How to Create a Drop Shipping Business Plan

How to Create a Drop Shipping Business Plan

In theory, starting a drop shipping business sounds like an easy thing to do. After all, it’s a way of selling products without ever having to source, buy or store any actual stock yourself. You are the middle person between the customer and the supplier, taking orders but skipping the hassles of a traditional business model. 

You don’t have to find and spend thousands on a warehouse, you don’t have to gamble on ordering stock without any clear guarantee of how much you will actually be able to sell, and you don’t have to deal with the logistical headache of having to dispatch the orders to the customer. 

Drop shipping is potentially extremely profitable: if you get things right, identify the right products and aim it at the right target audience, the relative lack of overheads could lead to very healthy multiples. 

But don’t let all of that make you think starting a successful drop shipping business is easy. It isn’t just a case of firing up the laptop and watching the money roll in. As with any business, you must know what you’re getting yourself in for, you must know your market and your product base, and you must be prepared for every eventuality. 

That’s why you have to create a strong drop shipping business plan, to guide you through the process, set out a roadmap for how you are going to succeed and how you’re going to avoid the mistakes that you could make if you just went into things blind. 

This step-by-step guide will help you get off to the best start possible. 

Perform market research

The first thing to consider before you start a drop shipping business – in fact before you start any business – is to explore what sort of market there is. 

Are the products you intend to sell in demand? It sounds like an obvious thing to say, but while you might think that you are interested in a particular product, it’s not necessarily the case that there will be a broader demand for it.

Once you have done that, it’s time to think about the sort of people who will buy what you have to offer. Identify a target market for your business and products. Look at the demographic of your prospective customers, their typical income, their buying habits, their location, where they do their shoppi9ng and aspects of their lifestyle. You can use online market research resources such as TowerData or even Google Analytics to help with this, you could perform customer surveys or you could employ a market research company to really dig down into your customer base. 

Once you have figured out who your target market is, try to identify their main “problem” as best you can. Do they want to buy your product? What are the factors that might stop them from buying your product? What are the main mistakes your competitors are making? Once you have identified those problems, you can outline how you intend to solve them. This will be a key part of how you organise your drop shipping business. 

Perform keyword research

By now we probably all know that many businesses fail or succeed at the whims of Google keywords and search trends. 

They can be unpredictable, but that doesn’t mean that you can’t plan for them. Familiarise yourself with Google Analytics: if you do start this business, you will be spending a lot of time looking at it, so start when you can. 

Look at the sort of search terms that are drawing people to existing businesses in your area. Are the products you intend to sell trending? This can work both ways too: you might discover that a product you perhaps didn’t initially intend to sell does receive plenty of traffic and thus there exists a market for it, so you could look into providing that as well as your intended offering. 

Think about how you are going to exploit Google keywords to drive traffic and interest to your business. It won’t simply be a case of putting up a website and hoping for the best: you will have to carefully think about how you are going to attract customers. 

And if this research reveals that there does not appear to be much interest in the area that you are considering, you may need to reconsider your plans and think about how you are going to structure your business. 

Do competitive research

It’s not necessarily the end of the world if your market already has a number of businesses providing your product or service. It could mean that the market is saturated, but it could also just be an indicator that there is plenty of demand out there and that there is scope for someone who does things differently.

Look carefully at the websites of companies that already work in your area. Identify what they do well, but perhaps more importantly what they do badly and how you can do it better. 

Look at the sort of products they offer, and consider why. Why have they chosen those products? Why are they sourcing them from those suppliers? Why have they listed them at that price? Can you do better?

If you get into the drop shipping business, you will have to think about your competitors a lot: so you might as well start that now. 

Identify opportunities

In all of the previous steps you will probably have identified a number of opportunities related to your prospective drop shipping business. 

That though, is only half the battle. When drawing up your plan, be specific about what those opportunities are and how you propose to exploit them. This could relate to the sort of product you are planning to offer, how you think you can market your business in order to differentiate it from others in a similar field, how you could supply your product in a better way to potential competitors – hopefully, at this stage you will have a long list. 

If you have picked out these opportunities, then your drop shipping business plan will be much clearer, and you will have a greater chance of success. 

Find suppliers – if needed

A key aspect of any business, particularly something like a drop shipping business, is having a good relationship with your suppliers.

Choose your suppliers carefully. Are they already supplying other businesses in your sphere? Do they produce quality items at a price you can turn a profit on? Do they have a reputation for reliability? Remember, if a customer places an order with you but your supplier either doesn’t fulfil it or is late in doing so, the customer won’t be going to them to complain: it will be you, and the reputation of your business could suffer. 

Consider having a variety of suppliers for your products. Working with a number of different companies might complicate matters a little, but the benefit of not relying on a single supplier for your product could outweigh that inconvenience. You do not want to find yourself in trouble because a single supplier is experiencing problems out of your control. Having, at the very least, a fall-back option could be crucial. 

Plan your marketing

This is where the market research you did earlier will come into its own. 

Hopefully, that was when you identified your potential customers, what they want and how they want you to provide it. If you have completed that stage properly, then this stage will be much easier to complete. 

Think about whether you want to engage with a specialist marketing company or agency to help market your product. This will clearly depend on your circumstances, because not every new business will be able to afford outside help, but if it is possible for you then it will certainly take some of the load and stress off and inject some specialist expertise into the process. 

Possibly with the help of such an agency, or simply on your own, assess whether it would be better to engage in traditional advertising with known publications, or whether it would be more effective to rely on Google trends, or whether it would be better to concentrate advertising on social media platforms. 

All of these things could be possible, but the most important thing is to ensure you have looked at the options and planned carefully for whatever is most appropriate for your drop shipping business. 

Plan your finances

This is arguably the most important step of all. 

You could create the most detailed and perfect drop shipping business plan, identify the right products, the right target audience, how to reach that target audience and partner with exactly the right sort of people to help you.

But if you don’t carefully consider your finances, then you will never make the sort of money that you might have expected to make, and perhaps you won’t make any money at all.

If you are receiving financing to get your business up and running, think carefully about where that is coming from. You will need to explain to whoever is providing that financing how you intend to produce a return on their investment, and also think about how that will impact your own bottom line. 

Carefully consider all the start-up costs. Sure, the benefit of a drop shipping business is that overheads are limited, but they’re not completely absent. 

You will have to ensure you have the right technology to do everything your business requires, which might be as simple as having a reliable computer and internet connection. You may have the costs of engaging with outside agencies and companies in the course of your market research. There is the cost of the time you will have to invest in researching every step of your business plan. 

You will have to think about the costs of your marketing, even if it is as simple as a few Google ads: these things aren’t free, and if your plan is to make a splash with some more adventurous advertising, then you will have to consider the risks and whether that is worthwhile from a financial point of view. 

You will also have to consider any costs related to your suppliers, even if it is just something like the costs of attending any face-to-face meetings.

Your financial plan should detail: the start-up costs of your business whether that is being provided by you or someone else; your expected revenue; your expected costs; your projected profit on each item you sell; how you intend to grow in one, five, ten years time; your expected repeat/returning customers. 

There may be unexpected costs and things that you are simply unable to predict, but one of the most important steps in your drop shipping business plan is to ensure that you have as much of the financial side planned out as possible. 

Buying a drop shipping business from Latona’s

Of course, if you have considered all of these points and decided that starting a drop shipping business from scratch is the way to go, you could always buy an existing drop shipping business with the help of Latona’s.

The groundwork will already have been done, there may already be a customer base for you to work with and they will probably already have a relationship with the relevant suppliers. 

There could be any number of reasons why someone would sell a drop shipping business, but it’s not necessarily because that business is struggling. The sellers may be ready to move onto other businesses, they may have decided they don’t have the time to dedicate to making their business a success, they may be retiring or stepping back from work obligations. 

But even if the business is on a bit of a downswing, the beauty of the drop shipping business plan you have already created is there’s every chance you will have developed the knowledge to take that business to the next level. You may even have identified the business in question in the course of your research, and have already spotted the flaws and weaknesses in it, complete with ideas of how to fix them. 

Latona’s has thousands of eCommerce businesses available for sale – see our eCommerce listings here. New businesses are added every day.