Starting a new business is an exciting prospect, but to succeed you want to devise and follow a thoughtful strategy. Many hopeful business owners turn to dropshipping as a means of getting their proverbial feet wet when entering the entrepreneurial waters.
Dropshipping is a great business model because of its simplicity, low investment requirements, and low risk attributes. Since it's centered around order fulfillment, the seller serves as a “middle man” by connecting manufacturers and sellers and coordinating delivery to their customers.
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Benefits of dropshipping:
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No inventory space needed
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No product shipping
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No worries about inventory costs (e.g. understocking or overstocking)
While dropshipping is a straightforward business model, there are mistakes new dropshippers will want to avoid when launching their companies. The following are some of the most common mistakes new dropshipping business owners make.
Choosing the wrong niche
A big mistake many new business owners make is aiming to sell the most profitable items rather than something they are passionate about. Like any other type of business, to succeed, you should at least care about and have an interest in the products being sold. If you don’t have an interest, this quickly becomes clear to your customers and, as a result, the business may have a higher chance of failure.
When selecting your niche, do sufficient market/product research to determine market demand and level of competition. Choosing a product people actually want matters, as does whether the market is already saturated.
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Identify market gaps
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Look at how well the product sells
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Examine profit margins
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Evaluate the level of competition in the market niche
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Identify the target audience and their attributes
Remember, choose a niche that aligns with your expertise, interest, and knowledge. This way, your passion for the products you sell will shine through in your website, communications, and other brand attributes. Additionally, having a passion makes it less likely to experience burnout or disengagement if a person actually cares about the products they sell.
Not legally establishing your business
If you’re going to start a business, you want to get off to a good start. While, theoretically, a license is not necessary for a dropshipping business, you might want to consider obtaining one. Additionally, it is important to carefully choose the right business structure to register.
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While you can operate as a sole proprietor, this means you also absorb any legal and financial responsibilities and liabilities associated with the business. Whereas, by registering as a Limited Liability Company (LLC), you can effectively separate personal finances and business finances, along with keeping any liability solely on the company instead of potential lawsuits having an option to go after your personal assets.
Registering as an LLC may also offer tax advantages and boost brand visibility by providing legitimacy as a trustworthy entity.
Choosing the wrong location to register your business
To legally operate, every new business owner will need to register their business. Many business owners will opt to register their company as an LLC. However, deciding which state to register in is an important decision. If selling products within state lines, it makes sense to stick with your home state. However, dropshipping will usually involve selling across state borders, so the state the business is registered in is an important consideration.
If you’re gearing up to start a dropshipping business, when registering it, you should factor in:
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Benefits of registering in your home state
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Initial costs to register an LLC
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Upkeep costs to maintain an LLC
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Logistics associated with the state you opt to register
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State taxes
Some states are better to register than others. For example, Kentucky does not have high initial registration costs and offers minimal maintenance fees. On the other hand, Texas is relatively expensive to register, making it not the best choice to register a business, unless you need to for some reason. One benefit Texas does offer is that once the initial hefty upfront fee ($300) is paid, the Lone Star State does not require any future annual fees to maintain an LLC. Additionally, Texas offers minimal formalities and flexible tax arrangements, which may be beneficial to some dropshipping businesses.
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Generating high expenditures
Dropshipping is much like other businesses, you need to make certain expenses do not exceed the amount of money you’re pulling in as revenue. For instance, sometimes business owners try to undercut the competition and offer rock-bottom prices to garner more sales, but this rarely works for the following reasons.
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Customers might not trust the quality of products, even if it is the same exact product others sell
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Business loses the opportunity to build trust with new and returning customers
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The company ultimately ends up outspending itself because it can’t generate a profit
In the early stages of your business, you want to make strategic decisions by making sure investment is made in the right areas, along with avoiding cutting corners for expenses that will actually help you earn more money (at least in time).
Making the wrong marketing choices
Your marketing choices can either make or break your business. Choose available marketing channels wisely and invest the company’s budget strategically. Find the avenues where you can best reach the target audience previously identified, and focus your efforts and expenses there. Generally speaking, you should evaluate the following marketing opportunities.
Website
Determine the best way to develop a good website. It should look professional, be functional, and mobile-friendly.
Pro tip: don’t skimp on website development – make your efforts count!
Distribution list(s)
Determine whether email and/or text are good options to reach your target audience. If so, begin curating lists. This way, you can send relevant, interesting, or promotional information to your customers on a timely basis.
Social media
Identify which platform(s) your audience tends to use, select the most prominent, and focus efforts on those.
Pro tip: Don’t create and leave “phantom” social media profiles, be sure you have time to keep your account active.
Other marketing options you may want to consider evaluating include paid advertising, networking events, and expos (trade shows). SEO is another consideration. It might be tempting to use “Blackhat” SEO practices, but chances are this will ultimately backfire. Instead, focus on ethical SEO techniques – it takes time, but as the old adage goes, “slow and steady wins the race”.
Not choosing suppliers wisely
A major component of dropshipping is tied to suppliers and vendors. To succeed, it is important to choose your partners wisely and carefully cultivate the relationships you make. Ability to supply, reliability, and communication are key characteristics to look for in potential suppliers.
One of the biggest mistakes new dropshipping business owners make is relying on one supplier. While you might identify the ideal partner, it is not wise to put all your eggs in one basket. By relying on a single supplier, you could run into issues such as big price hikes, late shipments, back-ordered products delaying customer deliveries, and the seller unexpectedly going out of business.
When starting a dropshipping company, prepare to identify at least a few reliable good suppliers to count on to fulfill your orders. Remember, relationships also matter. Suppliers likely work with numerous dropshippers, so the better your relationship with them, the more they’ll care about making sure customer orders are supplied in a timely fashion. Be sure to pay all invoices on time and, if problems emerge, proactively work with your suppliers to find a resolution instead of going to battle.
Setting unrealistic expectations
Starting a new business comes with a lot of excitement, but it’s important to keep rooted in reality, especially in the early stages of building the foundation of your new company. While dropshipping offers a high level of convenience, since you do not have to manage inventory and overhead, this doesn’t mean it’ll be easy to launch or generate immediate profits.
Being realistic in expectations can help avoid disappointment, face challenges as they come, and generally keep you focused on the company’s growth. While dropshipping comes without many of the types of logistics other types of businesses require, this doesn’t mean it is easy money.
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Avoid mistakes as best you can, but learn from any made
A dropshipping company might be easier to build than some other types of businesses, but it’s not as simple as setting up a generic website and actively selling products. Like any other business, new dropshippers need to carefully cultivate their brand identity, market to the right audience, and avoid the most common mistakes as they move forward.
Every new business owner will make at least a few mistakes, but the biggest one is not learning from them. Whether it’s not marketing emails to the right target audience, neglecting good SEO practices, or anything in between, it’s never too late to learn from mistakes and rectify them.
Mistakes can definitely lead to failure, but learning from them can position a company to find even better solutions and strategies. The bottom line is, while ideally, we avoid big mistakes in the first place, on the plus side, we can utilize any mistakes we make as potential jumping points to success.