How to Start a Dropship Business

by Tom Streissguth; Updated September 26, 2017
Woman in home office on telephone

If you're in search of a easy and relatively inexpensive business startup, take a look at the growing field of drop-shipping. In this business model, you market and sell goods but don't personally ship to customers; a partner/supplier handles inventory and shipment. Before you can embark on a drop-shipping venture, insist that the business you'll be dealing with is an honest "top-level" operator that deals with reputable manufacturers and has a good track record with clients.

Get Right With the Law

Establish your drop-shipping business legally by requesting an employer identification number from the Internal Revenue Service, as well as a sales tax certificate, if one is required, from the state agency that handles these applications. You also have to reserve a fictional name for your company and register that name with the secretary of state, division of corporations or other appropriate state agency. These initial steps are necessary to engage a wholesale supplier or partner for your business; drop-ship suppliers will not deal with individuals ordering on their own and outside of a well-defined business structure.

Onward to Online

Build a viable, attractive e-commerce website, through which you will accept orders for your product. The basic idea behind drop-shipping is to leave fulfillment to the product supplier, to whom you will convey individual orders and instructions on shipment. The supplier charges you a wholesale or bulk price for the item plus shipping to your buyer; the sales price amount above that figure represents your gross profit margin. You can establish a "stand-alone" website that sells independently or fold your operation into a larger e-retailer such as eBay or Shopify that offers selling platforms -- and a wide target market -- to small businesses. Weigh the cost of the latter approach with the charges involved in running your own site and trying to develop clientele on your own.

Hooking up Suppliers

Search for desirable suppliers of your product and establish a business relationship by contacting their sales reps and completing any applications they require; this can often be done online or over the phone. You can search on Google by adding the name of your product, or your line, to "wholesaler," "distributor," "bulk" or "supplier." You can also contact original manufacturers of your product if they're willing to work with business startups or pay for a wholesale directory that breaks down suppliers by product type, location and other parameters. Avoid "drop-shipping" as a search term, as you'll likely encounter the scams and shady operators who have made this business model a fraud-filled minefield.

Going Live

Complete the listings or auctions on your website, and set up a PayPal business account or some other reliable online payment processing system to accept payments from your customers. When orders come in, acknowledge the sale via email, and follow up with the customer to make sure delivery was made and the product is satisfactory. If there's a delay in shipment, or some other issue arises with your supplier and you can't get it resolved, don't hesitate to hit the refund button. This ongoing contact with established customers is an excellent way to gain good ratings on e-commerce websites, market your other products and continually develop new sales.

About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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