roots in the industry. Over time, you will be able to form strong relationships with wholesalers, suppliers and manufacturers. Moreover, you will eventually have a client base to create a constant inflow of orders. With patience and a learning approach, you can find your way to successful and profitable dropshipping business.