Dropshipping has seen a surge in popularity during recent years as the latest money-making scheme for side hustlers and entrepreneurs alike. Done from the comfort of your laptop and with minimum upkeep and overheads required to get going, dropshipping can be a highly successful business venture without the risks associated with storing and shipping a large number of products.

This dropshipping guide will give you a comprehensive overview of what dropshipping actually means, including all the ways to get started, what to look out for, the legal ins and outs of selling products online, and how you can make money dropshipping.

How Does Dropshipping Work?

The process of dropshipping can be broken down into three main steps:

1. Manufacturer to Supplier

Everything starts with the manufacturer. They create the product, which they then sell in bulk to suppliers and wholesalers.

2. Supplier to Retailer (You)

This is where the retailer comes in. These people seek out suppliers who have the specific products they’re looking to sell, and enter an agreement with them to work together. The supplier keeps hold of the products, but the agreement means it’s now up to the retailer to sell to individual customers.

It’s worth noting that steps one and two can be, and often are, merged - retailers can approach manufacturers directly, rather than suppliers. However, this isn’t always ideal as manufacturers will be looking to sell in huge quantities, with minimum purchase requirements that they might not want to commit to. This is compounded by the fact that these bulk orders would also require retailers to store and stock the products themselves, rather than leaving that with the supplier (which isn’t technically dropshipping anymore).

Seeking out suppliers is also convenient as they’ll often operate within a specific product niche, so retailers can easily source what they’re looking for.

3. Retailer to Consumer

The final step - the retailer sells the product to the consumer. It’s their job to attract potential customers and provide a positive experience from start to finish. In lieu of a physical shop with stocked items, retailers create online storefronts for customers to shop from.

As per the agreement, once a customer makes an order from the retailer, the product is then shipped from the supplier’s stocked warehouse. This will involve a marked up price, whereby the retailer sets the product at a higher price point for the customer; this covers the wholesale fee they pay to the supplier for the product, while bringing them a profit. 

Is Dropshipping Legal?

Dropshipping is perfectly legal within the UK. However, there are certain rules and regulations you have to abide by if you’re considering launching a dropshipping business, primarily:

• Make sure your product offerings are legal.
• Follow the UK’s business laws.
• Adhere to UK tax obligations.

Tax Obligations

In general, there are three kinds of taxes to consider with dropshipping:

Income Tax

This will make up a portion of the annual profits you’ll be required to pay. This percentage depends on the area you live in - different countries have different rules on income tax.

VAT

VAT is typically charged to customers, at around 20% of every purchase. VAT should be collected at the time of sale, along with the cost of the product and the delivery fee. In the UK, dropshipped products sent from outside the UK to Great Britain or products from outside the UK and the EU to Northern Ireland are all subject to VAT.

However, the exception to this is that products which cost £39 or less and are legally considered ‘gifts’ are not subject to VAT.

Customs Duty

When suppliers outside the UK ship products, the retailer must pay Customs Duty. This is applicable when the product costs upwards of £135, or when the product is considered an excise good.

This tax is charged on both the price of the product and on other fees that accompany the purchase, such as postage and packaging.

Legitimacy of Suppliers

Another key area to consider is the legitimacy of your chosen suppliers. Dealing with people on the Internet always comes with risks. Some suppliers aren’t as legit as they might claim to be. Proceed with caution and do your research before committing to an agreement.

Once you have found a dropship supplier you think is sound, it’s always a good idea to establish a solid Dropshipping Agreement contract to protect yourself in case anything goes sour.

The Benefits of Dropshipping

Easy to Start

Compared to other e-commerce models, a dropshipping business is relatively easy to get off the ground. Launching an online business takes time, research, planning - there’s a lot of preparation involved before you even reach the point of selling.

Dropshipping is great for beginners because it skips all those steps. There’s little to no experience required to get going, and no start-up costs to cover, warehouses to fill, or staff to source. You can essentially fast-track your route to becoming an online retailer; once you’ve found a supplier and chosen your digital marketplace, the rest is simple.

Simple to Manage

As it essentially continues to operate in the background, managing a dropshipping service requires little effort to maintain. There’s no inventory to keep tabs on or stock up, as that’s managed by the supplier. Not only does this free up time, but it saves on storage costs and space you would need to cover otherwise.

Because there’s no need to invest in shelves of stock, there’s also no risk of losing out on that investment - if you don’t reach the sales you expected or wanted to, you won’t be left with a huge pile of units that you poured all your money into.

Dropshipping also alleviates the stress of the entire physical process of selling. Packaging and shipping can quickly become a logistical nightmare, but dropshipping takes that requirement out of the equation for the retailer.

Quick to Grow

Dropshipping is scalable. With traditional online retail businesses, more orders means more work. Leveraging dropshipping suppliers allows those additional order processes to be completed by those suppliers, meaning you can expand more freely without the hassle of increasing incremental jobs on your plate.

The infrastructure costs don’t increase too rapidly as you start to sell a lot more - you’ll still be able to operate solo from the comfort of your laptop, without the need to factor in more space and time. You’re more able to focus your profits on scaling the business itself through things like investing in more digital marketing like SEO or Google Ads, or upgrading your website’s look and UX.

Greater Flexibility

As the last few years have shown us, flexibility at work is invaluable. People want autonomy over their working lives and the way they operate day to day, with an increased focus on prioritising a healthier work/life balance than was considered the ‘norm’ pre-pandemic.

Dropshipping allows for this flexibility, in an environment where you can make the rules. Not only do you get to be your own boss, but you’ll essentially have a business that’s continuously ticking over in the background while you sleep. This is also what makes dropshipping so appealing as a side hustle, as you can easily maintain your current job while operating as a retailer online.

With dropshipping, you can work anytime, anywhere - you don’t need extra space or an office rental. You can run the entire business from your laptop, wherever you might be.

The Challenges of Dropshipping

Slim Profit Margins

Unfortunately, with low overheads and little investment required, the return on your investment will ultimately be lower with dropshipping than it would be if you were storing and shipping these products yourself. Less money in often means less money out, and this can result in a far lower profit margin as you might have to dedicate the majority of your earnings into continuously funding your business.

However, there can be plenty of opportunity to reap the benefits of higher profit margins. With such a vast consumer demand and countless suppliers looking to sell, it’s unlikely you’ll be short on customers. In fact, Statista found the demand for online products to be on a steady incline over the last seven years, with total e-commerce revenue sitting at £42.6 billion in 2015 and rising to £129 billion by 2021.

One of the biggest factors to slim profit margins comes down to your chosen niche - if you’re operating within a more competitive market, you’ll be less likely to see a greater turnover. You can target this by carefully selecting the right audience and product area to invest in - do some research beforehand to find out what would most work in your favour.

Lack of Control

Although dropshipping has the allure of the supplier taking care of the delivery side of things, this can also result in a greater risk of complications with orders that are simply out of your control. If you’re sourcing products from multiple different suppliers, as is usually the case with dropshipping, each of these suppliers might have a different structure in place for postage, packaging, and delivery processes. 

The lack of total control over your supply chain also has the potential to lead to complications down the line. Dropshipping means relying on suppliers for processes such as stocking, order fulfilment, shipping - almost everything from the point of purchase. While this usually isn’t a problem, if an issue does occur, you’ll have less input over the outcome.

For example, if a customer has an issue with something that is the supplier’s fault, the blame will ultimately fall on the retailer. As the face of the business, you’ll often have to take full responsibility for any problems that occur.

Highly Competitive Market

Dropshipping is an appealing business venture. There’s no denying that it requires little time, money, and resources to get going and sustain. Because of this, however, there’s a lot of competition out there on the market; lots of business owners are trying to tap into the dropshipping game.

For this reason, it’s also rare to bag an exclusive deal with a supplier, meaning your product will likely appear in many digital storefronts up and down the Internet.

Competition doesn’t mean you won’t make any profit - it just means you might have to think about how you can use that profit to make yourself stand out. Pour your profits back into making yourself shine with digital marketing, SEO and site building, and your business will soon get noticed.

How Profitable is Dropshipping?

Dropshipping can be a profitable business venture. There is a high consumer demand that’s constantly increasing. There are a wealth of suppliers available around the UK to purchase stock from. It’s low-risk, low-commitment, low-investment - it doesn’t demand too much from the retailer. What you get out of it depends on how you model your business.

Side Hustle

Because of the flexible nature of dropshipping, it makes the perfect side hustle venture to have ticking over in the background. Entrepreneurs and employees alike have been drawn to dropshipping for years as a way of making an extra few hundred quid every month alongside their main source of income.

The flexibility, solo management and ability to operate from anywhere also means dropshipping on the side doesn’t require much time or energy, and is easy to grow over time into something more profitable. You won’t become drained or unable to perform within your main job, and most employers will have no issue with the arrangement (as long as it doesn’t go against your employment contract).

Full-Time Business

Dropshipping can be profitable. The risk to reward ratio works in the merchant’s favour, as the investment required to get going and sustain the business is so low.

However, the profits will often be small to start. If you’re looking to increase these, the answer lies in scaling. The scalability of dropshipping is what makes it such an appealing business venture, as it’s easier to pour what profits you do make back into growing your brand (despite the temptation to pocket them yourself).

For this reason, drosphipping can work well as a stepping stone into actually holding stock and becoming a more conventional online retailer, focusing all your efforts on a full-time e-commerce business rather than dropshipping on the side.

How to Start a Dropshipping Business

Decide on a Dropshipping Business Model

First things first - what business model would you like to pursue? It's up to you how much you can make from dropshipping.

As a Whole New Venture

Are you an entrepreneur looking for your next challenge, or are you a committed employee wanting to make some extra money on the side? There are countless platforms out there to get you started quickly and cost-effectively.

As an Add-On

Are you looking to incorporate your dropshipping into a pre-existing business? Maybe you already have a strong online or e-commerce presence, and could slip a few more products into your stockpile through a dropshipping service. Some factors to consider here might be:

• Your existing market. Which of your products are most popular with the customers you already have? What are some similar or complementary products that might appeal to them, or tie in well with your particular business niche?
  

• Competitors. Do some research around the product you’re considering and scope out the competition. How are your competitors pricing and marketing the same product? Can you afford to price match them?

• Suppliers. The crux of any successful dropshipping business - finding the right supplier. If you’re looking at dropshipping as an added extra to your existing business, the key thing to focus on here is making sure the quality of the dropshipped products match the quality of your existing products.

Reverse Dropshipping

As the name suggests, reverse dropshipping flips the more traditional method on its head. Dropshipping as we’ve explored here typically involves retailers sourcing stock from countries that manufacture and export less expensive products, usually with accompanying lower qualities and margins. 

Reverse dropshipping, however, involves retailers sourcing high-quality products from countries that usually import goods, and then selling them in countries that usually export them. So, reverse dropshipping retailers might purchase pricier products from suppliers in the US, and then sell these products to wealthy people living in China.

The appeal of reverse dropshipping lies in the higher profit margins and lower competition levels. Better quality equals better profits, especially with less retailers to compete against than through more traditional (and over-saturated) dropshipping. 

However, reverse dropshipping can be tricky to market. With language barriers, tariffs, different bars to entry, legal requirements, and various online platforms that overseas consumers might use to purchase items, there is a lot more work involved.

Single Product Online Shop

As the name suggests, this model is essentially an e-commerce store that sells one product. The upside to this is that the tunnel vision focus on a single item completely locks your attention, meaning you’ll often be able to sell that item extremely well. Your efforts will be pinpointed - however, if that one product doesn’t do well, your entire business is in trouble.

How to Find & Choose the Best Dropshipping Products

Identifying the right product to sell is the first real step to launching your dropshipping business. Depending on your business model, whatever you choose should largely come down to market research.

Deciding on your product by questioning your motives. Why are you choosing this particular product, why is this the best thing to dropship for you? What about it appeals to your target customer? Have you identified who your target customer is? Is there a gap in the market for this product? Is there a suitable demand present?

You can answer these questions through various tools such as:

• Facebook Audience Insights. This is a free tool created by Facebook that allows you to view two distinct categories of data: the activity of users who are connected to your Facebook page, and the activity of users of Facebook in general. This is useful if you have an existing business and are keen to see what content your connected users are engaging with (and thereby what content or products you should be pushing more of), or if you’re a budding business owner and are scoping out what your target users are responding to on a wider scale. As of July 2022, Facebook sees 2,934 billion active monthly users, so there is a wealth of market research available here, all for the cost of a click.
  
  
• Google Trends. Another free tool, Google Trends provides data on the top ranking search terms on an international level. Essentially, you’re able to analyse what is ‘trending’ in which areas of the world at any given time, which can feed into your marketing strategy and help you identify what your target customers are looking for online.
  

• Google Keyword Planner. This also costs nothing - all you need is a Google Ads account. Google Keyword Planner is originally intended for planning Google Ads campaigns, but it can be a handy keyword research tool as it allows users to assess the popularity of specific keywords and phrases, so you can essentially analyse which keywords will push your digital content further up the rankings.

• Using software to validate the market. There are a whole host of tools out there that can unlock massive amounts of data; SparkToro, for example, is an audience research program that gives information about your customers' digital habits, such as what sites they frequent, which hashtags they use, and what social accounts they follow.
  
  

How to Find the Best Dropshipping Supplier

Whichever route you decide to take and whatever product you sell, sustaining a successful dropshipping business largely comes down to the dropshipping supplier you strike up a relationship with.

The vendor is the one at the mercy of the supplier in terms of postage, packaging, and product quality. Of course, this all part of the dropshipping appeal, as a lot of the hard work is taken out of the vendor’s hands - but it can be a double-edged sword if you end up choosing a dodgy supplier.

Some key things to consider when selecting a dropshipping supplier are:

• Shipping. What’s their timescale on orders? How soon after a customer places an order will they ship out, and how long will the product typically take to arrive?
  

• Returns. What’s the returns process? If a customer isn’t satisfied with their product, will they be able to ship the product back to them? Or will the product fall into your hands?

• Insurance. Beyond this, do they offer insurance on orders? Depending on the situation, this could be a potential red flag if they outright refuse to negotiate an insurance policy. 

• Fraud. The same applies. Do they offer fraud protection, and if not, why not? This is where the Dropshipping Agreement contract comes in handy, as you can negotiate these things before getting into anything serious.

• People. What’s their approach to customers, and tricky situations that may inevitably arise? How do they communicate with you as a business partner?

• Reviews. An easy way to scope out a supplier - check if they have any online reviews. This might give you more of a valuable insight than going solely off the supplier’s self assessment.

Now you know what to look for, here’s a few places you can look:

Online Research

The most obvious - Google. It sounds more simple than it is.

Suppliers are not notorious for their digital marketing and SEO skills. It might take some careful trawling to find what you’re looking for. Be considerate with your searches and don’t be scared away by clumsy looking websites - at the end of the day, it’s the quality of the product and the shipping service that’s the priority.

Supplier Directories

A convenient pool of suppliers organised by product categories, supplier directories are a handy way of finding the right supplier for you at a glance. These databases are a handy tool for trawling through large groups of information at once, and can be a great way to compare different suppliers to assess which you’re most drawn to.

These directories also provide suppliers who are always legitimate, as they will usually have a screening process set up for each supplier to go through in order to be listed with them. This does mean, however, that access may come with a fee.

Contact Manufacturers

If your heart is set on a specific product or niche, going straight to the source could be the best plan of action. Find your dream product, locate the contact details for the manufacturer of that product, and simply request the details of the suppliers they distribute to. This process is quick, easy, and relatively hassle-free. 

Legal Protection

It’s crucial to protect yourself from all angles. As we’ve mentioned, it’s really important to make sure you’ve got a proper Dropshipping Arrangement contract in place with all your chosen suppliers, but there are also several terms and conditions to consider implementing within the order process to protect you in your customer interactions. These include:

• Privacy policies.
• Refund policies.
• Prices of goods and terms of payment.
• Provisions of delivery, risk, and insurance if necessary (including warranties and liability).
• Data protection.

Customer Experience

Think about the last time you ordered something online. Chances are, you chose to go the virtual route rather than peruse a physical shop because of one thing: convenience.

Online shopping has completely changed the game. Retailers are able to make the order process as smooth and accessible as possible for the customer with just a few automated functions, such as order confirmation and tracking updates via email. These have become the norm for digital stores - people need to be connected to the buying process, and customer satisfaction will often be determined against the experience of ordering the item, rather than just the quality of the item itself.

Luckily for retailers in the dropshipping world, it’s much easier to focus your efforts on the customer experience with all the time that’s freed up by the suppliers taking care of the postage and packaging side of things.

Where to Market Your Dropshipping Products?

When it comes to listing your products, there are a whole list of different sales channels you can choose from. Whichever you go for will largely depend on your business model and preferred way of operating. Here’s a few to consider:

• Your e-commerce dropshipping website. If you’ve got an existing e-commerce site up and running and fancy introducing a few dropshipped items, this is the go-to - no setup required.
  

• Marketplace websites. Amazon and eBay are among the most popular traditional marketplace platforms, with thousands of suppliers regularly dropshipping products every day across each site. You don’t need anything to get started - just make sure you’re up to speed with the company guidelines.

• Social media platforms. Facebook Marketplace, for example, is one of the latest and greatest in the dropshipping space, and it requires next to nothing to get started - all you need is a Facebook account.

• Dedicated dropshipping channels. Due to the popularity of dropshipping, there now exist a number of platforms entirely dedicated to dropshipping and e-commerce businesses, such as Shopify or BigCommerce. The main difference between selling via these sites compared to a marketplace is that these platforms give you the ability to create your own online store, while a marketplace such as Amazon is the online store in itself. 

Whichever route you choose, dropshipping can be an extremely lucrative business venture, whether you’re just starting up or have been an established retailer since e-commerce began. If you’re looking to dropship vaping or dropship CBD products, our advanced dropshipping service is fully integrated, automated, and optimised, and is compatible with virtually any online store, marketplace or e-commerce platform, so you can sell stress-free whatever your preferred way of operating. You’re in control of your business, with your own private dashboard and catalogue manager to ensure total autonomy over all operations, while we take care of the listing and shipping.

Dropshipping Automation

Automation software can save you hours when it comes to importing your products from supplier’s sites to your digital store. Lots of retailers invest in automation to save themselves the stress of manual listing, which also frees up time and space for focusing on actually expanding the business.

Develop Your Dropshipping Marketing Plan

Once you’ve done all the start-up essentials and your site’s up and running, it’s time to maximise your business’ potential with proper promotional strategies to get some customers rolling in. These include:

• Social media marketing. This is essentially a form of Internet marketing that allows you to connect with customers via social media apps. Social media is a great way to engage users with your content and drive traffic to your website, and also helps to build your brand image and create awareness around your business.
  

• SEO. A must-have for any successful marketing campaign, SEO is the process used to optimise your website’s relevance to ensure you come out ranking high on search engine results. If you’re providing hundreds or even thousands of products on your website, this is by no means a small task and requires serious investment and/or your own time.

• Content marketing. This is a more involved strategy whereby you create SEO-friendly content that helps to promote your business, or otherwise attract customers to your website. This content can take the form of videos, articles, podcasts - anything that is relevant to your business or niche and provides useful, engaging information to your target customers.

Avoid These Dropshipping Mistakes

Low-Quality Products

The success of your business will largely depend on the quality of your products. If there are any issues with your products down the line, your customers will be turning to you to solve the problem, issue them a refund, and deal with any complaints - not the supplier. It’s important to make sure you know what you’re selling, inside and out, and have first-hand experience using the product yourself so you can be sure of the quality.

Before you even commit to a supplier, try and test the products you’re interested in selling to see how they measure up - maybe order a few variants from different suppliers to see which you’re most drawn to, and which your target demographic would like the most.

Dropshipping Scams

Dropshipping isn’t a scam, but scammers do exist in the world of dropshipping. It can be easy to fall into a trap through a screen - as dropshipping is such a virtual process, there are lots of ways for people to use the nature of being disconnected to their advantage.

This is why it’s crucial to have a proper agreement in place with your suppliers before entering into any binding agreements. You’ll be protected, secure, and safe from any potential scams that might otherwise occur down the road, and posing the idea of an agreement in the first place will give you a chance to ward off any suppliers who don’t want to commit to a contract.

If you’re wary of running into scams, there are a few tips and tricks you can keep in mind when sourcing a supplier online:

Reviews

Checking out a supplier’s reviews is a great way to learn more about their credentials and working history to determine whether your business would be a good fit with them. It gives you a chance to determine their attitude to retailers, customers, and can be a tool for comparing and contrasting multiple streams of suppliers of the same products.

However, suppliers are actually able to produce fake reviews that can be very difficult to distinguish from real ones. Deciphering which are authentic takes a bit of detective work - scope out the negative reviews, if there are any, and see if there are any common themes amongst them. If customers are all complaining about the same thing, there’s a chance that the supplier could be manipulating the positive reviews.

If the overly positive reviews are occurring just after any negative reviews, there’s also a high chance these were written by the supplier in a bid to redeem their digital image.

Personal Information

A simple way to check the authenticity of a supplier is to just ask them for their company registration number and business licence number.

Most scammers will be hesitant to offer up any solid information like this online, as they won’t want to become traceable. If they refuse to let you know their details, this is definitely a red flag.

On the other hand, they might be very eager to offer you other bits of information instead that are easier to make up - for example, a fake address or office number. If this is the case, though, chances are they’ll be keen for you to communicate with them directly through their mobile number, which is actually a good thing as you’ll be able to check their location with this using the area code and see if it matches up with their supposed address. 

Factory Checks

Of course, scoping out the warehouses of suppliers and factories of manufacturers can be near impossible with geographical limitations, but anything is possible with the Internet. You can simply request a video, picture, or even a Zoom call for a virtual look around, giving you a chance to assess the supplier’s business environment, product inventory, and production process to see if it’s worth engaging with them further.

Scheduling an online meeting early on is always a good idea anyway, as it will allow you to get a better feel for their side of the business and whether you would work well together.

Slow Shipping

As we’ve discussed, one of the drawbacks to dropshipping is the lack of control over the supply chain, the most major link of these being shipping. The modern market demands fast shipping, and if the supplier’s shipping process can’t meet this demand, your business will take the blame. Lots of suppliers might be based overseas, so even if their shipping is prompt you might have to address the inevitably longer delivery times to your customers during the buying process.

Luckily, shipping structures can be assessed even before you commit to an agreement with any reputable supplier. Have a look at their terms for delivery, and do some research into your competitors - what shipping times are other companies offering for similar, or even the same, products? Will you be able to compete against them?

Saturated Market

There’s no denying that dropshipping is a highly competitive market. With such a low entry barrier to get things moving, plenty of people are fighting for a space on the digital shelf.

Because of dropshipping’s ease of accessibility, the most popular markets are often the ones which will suffer the most due to the level of competition. Any number of retailers could be selling the exact same products as each other, and it can be hard to stand out from the crowd, especially if you’re only just starting out and are up against retailers with more experience, status, and profits than you.

The way to remedy this is through successful marketing. A dropshipping business doesn’t require a lot of time to maintain, meaning you’ll have lots more opportunity to devote energy into marketing yourself in the most effective way.

Another way to minimise the risk of heavy competition is to find a niche. Research the consumer market for different products to see if there are any gaps waiting to be filled, and go from there. Focusing on a particular niche will also make it easier to market yourself and your business down the line, as you’ll have a more harmonious brand image. 

Dropshipping with JM Wholesale

For any and every dropshipping requirement in the CBD and vape sector, we’ve got you covered. Our service makes dropshipping simple, available in three packages to suit your individual business needs. Whether you’ve never sold products online before, have a fledgling start-up in the works, or you’re an e-commerce veteran, our dropshipping solution takes care of all UK and international shipping processes so you don’t have to.

When you work with us, you’ll be provided with:

• Full product data integration. Our auto-upload service allows for a quick and easy upload of all listings with images, variations, and attributes relevant to your particular products.
  

• Optimised inventory sync. We use fully optimised, industry-leading syncing processes to push and pull data as often as possible, minimising any risk of stockouts. 

• Order automation. All orders and tracking are synced automatically to eliminate entry errors and improve turnaround times, ensuring complete customer satisfaction with every purchase.

You can click here to sign up today, or if you have any questions feel free to get in touch at dropshipping@jm-wholesale.co.uk, or call us on 01162731706 (option 4) to chat with our Dropshipping Team.