There are a few things that need to be taken care of when opening your own dropshipping shop. In this section, all points are clarified in order to set up your own shop. A few hundred dollars are required as start-up capital, which is needed for registering a company, setting up the shop, product samples and advertising.
1. Trade license
Since dropshipping is a commercial activity, you need a trade license. Depending on the federal state, you can get this for 15 to 60 dollars from the responsible trade office in your city or from Horitech Solutions. You can usually fill out the registration on site. You then need a sales tax identification number, which is assigned to you by the responsible tax office.
2. Legal form
The most frequently chosen legal form for beginners is the sole proprietorship (you start alone) and the GbR (you start with a friend/business partner). The big advantage is the fast and uncomplicated registration. In addition to these two legal forms, there is the possibility of founding a company. These legal forms are significantly more complex to set up, but reduce liability. It doesn’t matter which legal form you choose, there is no one-size-fits-all solution, because all forms of business have their advantages and disadvantages.
3. Taxes and Accounting
As already mentioned, commercial sales also entail commercial obligations. These obligations also include tax and accounting issues. Especially for beginners, this topic can be daunting at first. But don’t worry, it’s not that bad if you know which rules and obligations you have to adhere to. After the founding of your company, you will receive a questionnaire for tax registration, which you simply fill out. The topic of taxes and accounting should then best be handed over to a tax consultant.
4. Business Account
A business account is not mandatory for some legal forms, but is still recommended. It is recommended to clearly separate private and business transactions in order to keep it as simple as possible for a tax consultant. You can get a business account from almost any house bank for just under 5 to 20 dollars a month.
5. Public Liability
As an entrepreneur, you are liable without commercial liability insurance according to the Product Liability Act privately up to an amount of 85 million dollars and over 30 years. Protecting yourself legally is therefore extremely important. Business liability insurance has three basic functions:
- The Examination of Liability (Is it a Legitimate Claim?)
- Insurance coverage (if damage occurs, the insurance company pays)
- Defense against unjustified claims (legal representation)
Now, that a company has been founded and all legal framework conditions have been put in place, the dropshipping shop is set up.
Find dropshipping product
The product is the first building block that decides on success or failure. The first question that arises here is whether you want to use the classic dropshipping model or print on demand:
Classic: you get your goods directly from a manufacturer, for example via sites like AliExpress, and have them sent to the customer.
Print on Demand: You buy your products in the form of blanks and have them printed with an individualized design. This concept is mainly known from the fashion sector. Here, too, the products are then sent to the customer by a wholesaler.
There are a variety of research avenues one can use to find a profitable product to use for dropshipping. It should be said in advance that there is no such thing as the perfect dropshipping products. Many often get lost in the search, believing that there must be something even better. As a result, very many never get implemented. Product research is just like any other skill – practice makes perfect.
As with finding profitable Amazon FBA products , it is helpful to set a fixed time frame for researching products. It is best to keep a list where you collect as much data and facts as possible on the respective products, niches and target group. You can then choose the product with the greatest potential. Thorough research can significantly reduce the risk of making the wrong decision when choosing a product. If it does happen, this is not a problem due to the low financial risk and should not be discouraged.
General strategies for product research can also be found in the article on Amazon FBA product research . Many of the strategies listed there are applicable to dropshipping and provide out-of-the-box approaches that will set you apart from the competition.
Find dropshipping providers
The most important point for choosing the right dropshipping partner is the quality of their products. Success in online trading can be described using the following formula: Success = Marketing + Quality
The better you master each of these two building blocks, the more successful you can become. In addition to the quality of the products, the quality of the shipping also plays an important role in choosing the right wholesaler. The shipping of the goods should usually not take longer than 4 – 7 days for products that are in stock. Otherwise, customers will definitely become impatient and dissatisfied with the service, even if the product is absolutely convincing.
It is also an advantage if a wholesaler does not use neutral packaging but offers to label paper and boxes with their own logo. This is important as it increases the credibility of the company.
You should make sure that a dropshipping partner does not charge any minimum order quantities or surcharges for small quantities. These reduce the profitability of the products and are mostly negotiable with dealers.
Since, as an online retailer, you are the direct contractual partner of your customers, you are responsible for returning goods. That’s why it’s important to consider returns when choosing a wholesaler. Choose a partner here who gives you the option of processing returns. In order to keep the return rate as low as possible, you should test every product that you want to sell in your shop beforehand and compare the quality of different manufacturers. You can find out how to find the right dropshipping partner in the step-by-step guide on “Finding a dropshipping provider” .
Build a dropshipping store
After you have decided on a product, it is a matter of making it available to customers via your own Shopify online shop. There are a number of different providers of shop systems that you can use to set up your own online shop. A recommended shop system is Shopify, for example.
Shopify is quite easy to use and has all the important functions pre-installed, which is why you don’t need any complex programming work. But how exactly should a shop be structured? Here, too, you should stand out from the crowd and not just develop a one-pager where customers can buy the product. A sensible structuring with attention to detail conveys trust to the customer, which is one of the most decisive factors for the purchase in e-commerce. The following 4-page structure is suitable for setting up an online shop:
- Front Page: This page presents all the important information about a brand and the products. The brand, functions and applications are presented here with the help of images and videos.
- Product page: Here the customer can now order the products. On this page you will find the typical sales pictures and texts. Highlight the benefits in bullet points. Make sure your images look perfect as they have by far the biggest impact on conversion rates. Finally, you need to calculate the right selling price. Since dropshipping requires strong marketing, you should calculate with a margin of at least 15 – 25%. In addition to the purchase price, shipping, handling fees (covers logistics costs) and costs for advertisements, you should also plan for the calculation.
- FAQ: Depending on the product, a separate page with all the important questions and answers that customers might have about the product makes sense. It not only clarifies open questions, but also gives the buyer confidence in the online shop and saves support work.
- Customer support: Finally, you should set up a page that revolves around the topic of contact and customer support. This part is an important point, because such a subpage takes away the customer’s fear of making a wrong decision and also builds trust.
The way to the first sales
After you have found a product, selected a suitable manufacturer and set up your shop, the first sales can begin. In order to direct as many buyers as possible to the shop, Facebook, Instagram or YouTube ads are usually used in dropshipping. Ads are advertisements that are displayed on different platforms. Probably the most commonly used advertising platform is Facebook.
Before you start advertising campaigns here, you should connect your web shop to the Facebook pixel. The Facebook pixel is simply a code that you can take from your Facebook Business account and embed it on your Shopify store. This link helps to track the purchasing behavior of its customers, such as the conversion rate. Detailed instructions can be found here: Facebook for Business.
In order to place advertisements as efficiently as possible, you should first think about your target group. The following questions can help to identify the target group:
- How old is the target group? Where does he/she live?
- Is the target group male or female?
- What is important about the product for this person?
- What wishes or pains does the target group have?
- How does the product meet the needs of the target group?
Now that you know your target group exactly, you still need an advertising image or video that you can integrate into your campaign. This can be created either by a designer or on your own. At this point, however, you should not save any money, because the product image or product video has the greatest influence on the conversion rate. You can then place the first ads via Facebook ‘s ad manager. Use different strategies here, track the performance of the ads and optimize them at regular intervals. You can also find detailed instructions on the Facebook Business page.
Checklist for the Dropshipping Business:
- Has the business registration been completed?
- Has a sales tax ID been applied for?
- Have you found a tax advisor?
- Has the business account already been set up?
- Do you have public liability insurance?
- Have you decided on the first product?
- Have different wholesalers been compared?
- Has a wholesaler been chosen?
- Has the online shop already been set up?
- Has the target group been defined and ads placed?
Dropshipping vs Amazon FBA
Is dropshipping possible with Amazon? The classic drop shipping, where you buy your products from a wholesaler, have them ship them and use Amazon as a sales platform, is not possible. However, Amazon offers its own program for storing and shipping goods: Amazon FBA (Fulfilled by Amazon).
Like dropshipping, Amazon FBA is nothing more than a way to sell goods online, in this case using Amazon as the selling platform. Goods are procured cheaply and then, after deduction of all costs, are sold profitably to the end consumer under their own brand ( private label ). Thanks to platforms like Amazon, trading has never been easier. Unlike drop shipping, you first have to have your own products manufactured and then store them at Amazon.
The FBA program offers merchants tremendous advantages over dropshipping. The main reason to sell your products on Amazon is clearly the high number of customers who already put their trust in Amazon. The moment you offer your products to the world through Amazon, Amazon’s customers also become your potential customers, which is a huge benefit. In addition, you benefit from Amazon’s logistics, which takes care of returns management in addition to Prime shipping.
However, the biggest advantage of Amazon FBA over dropshipping is the control over the quality of your products. Since you have the goods produced by a manufacturer, you can also set the quality standards of the product and have them checked regularly via a quality inspection at low cost. This way you have much more influence on the quality and satisfaction of the customers, which is why Amazon FBA is the long-term path in e-commerce. Of course, Amazon’s service comes with a cost of between 7-20% per unit sold. However, if the calculation is correct, this is not a problem.
Conclusion – Shopify Dropshipping
Regardless of whether it is dropshipping, Amazon FBA or another sales model, long-term success in e-commerce can always be broken down into a few entrepreneurial success factors. The focus should always be on the customer and his satisfaction. Develop and sell products that solve specific problems of the target group and generate positive emotions. You should pay particular attention to the quality of the products, which is the key to long-term success. However, the best product is useless if potential customers cannot find it anywhere. That is why it is important to do very good marketing in addition to an excellent product. To do this, you have to be able to trigger emotions and stories in the minds of the buyers.
Dropshipping is often touted as an innovative and fast way to make money online . However, these and similar statements should be viewed with skepticism. The biggest challenge is choosing the right wholesaler, as you are responsible for both product quality and logistics. As a result, you only have a limited influence on customer satisfaction. With the right approach and for aspiring entrepreneurs with little seed capital, this model still offers a few advantages. The risk and the capital requirement are very manageable at the beginning, since you do not have to pre-finance any goods.
However, since the key to long-term success lies in product quality and customer satisfaction, Amazon FBA is more attractive and promises greater success in the long term. Here you need a little more seed capital, but you have control over the two most important success factors.
Frequently Asked Questions - FAQs
What is dropshipping?
Dropshipping describes the so-called drop shipping in eCommerce. Here, the online retailer does not buy his goods in advance, but only orders them from his wholesaler after the customer has ordered them, who then processes the order.
How does dropshipping work?
In the dropshipping model, as an online retailer, you offer products in your own online shop that you do not own or have in stock. If an order is received in the online shop, as a dropshipper you pass this order on to a wholesaler, who packs the goods and sends them to the customer. The last step is to pay the wholesaler. Since the sales prices in the online shop are higher than those of the wholesaler, you make money from this difference.
Which products for dropshipping?
Products that solve the problems of your target group and that can be presented in a simple, clear and interesting way using advertisements are particularly suitable. It is important to choose products that can trigger a WoW effect or emotions in the buyer.