Have you heard about drop shipping in the news lately? If so then you’ll likely have heard how you can make money from the comfort of your own home, selling products direct to consumers without ever touching or holding physical stock. If this has started to get you excited then keep reading, I’ll show you how to start a drop shipping business.
Last year the NZ Herald reported on a 19 year old making over $180k per year from drop shipping in his bedroom and just yesterday they reported on a young bloke selling car mounts turning over $800k per year.
While you’d have to be pretty lucky to replicate similar successes, the possibilities to achieve similar results is definitely possible using drop shipping. To better understand the concept, let me explain.
What Is Drop Shipping?
Drop shipping is a concept that describes a fulfillment process of shipping products directly from a supplier to the end customer without going through the retailers (you) warehouse or hands.
You find a supplier, list their products on your website and once you sell something take the gross amount and then purchase the product which is shipped to your customer with plain packaging.
Your customer never knows where the product came from and you pocket the difference.
How To Know What To Sell?
You’ll need to find winning products (tried and tested or new trends) and then list them on your very own Shopify store, which is a do it yourself platform for creating a web store that accepts payments in real time direct to your bank account.
There are many places to find new trends including Twitter and Instagram. A good website for curating products is called Thieve.co which is a community of shoppers that like to use a Chinese drop shipper called, Aliexpress.
Take note, there’s lots of junk on Aliexpress so it might be beneficial to buy the product yourself for evaluation purposes before attempting to sell the product. Quality control can make or break your business.
Isn’t It Expensive To Create eCom Store?
You definitely don’t need to spend thousands hiring a geeky web designer to build a website and you definitely don’t need to learn how to connect your web address to a hosting provider either.
Shopify costs $29 (USD) per month and offers a complete do it yourself platform for building your very own drop shipping store. They offer a wealth of free templates and themes for customizing your store. They also offer an extensive app store for customizing your store further.
Some of my favorite apps include cart recovery for keeping your customers carts stored should they close the browser and return again in the future. Another is a coupon box popup which displays after a user enters their email address, this is great for building a marketing newsletter you can communicate with time and time again.
Is Drop Shipping Risky Business?
There is two ways to consider answering the question, the first is the level of investment required and given you’re not buying any stock you can quickly change products if something isn’t working for you.
If you compare that to an old fashioned retail store, you might need to buy $50k of stock to simply fill your store. What happens if that doesn’t sell? Drop shipping eliminates this risk and is a far easier business model to change products if required.
The main element of risk when drop shipping is dealing with customer refunds and fraud which will ultimately plague your business at some point in the future.
Can You Make Money Drop Shipping?
Journalists who write about these high school dropouts making millions rarely touch on the actual costs of business. Just because someone has one million dollars in revenue doesn’t mean they took home that much.
Remember you have to actually buy the products from your supplier. This is usually 40-50% of the sales price. You’ll then likely have an advertising cost of 10-20%. You’ll also need to factor in operational costs, wages and salaries if any and of course the IRD will want their cut too.
Most drop shipping businesses make around 20-25% net profit.
Making a million dollars would see a pre tax profit of around $250k. Still beats a day job but does require lots of work initially to get started. Regardless it’s still one of the most lucrative businesses kiwi’s are starting right now.
How To Start A Drop Shipping Business NZ
Okay so if you’re still interested and want to learn how to setup a drop shipping business then you can checkout my quick start guide below. This guide has been tailored for New Zealand residents but could be applied worldwide.
1. Setup Your Business Structure
If you’re going to do this whole drop shipping business properly then you should set yourself up as either a soletrader or company as soon as you start making more than a couple hundred dollars profit.
Personally I chose to setup a company which required a formation fee and this then allows you to open a business bank account with most kiwi banks. I opted for Bank of New Zealand and setup a cheque account, savings and credit card which provided a $2,000 credit limit.
In New Zealand the credit card isn’t as useful as other countries for free airline flights and upgrades but is a handy way to rack up points as you’ll be constantly fulfilling orders and repaying the credit card when funds are deposited to your bank account.
You don’t need an accountant to setup an NZ company or sole trader declaration but if you do, it’s probably worth while. If you only take away one key point from this step, make sure you setup a different bank account for your business. It will be extremely difficult to file your tax returns if your statement is full of personal purchases too.
Benefits of having a company are the limited liability vs unlimited liability you’d be responsible for if your business goes under. Your customers will have more reassurance buying through a company than your personal name.
2. Setup Accounting Software
This is something I recommend you start from day one. Platforms such as Xero or Wave Apps (free), MyOB can provide simple chart of accounts and invoicing, transaction ledgers that you can easily see the incoming and outgoing payments to your business. This will help you see your profit/loss and balance sheet instantly.
You can connect your bank accounts, credit cards and other accounts such as Paypal and the transactions will automatically flow through to your accounting software for you to reconcile them.
Doing this from day one will make your tax return a piece of cake. Don’t wait until the following year to try and locate all those receipts for purchases. Running a drop shipping business you’ll have thousands!
Most accountants can help you setup such platform and is usually included in their yearly fees.
3. Setup Shopify Store
You can get started with Shopify for only $29 per month (USD) and there is no minimum commitment. You can currently get a 14 day no obligation trial too which will allow you to build and test your store and see if it’s right for you.
You can customize it using free templates provided by Shopify and install applications to make your store even cooler. Some premium themes exist which will help with your conversion rates by adding scarcity and trust to your store. These templates cost $97-$297 depending on the creators.
Shopify offers lots of free training and an extensive community forum where you can seek advice and information in building your store. Their platform allows anyone to start an e-commerce store within a few hours.
Take note, choose your store URL carefully as you can’t change this once created.
Lastly you’ll need a domain name which can be purchased through Shopify for $25.
4. Start A General Store First
I recommend starting a general store, especially if you’re creating your first store. This will allow you to test new products without confusing your visitors. Let’s say you called your store, JoesWarehouse.co.nz. You could now sell pretty much anything and try a whole range of new products.
If you started a store called JoesBabyProducts.com then you’re limiting yourself to just products about babies. If you then started to sell consumer fitness products, it would be confusing and buyers wouldn’t trust your store.
By building a general store rather than a niche store, you can find what products work for you and then scale them. Once you find a successful set of products you can convert your store to a niche store.
5. Find Winning Products
Ahh it’s the one question I get asked all the time, how do I find winning products? Well the secret is no one really knows. You simply need to follow the latest trends, monitor new products and seek inspiration from other successful stores out there.
You can then replicate this on your own store. Some of the easiest ways to find trending products include searching the best sellers category on Aliexpress, movers and shakers on Amazon and using my personal free favorite called, Thieve.co which is a community of Aliexpress shoppers that share new products.
If you want an even better tool then Sell The Trend offers a free 7 day trial to their premium site and offers over a million trending products with done for you targets, ads and more.
You can also find a successful Facebook store and under ‘Info and Ads’ on Facebook, you can view all their latest advertisements to see what they are promoting and get inspiration.
Lastly you can use platforms that share winning products with you. One of the most popular platforms currently is called Intelligyence which is a desktop platform for Windows or MAC and costs $19.95/mo.
Unfortunately you will have to find your own winning products. This is the hardest part about drop shipping and if done correctly will explode your bank account with commissions (if you have traffic too).
You’ll need to find a suitable supplier for your product on your platform of choice. I’d recommend buying the product yourself to test delivery time, quality and for peace of mind. These can be offset as business purchases.
Once satisfied you can add the products to your Shopify store. Make sure you don’t copy and paste product descriptions. Write your own and sell the product to your visitors. Why do they need it, why should they buy from you?!
6. Get Traffic
Without traffic your business is dead in the water. Like a ship without a propeller. There is many platforms to get web traffic from but most drop shipping businesses use Facebook or Instagram Ads along with Google Shopping.
Creating such ads is an entire article in itself and would cause this article to go on for an extra few thousand words.
There are plenty of resources out there on how to create social media marketing campaigns.
You could also use free social media resources such as posting in Groups where your customers hang out, as well as using Pinterest to share photos about your store.
Alternatively you could look into organic search engine optimisation traffic, more commonly referred to as SEO. Shopify allows you to customize pages to include such optimisation but you may wish to seek the assistance of an SEO expert.
Don’t be a fool and buy spammy backlinks from Fiverr because your mate told you it was a good idea. It might have worked in 2004 but not in this day and age and can cause more harm than bad.
Want To Drop Ship Like A Pro?
Want to learn how to go further and automate your business, handle customer returns and refunds, how to make your business scale like a professional and how to use Chatbots, cool applications and sales funnels to make your drop shipping business even more profitable? Also learn Facebook ads, Instagram ads, Google ads, Google Shopping and Pinterest marketing.
eCom Elites is a training course with over 175+ HD videos on the entire process of starting a drop shipping business in New Zealand. I’d suggest checking out my full review on Franklin Hatchett, an entrepreneur from Auckland, NZ that is making a killing online from drop shipping. If you want to learn from the best then look no further.
Remember the cost of his course can be offset as an expense on your first tax return. Chart of accounts, training.