If you’re thinking of setting up an ecommerce business or just a side hustle to earn some extra cash, you might have heard of dropshipping. Dropshipping allows you to sell online without having to worry about manufacturing, storing or shipping products – that’s all managed by a dropshipping supplier.
But while it sounds simple in theory, setting up and running a dropshipping business can be quite complicated. This guide explains how dropshipping works, how to start dropshipping, how to find dropshipping suppliers and how to increase your chances of success when selling online.
Dropshipping is an online selling business model that doesn’t require you to keep any items in stock. Instead, whenever you sell a product to a customer, you buy it at wholesale cost from a third-party supplier. This supplier then ships the product directly to the customer on your behalf. This means that you never actually store or handle the product yourself.
Essentially, dropshipping means selling someone else’s products and taking a share of the profits. Here’s how it works:
Yes, dropshipping is legal in the UK. However, you’ll need to make sure that the products you offer can be legally sold in the UK. You’ll also need to comply with the UK’s competition and consumer laws and all online, distance-selling and data protection rules..
Dropshipping can offer a simple way to earn extra income on the side or help your ecommerce business grow. However, there’s no guarantee of making a profit, so it’s wise to put together a business plan before you start dropshipping, to increase your chances of success.
Here are some key steps you should take:
There are a few stages to setting up an online dropshipping store. We’ve created a 5-step guide to help. It’s free to download and includes expert tips, resources and links.
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You can use dropshipping to sell products from your own online store, but it’s also permitted on a wide range of popular online marketplaces and ecommerce platforms, including the following:
Before you sign up for an account on any marketplace, check the terms and conditions to make sure dropshipping is allowed.
Finding high-quality items that you can sell for a profit can be tricky, but doing as much research as you can will help. To start with, you should do the following:
Products and categories suited to dropshipping tend to include items that are relatively cheap and easy to ship. The following are some examples of products that are suitable for dropshipping:
You should carefully compare a range of dropshipping suppliers to find a reliable partner for your business. Cost will be a major consideration, but it’s really important to also factor in the supplier’s track record and shipping times, as well as its refunds and complaints handling processes. Perhaps even more importantly, any supplier you choose must be a prompt and effective communicator.
You can contact individual manufacturers and wholesalers directly, or find them using supplier directories like Worldwide Brands and SaleHoo.
Check out the table below for details of some popular dropshipping supplier directories.
| Pros | Cons | |
|---|---|---|
| Oberlo |
|
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| Worldwide Brands |
|
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| SaleHoo |
|
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| Doba |
|
|
Use the following checklist of questions to help find the best dropshipping supplier for your needs.
The following are some of the sales and marketing strategies you can adopt to help boost sales for your dropshipping business:
There are a few key risks and problems you’ll need to be wary of when dropshipping:
If you’re working as a sole trader or doing dropshipping as a bit of a side hustle, then some banking providers will let you use your personal current account for a small number of business-related payments. However, if they see high volumes of transactions going through – which could be the case with dropshipping – they may ask you to open a business bank account.
If you’re operating as a limited company in the UK you’re legally required to open a business bank account. This is because you have to keep your business and personal finances separate.
There are also other benefits to having a business account. You’ll be able to identify all your dropshipping transactions and keep track of your dropshipping suppliers. And if you need to pay taxes, some business bank accounts come with tools that help you manage invoices or work out your expenses and tax reporting.
There are a number of free or low-fee business accounts available in the UK – to find out more check out our guide to the best business bank accounts.
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If you’re selling products online as a business rather than a hobby, you’ll need to register as self-employed with HMRC.
Depending on what you’re selling, you may also be required to apply for other business licences and permits.
There are two main types of tax you’ll need to consider when dropshipping: income tax and VAT.
If you’re selling online as a business, you’ll need to report all your earnings to HMRC and fill in a self-assessment tax return. You have a trading allowance of £1,000 a year before you have to start paying income tax or your earnings.
And if your business has an annual turnover of £85,000 or more, you’ll also need to register for and charge VAT.
Ultimately, dropshipping is worth considering if you’re looking to build an ecommerce business. But if you approach it expecting to earn easy money, you’ll be setting yourself up for failure.
A successful dropshipping business requires careful preparation and planning as well as an ongoing commitment to make each customer’s experience as smooth and seamless as possible.
So, if you think dropshipping is the way forward for your online business, it’s time to start researching your options.
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