Complete Guide on How to Start a Dropshipping Business
12 minute read
You have definitely heard of dropshipping. And you probably know dropship is an extremely lucrative business model for entrepreneurs.
The biggest advocates of dropshipping nowadays are millennials since they grew up during the development days of the world wide web. That is why they understand this business model better than the rest.
An online store that uses a dropshipping model basically buys the items from a third-party supplier or manufacturer. That same business then sells the products by fulfilling the order and dealing with the shipment processes.
As a result, the operational costs are cut and entrepreneurs have more time to focus on segments such as customer acquisition or retention.
However, do not think for a second that dropshipping is a get-rich-quick scheme. Yes, it may sound like it is easy money, but there are some obstacles and drawbacks that make it a bit difficult if not handled properly.
If you want to approach it the right way and start a successful dropshipping business of your own, you will appreciate what we have in store for you below (pun intended).
Which niche is best for dropship?
Choosing the right niche takes some research. However, to make this stage easier for you, let’s take a look at a few niches that have already been popular and lucrative for many business owners.
In order for you to better understand the niches selected below, bear in mind that some of them are timeless in regards to their popularity while some are bound to become a great hit when it comes to demand.
Considering that technology almost never stops improving, it is worth mentioning this niche here. If you are an individual that adores hi-tech stuff and you always monitor tech trends and latest releases from big tech companies, maybe this is the right niche for you.
For instance, you could check out the budding Wi-Fi 6 technology and its products. This technology allows faster processing and higher wireless connection speed to web surfers.
This technology can help a user reach 3 times faster download speed than the old Wi-Fi 5 that is still being used.
To make this matter even more attractive, in 2019 not many people offered Wi-Fi 6 products on the market. And even those who did usually offered routers that weren’t meeting the grade in most cases.
Some will say that this too belongs to the tech niche, but it’s become so popular that it deserves to be mentioned separately.
Fitness and health trackers (bands, watches, etc.) have become a huge hit in the world. Nowadays, these wearable gadgets are becoming more accessible than ever to the general public.
Thanks to technological advancements, even the people living in underdeveloped countries can easily afford this kind of device.
Exactly due to this reason, sellers are able to reach the customer segments that they could have only dreamt of earlier.
Additionally, the potential of this niche is astonishing. According to the Wearable Devices Market Forecast, the market value of wearable devices will grow by around 26% every year in the next 5 years.
According to various reports, 2020 is the year of adventure tourism. To be more precise, adventure tourism is expected to reshape the whole travel industry.
Therefore, every ambitious dropshipper cannot afford to ignore this interesting market movement.
This is why rope survival kits, slippers, waterproof sneakers, athletic sportswear, and even folding pliers are becoming hot when it comes to demand.
Tourists are exploring unusual and physically demanding types of traveling, and they need the right and reliable equipment.
Are you going to offer them what they want?
Looking to set up your own shop?
Considering that you are reading this guide, it is safe to assume that you are interested in learning more about setting up your own dropshipping business.
Take a look at all the essential steps you need to take to start your own dropshipping business.
Decide on what you’re going to sell
As you see, deciding what your niche is going to be is very important. The niche you go for should not be broad. Additionally, pick something you are really interested in.
Bear in mind that a product category that isn’t focused will be hard to market. Also, if you aren’t really passionate about the niche you select, you will easily become discouraged since it takes a lot of work to scale a dropshipping business.
Consider some of these points before you pick a niche:
- Is the niche you have selected lucrative enough?
- Are shipping costs low or high?
- Can you really convert visitors easily?
- Can you come up with a recognizable brand?
- Is your product unique enough?
Set up your website
The quickest and simplest way to launch your own eCommerce website that supports a dropshipping business model is to use eCommerce platforms such as Shopify or WooCommerce.
As a business owner, you won’t need comprehensive IT knowledge to kick off your website. Once you set it up, you will see that running the website isn’t too difficult either. On top of that, these platforms usually have plenty of apps that can help increase sales.
On the other hand, if you have enough funds, you can hire a web designer or a developer to create your own custom website.
Find your supplier
In the world of drop shipping, choosing the wrong partner to supply you can destroy your whole operation.
Take your time to select a reliable partner. The majority of dropshipping suppliers will most likely be located a few oceans away from you. This means that communication is of the utmost importance.
This applies both to response speed and the ability to understand each other.
If you aren’t completely sure that your partner (supplier) cannot communicate properly, if you sense that the person isn’t as reliable as you need them to be, move on. Look somewhere else.
Also, keep in mind that Alibaba is one of the largest online resources to identify and communicate with potential manufacturers and suppliers.
It would be wise to ask about all important bits and pieces regarding their production capabilities should your business encounter staggering growth. Make sure they have the ability to scale with you.
Incorporate your company
Considering that you are about to start dropshipping, the chances are that you are a one-man operation.
Hence, selecting your business structure should be straightforward. However, it’s best to evaluate your options and see which one suits your needs.
It’s better to do your homework than to regret the haste choices you made later on.
- Sole proprietorship — the least complex form of business and the most manageable one. You are the only owner and you are the only one behind it. It consists of you (the owner) and the staff employed by you.
- Corporation — a separate and new entity formed under the law. The ownership is divided among shareholders. The corporation owns the business, not the shareholders.
- Partnership — an association of two or more persons to carry on as co-owners of a business for profit.
- Limited liability company (LLC) — the newest structure, uses the tax freeway and less regulatory benefits of a partnership but still enjoys the limited liability characteristic of corporations.
Is Hong Kong good for dropshipping?
There are numerous reasons why Hong Kong is great for dropshipping. The benefits range from the region’s location and its great tax system to the capability to operate in multiple currencies.
Fortunately, this isn’t the end when it comes to the benefits of dropshipping in Hong Kong. Let’s take a deeper look.
The suppliers are mostly in China
If you start your company in Hong Kong, you will be happy to learn that a lot of dropshipping suppliers are located in Mainland China.
Hence, operating your business from Hong Kong means being close to the action and being a more favorable client to a certain dropshipping supplier you want to do business with.
This means that you can pay them quickly and easily. You won’t have to pay transaction fees or any other fees that you might have to pay for international money transfers.
Even if the supplier doesn’t have a company in Hong Kong, you can easily make transactions to Mainland China companies. The payment can even be made in the Chinese Yuan.
Working with Chinese Yuans (RMB)
This is probably one of the biggest advantages of having a dropshipping business in Hong Kong. It’s the only place (aside from Mainland China) that is allowed to hold the Chinese currency (Yuan).
You can also keep some money in RMB in your business bank account and pay out the suppliers in their domestic currency.
In general, there are cases when people avoid this practice since they may be making some extra margins in the currency exchange.
However, clients sometimes like this practice since they don’t need to deal with the hassles of currency exchange in their Chinese bank.
Favorable tax rates
There is no denying that Hong Kong is a real tax haven for many entrepreneurs — both domestic and foreign.
As a business owner, you can enjoy the benefit of a good corporate tax rate. The base stands at 16.5%, but you can even qualify for 0% if you go for the offshore elect.
However, be careful since the IRD (the Inland Revenue Department) requires you to pass the physical presence test.
All in all, even with the 16.5% tax rate in Hong Kong, you are in a better position than a lot of entrepreneurs from other countries.
Every medal has two sides. That is not always pleasant to hear, but it is what it is. Below, you can take a look at some negative sides you should pay attention to when it comes to dropshipping.
Lack of control over supply-chain
In eCommerce, when customers complain about the quality of your products, fulfillment speed, or return policies, you can address and solve the problems yourself.
However, in dropshipping, you are more or less at the mercy of your supplier. But you are the one who has to interact with your customers directly, not the supplier.
This means that you could end up trapped, hoping the supplier addresses the issues while reassuring the customer about something that is out of their control at the same time.
Additionally, there are delays in communications since the dropshipper has to go back-and-forth between the customer and the supplier.
Potential legal liability
This isn’t such a common problem for entrepreneurs in the world of dropshipping. Nonetheless, it is worth mentioning.
Some suppliers are not as legitimate as they claim to be. You cannot always know where the merchandise is coming from. Some of them often try to use a trademarked logo illegally or even steal another company’s intellectual property.
In some cases, the dropshippers pay the price. However, those with good agreement contracts can solve problems of this kind. Keep this in mind at all times.
It is clear that dropshipping is a business model that can earn you a lot of money. In addition, it is more than obvious that Hong Kong is a great region to start a business of this kind.
All you need to do is select a good niche and follow all the tips you have read in this guide.
If you need more information regarding dropshipping in Hong Kong, contact Sleek.