How to start a drop shipping business

How to start a drop shipping business

How to start a drop shipping business


One of the most frequently asked questions we receive is “how do I start a drop shipping business?” While all suppliers are independently owned, and this question will vary by supplier, and will ultimately depend upon your credentials in this article we are going to cover some of the basic requirements.


The first step to starting a drop shipping business is to get prepared, different suppliers will require different forms here are some of the most common forms you will be asked fill out.


1. Tax id

The Federal tax id also known as the EIN is one of the first pieces of information a real supplier will ask for. If a supplier (found on the internet) does not ask for your EIN number this should be an immediate red flag that you are dealing with a middle-man. Almost 90% of the drop shippers found in our directory will require you to have a tax id number. The Federal tax id is free to get, and is one of the easiest things you can acquire for your business. You can learn more about the Federal EIN here.


2. State tax

State tax id is the second most popular thing suppliers ask for, around 60% of our suppliers will ask for this. The state tax id is also known as a resellers certificate, or a sales and usage number. The state tax id is different from an EIN number, and is only valid if your state charges sales tax, and if your state requires online sellers to obtain one. In some states like Kentucky once you fill out the EIN a state sales and usage number is automatically sent to you as well.


Sales tax only is applied toward the sale of physical goods to buyers within your state. Not all states charge sales tax, for example if you live in Delaware, Oregon, New Hampshire, Montana, Alaska and Hawaii, then sales tax either does not apply, or applies only in certain circumstances.


3. Credit/debit card authorization form

This form is required by all suppliers that do not accept Pay Pal, and is simply a form giving them permission to charge your credit card after a purchase has been made.


Accepting payments for your new drop shipping business

Merchant account

If you are planning on selling items online you will be accepting payments over the internet therefore you are going to need a merchant account. There are hundreds of merchant solutions online some of the more popular, and trusted ones are Pay Pal, and Google Checkout.


Pay Pal is one of the oldest merchant solutions, and is integrated with most e-commerce platforms. I have personally used Pay Pal for over five years, and I have never had any problems with them. Pay Pal will allow you to accept all credit cards on your website, and because they are a self hosted payment solution you have the option to take payments on their secured website so you do not have to purchase an SSL security certificate.


One of the best features I like about Pay Pal is that you can also get a free Mastercard/debit card from them, and withdraw your earnings at any ATM, or use it to shop anywhere in the world. You can learn more about Pay Pal here.

Google Checkout aka “Google Wallet” is a secure self hosted checkout process that helps increase sales by bringing you more customers from over 140 countries, allowing them to buy from you quickly and easily from their Google account, online or in-store.  Google has a “Payment Guarantee Policy” that protects on average 98% of your orders. Google claims you will get paid even if it results in a chargeback. You can learn more about Google Wallet by visiting


Finding the right drop shipping company

We have numerous drop shipping companies listed in our directory it is very important for you to find a supplier first before deciding on where you’re going to sell your products at. For example, over the years we have had numerous people tell us they purchased a website to sell something without finding out first if there was a supplier for the item. It is not a good idea to have a website called constructed if you don’t already have a supplier for blue widgets.


A couple of things to consider while searching for suppliers


1. Does the supplier offer multiple warehouses

A supplier with numerous warehouses will be able to fulfill your orders more proficiently than a supplier with only one warehouse. Most of the larger drop shipping companies will have two, or three warehouses in the USA.


2. Does the supplier accept returns

While returns are uncommon online occasionally they do happen. It is your job to find out what your suppliers return policy is, and make sure your customers are aware of that policy.


Finding the most profitable products to sell

The old saying is “just sell things you like and you’ll be successful” however, things you like may not pay the bills. Take video games for instance through the years hundreds of gamers have contacted us wanting to sell video games until they found out the average profit on a game is around $5.00-10.00. The reality is you’re starting a business online to make money, and it takes as much effort to promote an item that has a $5.00 profit as it does one with a $50.00 profit so why not go for the higher of the two.


Look at the numbers…

10  sales @ $5.00 profit= $50.00

10  sales @ $50.00 profit= $500.00


Turn one sale into two, or more

Not every product is going to have a $50.00 profit however you can focus on the larger profitable items, and back those items up with accessories. For example lets say you sell a flat screen television odds are your customers are going to need HDMI cables, a wall mount, wiring for surround sound speakers, and possibly a Blu-Ray player. If they have already added the television to their shopping cart chances are these accessories are next on their list. I always recommend you canvass as many of the suppliers as possible in order to find merchandise that will compliment the main products you are promoting.


Deciding where to sell your products

In the beginning there was eBay, and all was good, today there are hundreds of places to sell your products online. Sites like Amazon, Bonanzle, Ubid, and even Sears has gotten in on the action with their own selling platform. You can also sell products directly to your friends, and family via Facebook, and Google, and for the serious entrepreneur you can consider opening up your own e-commerce website.


Remember it’s your business

Now that you have the basics to starting a drop shipping business the main thing to remember is it’s your business, and the decisions you make will determine if your business is a success, or a failure. As with any business venture drop shipping requires patience especially in the beginning. You should try to avoid any type of monthly fees so you don’t end up in the red before your business gets established.


For more information on drop shipping check out our home page.


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