Start a drop shipping business and run the show while traveling the world.
*This article covers drop shipping in the USA but some principles may apply to citizens of other nations. Please keep in mind, this is only meant to be a basic introduction to drop shipping. I’ll dish you loads of outstanding resources at the end of this article if you are interested in exploring this further.
What is drop shipping?
The drop shipping business model supports the Zero To Travel concept in 2 ways.
- You can run your business from anywhere
- You can start with a minimal investment
So what is it?
Drop shipping is a way to sell products without carrying any inventory.
By locating a manufacturer and/or wholesaler (we’ll refer to both as a ‘supplier’) who is willing to let you market and sell their products without purchasing anything, you can get a legit business going with minimal start up costs.
Here’s how it works on the most basic level…
Drop shipping 101
After you receive an order online you send the supplier the customer’s order and the supplier will ship it directly to the customer.
The product is packed and shipped for you by the supplier. In most cases, you never even see the product itself even though you made the sale.
Any profits remaining between the cost of the product from the supplier and what you charge the customer are kept by you.
That’s pretty much it!
A quick note on terminology: Drop shipping is what you do as the store owner. The drop shipper is the supplier providing the product, packing it and shipping it to your customer.
Digging Deeper : A Real World Example
Let’s say you want to sell ukulele’s using the drop shipping business model.
Back in the day, you would buy 25 ukulele’s, open a store then try to find customers to sell to.
If you sold 3 ukelele’s and went out of business you’d have a room full of string instruments and an empty bank account.
Using the ukulele example, here is how the drop shipping business model works:
- You own an online store called superflyukuleles.com
- Your store sells the “Woody Ukulele” for $200.
- A customer orders a Woody Ukelele from your online store.
- You forward that customers’s order for 1 Woody Ukulele to the supplier (the ukelele wholesaler or manufacturer)
- They charge you $100 for the Woody plus $5 to ship it directly to your customer.
- The supplier fulfills the order, packs and ships the ukulele to your customer.
- You make $95 dollars
- Repeat as many times as you can!
Here is how it looks:
Another drop shipping example is from an online business I own, eventXchange.biz which services the event marketing industry.
How does it work?
If Company X wants to purchase something from Company Y, we arrange a deal and have the item shipped from one company to the other.
My business never actually owns or even sees the item, we simply facilitate the deal and the shipping and keep any profits from the sale which in our case is the service fee we charge.
This is less drop shipping and more a ‘broker’ model but the idea works in a similar fashion.
I have run this business while traveling in all over the USA, Vietnam, Cambodia and while living in Norway. Hopefully I’ll be adding to that list in the future:)
There are many challenges and I’m still trying to build this company, but the bottom line is that it supports my goal of being able to work from anywhere. It’s hard work, but also a ton of fun and the potential is huge.
If you’re looking to start a business you can run from anywhere quickly, drop shipping may be the answer.
As a bonus, there is nothing more exciting or scary than trying to build a business for yourself. Don’t downplay the thrill of that. After all, if you’re an adventure seeker in travel, you may enjoy it in business as well.
I’ll break down the good and the bad surrounding drop shipping then discuss a few of the many challenges that come with this type of business.
First, let’s review the 5 simple steps to starting a drop shipping business.
5 Steps To Starting a Drop Shipping Business
Step #1 – Register for an EIN.
This is a number assigned to your business by the federal government for tax purposes.
Most suppliers will require you to have an EIN (employer Identification Number also known as Federal Tax Indentification Number) to be considered as a retailer. Obtaining an EIN is free.
One other note, if you are based in the USA I believe it’s good to have an LLC for your business.
I am not an attorney or tax professional so please use your judgement and do your own research.
Having an LLC in place provides numerous benefits including: liability protection, tax write offs and more.
You can assign an EIN to your company or LLC. If this is too intimidating for starters, just go for it, start your business first and see if you can make it work! You can always form the official LLC or company later.
Step #2 – Research potential products and niches.
Step # 3 – Choose a niche and product(s) you want to sell.
Step #4 – Find good suppliers who will drop ship their product(s) to your customers.
Step #5 – Open your online store, take orders, make a profit on your sales.
This is drop shipping at the most basic level.
How to Succeed in drop shipping
Two of the most critical parts to success in this business are
- Choosing the right product and/or niche
- Finding great suppliers
Choosing Product(s) to Sell
Choosing products to sell is an involved process and there are countless things to weigh. This is a complicated process that will require studying and research on your part.
An important part of the niche and product selection process involves conducting keyword research. This means you need to identify the keywords people are typing into search engines like google when searching for products.
The idea is to find keywords that you can build your business around which will get you to the top of the search engine rankings and make your online store the place to go.
If this was easy everybody would do it.
You’ll have to go do a bit of studying. The good news is that learning about this stuff will benefit you in nearly every business you may start because having a website that ranks highly helps all types of businesses.
For a great (and free) beginner’s guide to SEO and keyword research check out moz.com and get their free ebook The Beginners Guide to SEO
After reading through that, try out the google keyword planner. You’ll need a google account to use it but it is free. Check out a couple of google’s tutorials and you’ll see what it is all about. (self-educate!)
For advanced keyword research you can purchase tools which makes the process faster and easier. I own market samurai but don’t use it very often.
Another is long tail pro which I’m considering purchasing at some point.
Should You Pick a Product You Love?
As much as you’ll want to choose a product you personally love, many drop shipping experts say don’t choose based off of your hobbies and what you enjoy.
The practical side of me understands that argument, but overall I don’t agree.
There are so many products available and selling something for the sake of making a buck doesn’t excite me.
Personally, I’d find something I am excited about but which also has potential. It’s hard enough to keep plugging away on anything everyday let alone busting your ass on something that bores you to death…or even worse, something you don’t believe in.
Don’t compromise your core values dude or dudette! Find the happy medium.
Here’s another important question…
What else can help a product succeed?
One of the best strategies is to find products that you can build a blog around. These may be the type of products that need a support system which you can provide. For example if you are selling car parts, you can create videos and articles explaining how to build the parts into any engine or whatever is the case.
By adding helpful content based around the product(s) you’ll be providing added value to your customers while increasing your search ranking on google and other search engines while at the same time rising above the competition and positioning yourself as an expert.
Since you’ll never be able to beat Amazon on pricing, you’ll have to beat them by adding value to your customers.
Keep an eye on general trends and see if you can pick up on a hot one, then dig into keyword research and see what pops.
Google trends highlights top searches. Monitor trending topics on twitter and just read any articles on trends you can find. Some will be crap, but others may contains the juicy nug you’ve been searching for.
What Should be the Target Price of the Products?
If you are selling $5 mouse traps you’ll need to sell thousands to make decent money. If you sell a $15,000 machine you’ll make a huge profit but it will be a lot more difficult to get sales.
What’s an online seller to do?
In the Four Hour Work Week by Tim Ferris (life changing book for me, highly recommended), Tim suggests you shoot for a product that is priced between $50-$200.
His theory is that if the product is too expensive you’ll get high maintenance customers and if it’s too low it isn’t worth your time and you’ll attract more pain in the ass, aka cheap, customers.
My event drop shipping / broker business is higher on the pricing scale which is why it’s very relationship driven. This can be a good idea if you have a lot of connections in one particular industry. You can make more money but on the downside, you’ll spend more time on email, making phone calls, going to meetings if possible and developing relationships.
For me, meeting people and developing relationships are my favorite parts of business. Because I love working with people in the event production industry, the extra ‘work’ doesn’t bother me.
Find what’s right for you.
Another of Tim’s tactics for discovering good drop shipping products is camping out at your local bookstore and trolling through magazines. What you are looking for are advertisements for various products within the publication. Chances are if they can afford to advertise in them month after month, then they are making a profit from it. This type of research may spark an idea and reveal an undiscovered gem.
Use any and all resources available to you to source potential products.
Finding solid suppliers who are supportive, responsive and will ship products to your customers quickly is key.
The first option which is safe but also involves an upfront cost is using a service that locates suppliers who are certified and willing to drop ship for smaller businesses.
These services provide a directory of wholesalers that are already pre-qualified by them and you’ll have access to thousands of drop shipping suppliers without the hassle of searching around everywhere and vetting them yourself.The downside is that these services cost money.
There are numerous companies who provide this type of service but one of the most well known and respected is Worldwide Brands.
Worldwide Brands has been in business since 1999 and pride themselves on maintaining a database of trusted suppliers while saving you the headache of getting scammed by a wholesaler. To learn more about drop shipping scams check out World Wide Brands “Scam Watch” section which provides a good overview.
Worldwide Brands currently charges $299 for a lifetime membership. Not cheap, but it may also save a lot of headaches if you want to get into this business and don’t want to spend a ton of time making sure your suppliers are safe.
Then again, it may not expose you to more undiscovered products as many people are using this service making it tougher to find something unique.
Balance the amount of time it would take you to do this on your own, balance that with the risk of vetting yourself and decide if it’s right for you.
I recommend skipping the services in the beginning and go for the total bootstrap freebie option by sourcing and choosing suppliers yourself.
Locating good suppliers will involve google searches and going deep into the results. You’ll also want to call them and get to know a sales representative that can fill you in on how they work, what they charge, etc. Ask for references and spend time talking with them to make sure you’re choosing a supplier who will do what they promise.
Another consensus opinion of expert drop shippers is that supplier websites can be notoriously behind the times in regards to web design. In general, don’t judge a book.
Skipping the Wholesaler
One of the best ways to increase your profit margin is to find manufacturer’s (product builders) rather than wholesalers (product resellers) and arrange an agreement with them directly.
I’m always on the lookout for new products that pulsate with potential. Usually when somebody is just launching, they are excited to hear from anybody that may be able to help them sell their products to customers.
Some manufacturer’s won’t sell directly, but some will.
If you want to find a more grass roots approach to find manufacturer’s, how about searching kickstarter and establishing relationships with someone whose product you love?
As newbie business owners, they might be willing to make you a seller in exchange for a pledge or some assistance in marketing.
Good stuff, Bad Stuff and Mad Skills
Like anything else there are numerous pros, cons and hardships that can arise when running a drop shipping business.
You’ll also need to develop some mad skills to make it big. Don’t make the mistake of trying to know everything before you go into it or you’ll never get started.
Better to take some risks and learn along the way.
Overall, I believe opening an online store and working with drop shippers is a great business model for the dedicated entrepreneur who wants to travel.
There are many benefits to running a drop shipping business if you can pull it off, and it won’t cost a ton of money to start this type of business. Perfect for the Zero To Travel mindset.
If you build your own online store you are building an asset. I am a huge fan of this!
The work you put into your business can continually generate income into the future. Instead of simply trading time for money you invest your time into building your business, which becomes a valuable asset that can continually generate income for years to come.
People drop ship on large sites like eBay and Amazon which make it easier to get started but there are various fees involved.
If you are going to go for it, I recommend opening up your own store.
Shopify is a well known platform that makes it easy to open up an online store, and it comes highly recommended by many, especially if you don’t have skills to build websites.
There is a cost but it’s fairly reasonable, and you’ll have the backing of customer service if you run into any issues.
Although I have not used this service yet, it is on the top of my list of solutions if and when I want to open an online store quickly. Since I lack the technical skills to build a website, this is a great solution from somebody like me. If you are in the same boat, check it out.
The following is a short list of some of the issues drop shippers can have, and most likely will if you’re in business for long enough.
- Low profit margins.
- A lot of competition
- Suppliers not filling orders quickly thus pissing off your customers
- Having one of your customers order only to find out from your supplier that it’s out of stock for weeks
- Web and technical issues
- Customer service issues
The list goes on…
Drop shipping is definitely not a magical pill, get rich quick scheme. You must build it and treat it like a real business, because that is exactly what it is.
This means you’ll have to invest time and some money into something that may or may not work. That is the risk anybody who starts a business takes. But if you can pull it off…you can work from anywhere and earn a great income.
Skills you’ll need to succeed include but aren’t limited to:
- Ability to building and managing a website. If you can’t already do this part don’t waste time learning. Hire somebody to do it for you or use a service like shopify
- SEO basics
- Keyword research
- Negotiating and relationship building
- Learning how to test a product before fully investing time and money (another reason to read the 4 Hour Workweek)
- Setting up a payment system via paypal or another service on the web
- Creating systems that work for your customers and suppliers
The Final Word
Starting a drop shipping business is a risk, but the rewards can be tremendous.
Imagine logging into your email to find 5 orders you received while you are sleeping which generated $300 in profit, spending a short amount of time forwarding them to your supplier for fulfillment, then grabbing your surfboard (insert favorite hobby) and hitting the water.
It can be as simple as that when it’s running smoothly.
If you’ve read this far I am guessing you are interested. Take the next steps and review the resources listed below to learn more.
Drop shipping Experts
Special thanks to Andrew Youderian from ecommerce fuel, my favorite resource for all things drop shipping. His website provided some key points I summarized in this article. Andrew has a great podcast too.
Keyword Research and SEO
Building an Online Store
odesk (for finding cheap web design and build help)
Suppliers and Manufacturers
Paid Drop Shipping Directory
Web Hosting if Building Your Own Store
Open a Store Quickly