How To Make Money Dropshipping In 2023 – Your Best Path To Success

Last Updated March 6, 2023

How to make money dropshipping is a resource for those who are tired of their hectic professional life and can't achieve a work-life balance. It's for those who want to start a successful business and become their own boss but don't have any initial investment or inventory.

Read on. It's time for you to learn about dropshipping, more importantly, how to make money dropshipping, and how it is a profitable business that you can start with just an internet connection and a laptop. Yes, you read that absolutely right!

What is Dropshipping, and How Does it Work?

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The concept of dropshipping emerged from the pains aspiring entrepreneurs went through when trying to start a successful online business. The quantum of efforts, highly-intensified financial arrangements, and borrowings that go into starting a new eCommerce store are overwhelming.

Dropshipping is described as an order fulfillment option that allows eCommerce platforms to outsource storing, procuring, and shipping products to a third party, usually a supplier. The eCommerce startup promotes the products of a supplier or manufacturer on its online store.

When a customer places an order, the eCommerce business sends the order to the supplier while notifying the customer that the order is on its way. The supplier then ships the order to the customer on behalf of the eCommerce startup, and the customer finally receives the product.

In other words, the third-party supplier or manufacturer handles product production, shipping, storage, and delivery to the end customer.

In a dropshipping model, eCommerce businesses take orders from customers on their online store and then make purchases from a wholesaler or online retailer. This helps eCommerce businesses avoid the hassles of shipping and delivery as the wholesaler or retailer takes care of it.

It allows eCommerce businesses to focus on advertising and marketing their products instead of diverting resources to other parts of the business.

Undoubtedly, dropshipping is one of the best online businesses to earn passive income with little-to-no investment. But, it isn't a get-rich-quick scheme as you need solid planning to succeed with dropshipping as you would need for any other business.

How Does the Dropshipping Business Model Work?

The dropshipping model can be classified into two elements:

1. The front-end: The customer considers you a specialty eCommerce store and orders a product at a price mentioned by you on your eCommerce store. After a few minutes, they are notified that the order will be shipped soon, and a tracking number will be sent to their email as soon as the order is ready.
2. The back-end: Once your customer orders, you buy the equivalent from the wholesaler or retailer. You provide the customer's shipping details, and they ship the order to the customer on your behalf using your shipping address as the seller's shipping address. The customer never becomes acquainted with the entire order fulfillment procedure as he receives a buying experience similar to any other online store.

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Important Players In Dropshipping

Let us learn the important players that create a path to a successful dropshipping experience.

Seller of Record

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The process of dropshipping starts with an E-commerce business. As the seller or record, the online store or E-commerce business is considered to be the seller of the product to the end customer. Online store owners define the prices to be charged for the products on sale and then record the purchase as revenue.

The online store also assumes responsibility for the sales tax on a specific sale. The eCommerce business is the seller on record even though third parties stock and ship the items since the eCommerce business the products before they get shipped and delivered to the end customer.

Related Content: 9 Ways the Best Online Stores Improve Ecommerce Conversion Rates

Manufacturers

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Manufacturers create products with the intent to sell to wholesalers and retailers. An eCommerce business may purchase products from them at a wholesale price. Still, the number of bulk purchases required to take advantage of the wholesale price may be a huge barrier to starting a dropshipping business.

Wholesalers

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In a typical product supply chain, a wholesaler buys from manufacturers and sells to retailers at a premium. As middlemen, wholesalers usually don't sell online directly to the end consumers and may or may not provide dropshipping services to retailers.

Benefits of Dropshipping

Lower Startup Costs

One of the biggest benefits of dropshipping is that you don't have to invest capital to establish a location or acquire inventory. Furthermore, you don't have to spend countless hours organizing inventory or hiring staff to fulfill orders. In other words, the drop-shipping model is characterized by a low entry barrier.

Scalability

Dropshipping retailers are better positioned to scale their business quickly as order fulfillment is not dependent on the count of workers required to ship out orders or the size of a physical location. This is the primary reason dropshipping is an excellent choice for retailers that generally experience fluctuating sales because of seasonal or other factors.

With a traditional retail business, you will have to do twice as much work if you receive twice the number of orders. On the other hand, most of the order processing work is performed by the suppliers in a dropshipping business model. This helps you to concentrate on other activities, such as marketing, to create a successful dropshipping store.

Also, dropshipping allows you to list and sell a wide range of products online before you even commit to purchasing a large amount of inventory.

Broad Product Offerings

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The dropshipping business model allows you to showcase a rich range of products on your online storefront, opening up more product opportunities. This is a huge advantage. Otherwise, you may not have been able to provide so many product options to your existing and potential customers.

Lower Inventory Management

Retailers are spared from the management overhead as they don't have to maintain physical inventory. Moreover, retailers don't have to manage the warehouse to store products or spend time tracking inventory or managing shipping, as everything gets outsourced to suppliers.

Flexibility

The dropshipping business model offers unmatched flexibility to many facets of retail businesses. You can run your online storefront from any geographical location and offer a rich range of products. If this is not all, you are in complete charge of defining product prices and making changes to the offerings if customer preferences or market trends change.

Modern Shopping Methodology

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Since the coronavirus pandemic, more and more customers around the world are turning to the online mode of shopping. It is estimated that over 95 percent of all purchases will be made online by 2040. This is primarily because of the increased demand for convenience, an increased sense of gratification and fulfillment, and the integration of the internet into everything we do.

Start a successful dropshipping business on Shopify today. Or maybe you prefer to dropship on Etsy?

Helps Retailers

The unprecedented and unstoppable rise of eCommerce in the recent past has come to the rescue of retailers across the globe. The internet has billions of users. In theory, your online storefront has all of them as the target audience and can access your website and discover your brand. This, in turn, can help you open new online stores and explore new markets and opportunities.

More and Better Options

One of the biggest advantages of eCommerce dropshipping is that it helps online storefronts consistently generate a more reliable income source. The best thing is that you can sell thousands and even millions of products at your online storefront without having them in your inventory or paying for the warehouse charges.

This is a win-win situation for you and the customer as you get more opportunities and products to sell, and the customer gets more opportunities and products to buy.

Easier Product Testing

Dropshipping is an excellent order fulfillment option to launch a new store or test the response of existing and potential customers to new product categories and additions that may be entirely new product lines or accessories.

In the case of traditional business models, diversification necessitates extensive planning, implementation, and analysis while involving a lot of effort, money, and other resources. This may increase businesses' risk of missing out on profitable markets and opportunities.

On the other hand, the dropshipping business model allows you to advertise and even sell products to the end customer before you commit or don't commit to purchasing a large amount of inventory.

Comfort and Convenience

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You can maintain a certain degree of comfort, convenience, privacy, control, and autonomy when you operate a dropshipping business. You can work from the comfort of your home while saving countless hours, money, and other resources.

You are solely responsible for all the risks and the sole beneficiary of the rewards. The role of a dropshipper may be both intimidating and exhilarating, but the benefits of running your successful dropshipping store surely outweigh any drawbacks.

Increased Customer Lifetime Value

Drop shipping allows eCommerce retailers to improve or grow the average customer lifetime value. Undeniably, identifying and bringing in new clients and then retaining them is one of the biggest and most expensive aspects of eCommerce marketing.

Once an online storefront has gained customers' trust, it becomes easier to sell products regularly. However, an online storefront may find it difficult to generate repeated sales. This is where dropshipping can come to the rescue of eCommerce online stores.

Dropshipping allows you to carry and sell countless products in-store without spending anything on inventory. This range of products can help extend your reach to more customers and allow you to upsell or cross-sell, leading to subsequent and frequent purchases.

The Benefits of Dropshipping Compared to Other eCommerce Models

With just a few clicks of the mouse, you can order from anywhere, buy products of your choice, and get them delivered to your door. This is primarily because setting up an online business today is easier than ever.

You need an idea, a website, and a dropshipping supplier. The dropshipping business model allows you to explore an online business with minimal costs and huge potential gains.

Traditional eCommerce Fulfillment vs Dropshipping

An eCommerce order fulfillment strategy may depend on countless factors, such as whether you manage a warehouse, the types of products you sell, how many orders you deliver, etc. To ensure that you have a powerful fulfillment plan, you should have a clear and complete understanding of all the choices available.

There are four different methods by which you can organize order fulfillment operations.

In-house: It refers to a process of order fulfillment operations when the entire order fulfillment lifecycle rests on your organization's shoulders. In this case, you receive, store, and manage inventory while looking after packing and shipping.

Third-party Logistics (3PL): In this order fulfillment model, the supply chain management is outsourced to third parties by eCommerce merchants. The services of 3PL are hired when order fulfillment operations become too complex to manage without any form of external assistance.

Dropshipping: In this business model, retailers don't manufacture or store the products. Their primary role is to promote the products of a wholesaler, receive orders, and manually or automatically redirect the orders to the wholesaler.

Hybrid: This business model combines the above-listed order fulfillment approaches. For example, a large organization may combine 3PL and in-house fulfillment.

A traditional form of order fulfillment includes the following steps:

1. You place an order from a manufacturer
2. Products are shipped to a warehouse
3. Products are received and processed
4. The product assortment is renewed with new arrivals
5. Customers place an order on your website
6. The order amount is credited to your bank or another account
7. The order gets picked and packed in the warehouse
8. The parcel is transported to its destination by the delivery service provider
9. The order gets delivered to the customer

With traditional order fulfillment, businesses source or produce products and store them in a warehouse. The number of involved steps may be fewer or more depending on whether the business fulfills its orders in-house or uses 3PL.

On the other hand, the dropshipping business model operates in a somehow similar way to that of traditional order fulfillment. However, the big underlying difference is that the merchants are not responsible for storing and delivering orders.

Let's have a look at a possible workflow.

• The customer places an order.
• The dropshipping partner (distributor or manufacturer) is notified of the order. He packs and ships the order to the customer.
• The dropshipping partner charges a fee for the services provider, and you charge the customer for the same or a bigger amount.

In the case of dropshipping, the dropshipper is not required to deal with the products physically. In other words, he doesn't deal with his inventory, warehouses, or other facilities. The focus is on advertising and marketing products to create and maintain demand.

The biggest advantage of dropshipping is that the retailer focuses on the aspect of the business that is at the forefront of driving success. Dropshipping allows online retailers to grow their business faster because of the straightforward and seamless integration of new products into your catalog.

With traditional order fulfillment, the manufacturer has to bear the overhead costs like warehousing, fees related to delivery service providers, buying production space, hiring staff members, etc. Moreover, they need to quickly sell off new supplies to cover the expense of warehousing inventory.

Additionally, traditional in-house order fulfillment involves handling all packing and shipping orders, which could leave you with very little room to grow and expand.

Traditional eCommerce fulfillment can be a good option if:

1. You want the products you sell to become famous brands
2. You want to maintain complete control over the order fulfillment process
3. You possess a capable workforce and have enough initial funds

Dropshipping eCommerce fulfillment can be a good option if:

1. You have a limited budget
2. You want to set up an online storefront quickly
3. You don't want to take risks related to unsold inventory
4. The products you sell don't require in-depth branding

It's a Great Time to Start a Dropshipping Business

The future of the dropshipping model looks bright in 2023 and beyond.

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Let's take a close look at some of the statistics guiding the growth of dropshipping:

• In 2018, the global dropshipping market was valued at $102.2 billion. It is expected to register a compound annual growth rate (CAGR) of 28.8 percent from 2019 to 2025. (Statista)
• Global online shoppers are expected to climb to 2.86 billion in 2022 and 4.5 in 2026. (Statista)
• A dropshipping supplier can earn 18.33 percent higher profit margins when they sell to dropshippers instead of selling from their online store. (Torchbankz)
• Dropshippers are more likely to earn a profit of 50 percent or more than those who stock inventory. (Cloudways)
• The top countries where dropshippers are increasing are the United States, Canada, the United Kingdom, Malaysia, Australia, and India. (Statista)
• The top 10 percent of eBay dropshippers make an average yearly profit of $92,772. (Torchbankz)
• The global dropshipping market is expected to reach $196.78 billion in 2022 to, register a whopping 23.7 percent year-over-year increase from 2021. By 2026, the global dropshipping market will be approximately $476.1 billion. (Oberlo)

Some of the biggest factors contributing to the growth of the global dropshipping market include increasing smartphone penetration, the rise of mobile commerce, the ease of starting a dropshipping business, and consumers’ shift toward online shopping because of the coronavirus pandemic.

How do I find suppliers for my dropshipping business?

Finding dropshipping suppliers may appear overwhelming, but it can be simplified by following a few tips. For instance, you can locate dropship suppliers of your niche on social and other networks such as Facebook or LinkedIn.

You can find a complete and comprehensive list of dropshipping suppliers, wholesalers, producers, and software here on Web Tools Advisor in our ultimate list of dropshipping suppliers directory.

Setting Up Your Online Store

Wondering how to get started with your drop shipping company, or is dropshipping worth it? How can you make a name for your brand in a pool of dropshipping companies?

Let us find out how you can develop a sound strategy to stay ahead of the competition before you enter the world of dropshipping.

Planning for growth and identifying your niche

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You need to identify a consumer segment that isn't already saturated with competitors. It is always good to focus on identifying hard-to-obtain products for buyers. For example, most retail stores do not offer specialized automotive parts off the shelf.

After comprehensive market research, the first and foremost step is identifying the right market opportunity. Remember, you will spend a lot of time promoting your online store, and it will be a regular source of income if everything is done correctly.

Therefore, spending a few days understanding the market, potential customers, and competitors makes sense.

In other words, these specialized automotive parts would be costly to keep in inventory. You can deal with them profitably by joining hands with a drop ship partner. This may be advantageous for you and will surely give you a definitive edge over traditional retailers who may also want to sell the same products.

In addition to these tips, you should focus on which market space is ideal for your dropshipping business in the long run. If you have expertise in a line of products, you will have a big advantage over the competition.

You should also perform market research on how much the category of products you intend to sell is likely to grow in the coming years.

Create your dropshipping site

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Will you create and maintain your website or count on an eCommerce platform for dropshipping stores like Shopify, WooCommerce, GrooveKart, or Ecwid? Will you use a dropshipping platform or instead opt for identifying and vetting dropshipping suppliers on your own?

It is important to note that creating and maintaining a profitable eCommerce dropshipping website is a lot of work from the marketing and sales side, so leveraging a platform where you can gain instant access to best practices is worth the extra monthly cost.

If you haven't already, deciding on a business name will be vital as it will be an important part of your eCommerce brand. It is highly suggested that you choose a name that resonates with you, your potential customers, and your dropshipping niche.

You should also plan to perform keyword research around your niche and products and align it with what people seek. Search engine optimization (SEO) will play an important role in the long-term growth potential of your site.

For example, if you sell vintage jewelry, you might include “vintage jewels” or “vintage jewelry” in your business name. The right brand name can save you a lot of effort and money.

Once you have finalized the business name, register a domain name for your dropshipping business. Aim for a dot com (.com) domain as it is more used and trusted in search. If required by the laws of your country, you should also apply for the employer identification number (EIN) and a business license to stay compliant with legal requirements.

Handling finances

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There is no denying the fact that the dropshipping business model requires little initial investment. However, you need to manage your finances properly and smartly to generate regular profits over the long term.

It will also be good to reconsider your dropshipping partnerships regularly. You may come across new suppliers offering better products at lower prices without compromising product quality. This flexibility and adaptability can go a long way in helping your dropshipping business.

Alternatively, you can look into revenue-based financing opportunities as a dropshipper.

Supplier associations & order fulfillment

Dropshipping suppliers play a big role in the order fulfillment process. Therefore, spending quality time identifying reliable, experienced, and successful drop shippers who enjoy a stellar reputation in the market makes sense.

You should ideally have multiple suppliers so that if one goes out of business or runs out of an item, you have a backup ready to handle things and pick up the slack.

To identify top dropshipping suppliers, you should always try to order and test out a few products from every supplier. This will help you discover the quality of products and the packaging and that a supplier can deliver safely without damage.

Get your store hosted with a scalable eCommerce platform

There are plenty of options to choose from when creating an eCommerce dropshipping store for your online business. You can either use an eCommerce package with built-in tools from a turnkey dropshipping store provider or approach a web design and development company specializing in custom solutions.

Identify and acquire the target audience

Undoubtedly, nothing is better than having an awesome product and an easy-to-navigate, customer-centric website. However, nothing is likely to sell unless customers are coming to buy. This is where you need to focus on advertising and marketing to attract new and retain existing customers.

One way to get started is with a Facebook advertising campaign or by leveraging other top social networks to reach your target audience. This will help you generate and maintain awareness of your products. Eventually, it can help you generate sales and revenue.

Track metrics and optimize your business