Starting your own business with little capital almost sounds like a dream. But it doesn’t have to stay that way, because with the drop shipping trading model , a flourishing business can be built up and literally started from the kitchen table at home. The topic now is how you can soon become an online retailer with profitable sales without a large financial investment.
What is drop shipping?
The main feature of drop shipping is that you sell goods without actually owning them. They neither have a warehouse nor do they take care of shipping. This is how it works in principle:
- You need an online shop in which you offer goods.
- The goods they offer come from another manufacturer or supplier.
- If a customer orders a product, you forward the order to your business partner.
- The latter sends the goods to the customer in your name.
- The customer pays his invoice with you, you pay the invoice with your supplier.
- The difference between the purchase price and the sales price is the margin from which you can generate profits.
- The margin must be large enough to at least cover the fixed costs and the running costs and also to generate profits.
Find a profitable niche
Finding a profitable niche is the most important thing in dropshipping. You can do this, for example, in the mega-markets
- Personality development
- Money and finance
- health and fitness
find what you are looking for. A profitable topic serves acute needs of people who are actively looking for a solution and are willing to spend money on it. You should also enjoy the topic. Do you like to do handicrafts and do you do a lot? You are guaranteed not to be alone with this. As a hobby hobbyist, instead of opening a craft shop, you could send the desired craft supplies via drop shipping. Another way to find profitable niches is to look for the best-selling products in the big stores like Amazon, Alibaba. Inspiration for profitable drop shipping niches:
- sustainable household products
- energy efficient household appliances
- Consumer electronics
- Pet supplies
Also take a look at the big drop shipping providers like B! GBUY and browse through their range. Frequently read books and e-books can also be used to find out which topics concern people.
Find business partners
To put a drop shipping business concept into practice, you need a strong partner who offers drop shipping. It doesn’t necessarily have to be a wholesaler who offers a wide range of goods. Often there are also small companies or individual entrepreneurs who like to work with their sales partners using the drop shipping model. They have special product groups in their range that they want to sell through as many dealers as possible.
She founds an online shop for thermos flasks, thermos mugs, fresh food products and accessories. To do this, you work with well-known manufacturers who offer professional drop shipping. During your market research you come across a hitherto unknown manufacturer from southern Germany who offers very special freshness-keeping products for truck drivers in small quantities. You want to include these in the range. To do this, contact him and clarify the details of the cooperation with him. If a customer orders the special truck freshness products in your online shop, you forward the order directly to your new business partner, who will send the goods out to your customers in your name and, if desired, also in your packaging. The drop shipper himself does not appear to the customer.
Develop a clear concept
Anyone who wants to be successful with dropshipping needs a clear business concept. This not only applies to the purchase of goods, ordering and shipping, but also to cancellation. The typical structure is as follows:
- You create an online shop and offer products from dropshipping partners.
- Customers order an item from the online shop.
- The orders are forwarded to the partner dealer.
- The partner delivers the goods to the customer on your behalf.
- The customer pays you the invoice amount.
- You pay the purchase price for the product from your dropshipping partner.
If a customer cancels the order or wants to return the goods, the ideal cancellation process works as follows:
The customer cancels and sends the product back to the dealer.
The dealer receives the goods and settles the costs incurred.
If the dropshipping partner does not process returns and the customer sends the goods back to you directly, you must definitely find a solution in this case. Otherwise you will remain seated on the returned goods. One option could be that you can send the returned goods back to the retailer on a quarterly basis and not have to pay for the unsold products. They shouldn’t get involved in the fact that you have to keep returned goods. As an emergency solution, it is a good idea to raffle returned items or sell them in the sale and, in exceptional cases, take charge of shipping yourself.
Claim small business regulation or not?
A central question that arises for every self-employed person at the beginning of business activity is whether or not they should make use of the small business regulation . Those who shy away from dealing with sales tax and are afraid of not being able to cope with the current sales tax advance notification can claim the small business regulation as long as sales are below € 22,000 in the first or in the previous year and € 50,000 in the current financial year. As soon as these limits are exceeded, the small business regulation is no longer possible.
Important: Please keep in mind that small businesses may be at a disadvantage compared to competitors who are entitled to input tax deduction if they are active in the B2B sector. If you claim the small business regulation, you are not allowed to show sales tax on your customer invoices. However, business customers would claim sales tax in their own sales tax return.
Since it is not possible to deduct input tax on your invoices, this means for your business customers that the costs for the product are correspondingly higher than those of your competitor, who shows VAT on the invoices. Alternatively, you can forego part of your profit and lower the total selling price to the net amount the competition would charge for it.
Smart management of administration and administration
If you opt for the drop shipping concept, management and administration should run as efficiently as possible. It is ideal if the central information from the online shop – namely your sales – automatically flows directly into the accounting department. This works, for example, if the shop software has a corresponding interface to the accounting software. This is the case, for example, with the Versa Commerce shop system , which can be connected to Lex office’s accounting software.