The biggest perk of learning how to drop shipping is that you don’t need inventory like other e-commerce services to get started. In fact, you don’t even have to pay for the products upfront. Drop shipping lets you create a sustainable and long-term source of income. This article will go through how to make money with drop shipping and what you need, such as internet, commitment and good drop shipping accounting.
However, like any business venture, drop shipping has its challenges. There is a learning curve and certain steps that you must follow to succeed. Once you get the basics down, you are able to become more creative and make tweaks to your drop shipping procedure that can save you money and headaches.
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What Is Drop Shipping?
Simply put, drop shipping lets you sell products directly to customers without having inventory. A customer visits your e-commerce store, they purchase a product, and a third-party supplier ships it to them.
The customer pays the retail price that appears on your e-commerce store, you pay the wholesale price, and the difference ends up in your pocket. You make money, but you never have to worry about investing in products or inventory.
It sounds easy. However, learning how to drop shipping will present a few challenges along the way. We will go through what you need to make your business a success, such as a good drop shipping accountant, time and commitment.
Getting Started With Drop Shipping
With the drop shipping business model, it is your responsibility to build a website, design your company’s brand, get a good drop shipping accountant and choose the products that you want to sell. It is up to you to set shipping costs and set prices so that you can earn a decent profit margin.
To start, you need to register an account with a supplier. With this, you have two options.
- Option one is to use a supplier database. These include businesses like Dropship Direct, Alibaba, or AliExpress.
- Option two is to use an integrated supplier directory connected to the back end of your store. An example would be Oberlo.
If you are just starting out and using Shopify or Oberlo is your best bet. With Oberlo, you are able to access millions of products and have them shipped directly to your customers with the click of a button.
Just a few words about Oberlo. Oberlo offers the easiest plug-in for drop shipping use. It is 100% free to use if you have their starter plan. Once you hit a minimum of 50 orders each month, you have to upgrade your basic plan to $29.90 a month. At 500 orders per month, you will need to jump to their professional plan, which is around $80 a month. It is good to have these figures in mind because they will help you set pricing for the products you sell.
With Oberlo, if your customers buy something, the order is fulfilled automatically. However, you are responsible to make sure that all the details are correct. AliExpress drop shipping will shipped to the customer regardless of where they are in the world.
What Are the Benefits of Drop Shipping?
If you are an inspiring entrepreneur, drop shipping is great. It gives you the freedom to experiment with novel business ideas. You can learn about the market, identify products that are in demand, and make adjustments with minor risk. A drop shipping accountant can also help guide you along these processes. Here are some of the other benefits of drop shipping.
1. It Only Requires a Small Amount of Capital
It is easy to launch an e-commerce store without spending thousands of dollars upfront. If you use traditional retailers, you have to invest large amounts of capital when purchasing inventory.
With drop shipping, you only purchase a product after you have made the sale and have already been paid by the customer. This means that you are able to start offering and sourcing products with little money up front and with little risk.
2. Easy to Get Started
Since you are not stocking a physical inventory, you don’t have to worry about having a warehouse, employees, and security. Thus, you are not responsible for packing or shipping your orders. Nor are you dealing with returns or inbound shipments. You don’t have to worry about maintaining inventory levels. The fulfillment center does all of this.
3. Low Overhead and Flexible Location
Since you don’t have a warehouse or inventory, your overhead is low. Many drop shipping stores are home-based businesses that rely on a laptop and a few recurring expenses, like Internet and fees for keeping their website up and running.
4. Easy to Test and Easy to Scale
Drop shipping makes it easy for you to launch a new store, take it for a spin, and see if customers want to purchase your products. The great part about drop shipping is that you sell the product before you buy it.
Scaling your business is easy because, unlike traditional retail businesses, if your number of drop shipping orders increase, you don’t have to do much more work. All the processing, shipping, and packing tasks are done by the drop shipping supplier. This means that you can grow your business without growing pains.
Learning How to Make Money with Drop Shipping
It all sounds good on paper, but the real question is, what is needed in order for you to make money from drop shipping?
Drop shipping is a business, so you need to be committed to its success and see it as a long-term proposition. With drop shipping, you will either need to invest a lot of time or money.
Most new drop shipping entrepreneurs opt to invest time. This means learning how to operate the business inside and out. The better you understand the business when it is small scale, the easier it is going to be for you to manage it as it grows.
Commitment includes learning your customers and the market. This helps you make better decisions in the long run.
2. Finding Your Niche
To open a successful drop shipping business, you need to go through the same process you would if you were opening a retail store. This means understanding the market, understanding trends, and getting to know your competition. You need to identify the niche you are interested in and then make decisions that drive profit.
3. Understand Drop Shipping Accounting
Everything from deciding your business structure to getting your finances in order will impact your ability to make money with drop shipping. For this reason it is important to consult with a specialized drop shipping accountant.
Good drop shipping accounting requires you to keep your business and personal finances separate as much as possible. This means opening up accounts for credit cards and checking accounts in the business name.
Understanding tax laws is important when learning how to make money with drop shipping. You need to know when to collect sales tax and how much sales tax you need to collect. If you under collect, you could pay out-of-pocket to cover those expenses.
Drop shipping is a fulfillment model. It is used by retailers around the globe. Like every other business, the only way that you can make money is if you satisfy your customers’ expectations and create a brand that leads to brand loyalty.
Drop shipping is not a stress-free way to build wealth online. Hard work and a fundamental understanding of the financial and drop shipping accounting aspects of running a drop shipping business are required.
Fusion CPA is an accounting firm that understands the unique bookkeeping, general taxation, and accounting needs for entrepreneurs running drop shipping businesses. We can help you make decisions now that will increase profitability and allow you to build a thriving and profitable drop shipping business that complies with IRS tax regulations. To learn more, click the contact button below.
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