How to Create a Dropshipping Business Plan
- What is dropshipping as a business model?
- What is a dropshipping business plan?
- How to create a dropshipping business plan?
- What does a dropshipping business plan look like?
- To conclude
When thinking about starting an eCommerce business, it’s crucial for you to understand all the business models available at your disposal and, of course, create a business plan. Dropshipping has gained significant attention in the past years, and, currently, close to one-third of online stores are operating based on the traditional or reverse dropshipping model. According to Google Trends, the dropshipping trend is on a constant rise. This signals that, although dropshipping is a successful and attractive way of doing business for eCommerce entrepreneurs, the dropshipping market is becoming more and more competitive.
The reason for this is that we’re all connected worldwide, so it takes a little for a business idea or a strategy to get widely known and hyped around the world. This was the case with dropshipping as well. When eCommerce entrepreneurs started discovering dropshipping, it allowed them to make huge profits relatively fast due to the low initial investment required and the competitive edge that this new business model offered. But despite the fact that these days this eCommerce method is highly competitive, dropshipping is still worth it and profitable if done right. This is exactly why you need a stellar dropshipping business plan to drive your store to success.
To understand the concept of dropshipping and how you can create an effective dropshipping business plan, read this article for a detailed guide on the subject.
What is dropshipping as a business model?
Dropshipping is essentially a Supply Chain Management (SCM) method and model. This model’s main characteristic is that it doesn’t require the business to hold inventory of the products it is selling to its customers. The dropshipping process is relatively easy and follows the steps below:
- The customer is placing an order on the website of the business;
- This order is being forwarded to the supplier or manufacturer, usually automatically by the use of plug-ins;
- The supplier accepts the order and issues an invoice to the reseller to pay for the goods ordered;
- The supplier or manufacturer ships it directly to the end customer on behalf of the eCommerce retail business owner;
- The supplier keeps the reseller up-to-date on the status of the shipment who will communicate this further to the end customer;
- The end customer receives the order and leaves feedback with the reseller or opens a dispute for a dropshipping return if needed.
Based on this, dropshipping might seem smooth-sailing but it also has its own challenges. For example, it’s inevitable that you, as a reseller, work with the most suitable supplier for your business that offers you the best benefits, which might take some time and a long list of questions to ask your potential supplier before you start working together.
What is a dropshipping business plan?
A dropshipping business plan is like any other business plan that outlines a roadmap of the strategies for the structure, operation, finances, and competitive advantages of your business. It also defines the aims and objectives of the business and how one’s going to achieve those.
How to create a dropshipping business plan?
Creating a dropshipping business plan always starts with extensive research. To start with, you’ll need to clarify which niche your business will be operating in, understand the type of dropshipping business you are aiming to build, and set out company guidelines for future expansion. Make sure to not underestimate the power of data and research so you can avoid the most common dropshipping mistakes that you could run into as a newbie.
To start your dropshipping business plan, you have to take into consideration the following aspects of your new business.
The identity of your business
Everything starts with the identity and the tone of voice your business is going to have, as this will serve as a basis for you to differentiate yourself from your competitors. In order to be ready to start working on your business plan, you need to have a clear idea of the business identity you want to create. Here the strategy is to be clear on what your business is going to do and why it’s going to do that exact thing. Outlining these will also help you with creating your marketing plan using the 5 C’s of marketing in the future. Also, it will help you to keep your business’ integrity in the long run without drifting you away from your core values.
Gaps in the market
For a business to be successful, it has to aim to solve a problem that its customers have and fill in a gap in the market. These gaps can be either products that are completely missing from the market you’re targeting – a niche that is underserved at the moment, or poor customer service practices that make online shoppers unhappy. Being aware of the market’s gaps will help you to better position your business and make money in untapped areas.
Characteristics and demographics of your targeted niche
Knowing your customer is key for any business. This is the trickiest information to access as you will not find exact lists of characteristics either in dropshipping books or when taking a dropshipping course, so you’ll have to conduct your own research. To be able to build a profile of your customers and create a buying persona, you’ll constantly need to research your market and monitor your customers’ demographics alongside their needs and wants. Knowing your niche the best can, not only give you a competitive edge over your competitors but also make it easier to adapt your business model and strategy to the ever-evolving needs of your customers.
Conducting a dropshipping competitor analysis is crucial when you’re creating your dropshipping business plan. As your suppliers will also work with your competition, it’s inevitable for you to understand the aspects of their businesses – where they’re doing well or lacking behind. You’ll have to look at their market share, product portfolio, strengths, and weaknesses first, and then you can further expand your research to include their marketing efforts, tone of voice, and sales channels used. This way you’ll have a solid idea about what strategies are working for them the best and which areas require improvement. Make sure you derive a conclusion and use this knowledge to your advantage in your dropshipping business plan.
What does a dropshipping business plan look like?
To start with, you’ll need to create a framework for your dropshipping business plan and fill out the section in accordance with the findings from the research you have previously conducted. What you’ll notice is that a dropshipping business plan is close to identical to any other eCommerce business plan so the sections will be relatively standard. When creating your dropshipping business plan, you’ll surely need to include the discussion points below but you can also extend this list as per your liking.
This part will be a critical section of your dropshipping business plan when launching your business. Although this section will probably be the shortest part of your dropshipping business plan, it’ll also be one of the most important ones and the one that is the most difficult to write. It’ll be the first part that everyone will read and will make a decision upon. It’s extremely important that you have a compelling executive summary when you’re aiming to attract investors who would help you grow and expand your business even further in the future. The executive summary exists to give your readers an idea and an overview of your dropshipping business and to allow them to know what they can expect when reading your whole business plan. Make sure you are briefly covering your targeted niche, product offering, marketing, and operations strategy, and finances in this component to make your overview informative.
Mission and vision
When discussing your dropshipping company’s mission and vision, you’ll allow the reader to get a more detailed idea of who you are and what you want to accomplish with your business in the future. This section will serve as an introduction to your business and to your unique selling points for them to have a feel of what your goals are. In this component, you’ll have the opportunity to address your business structure, your experience and background in eCommerce retail, and your business’ needs. Consider this as an opportunity to further highlight your strengths and set the tone for the rest of the document.
This section exists for you to be able to prove that there’s a niche existing in the market that you can successfully target and gain profit from. Here you can use all the research that was mentioned above to describe your competition and how you are planning to take over market share from them. This section will also serve as a basis for your marketing and sales plans in the upcoming parts of your dropshipping business plan. To break down your market analysis, you’ll have to include three main types of analysis here:
- An industry analysis that will outline the characteristics of the industry and the market climate in general. This can be done by using a PESTEL analysis that takes into consideration the Political, Economical, Social, Technological, Environmental, and Legal factors that are coming into play in the market you are planning to penetrate;
- An analysis of your targeted niche that will include the characteristics of your buying persona and how best you can reach this demographic;
- A competitor analysis that outlines the main characteristics of your competition. Here a SWOT analysis can come in handy as it can help you to evaluate your competition based on their Strengths, Weaknesses, Opportunities, and Threats.
Your product portfolio
This section is an opportunity for you to explain and demonstrate the products you will be dropshipping and to outline the dropshipping suppliers you’re going to work with. You’ll also want to highlight the characteristics of your supplier, which will allow you to go back from time to time and reevaluate them to ensure that they still are the best fit for your business. This section can also serve you as a “reality check” in the future and help you to focus on the industry you’re targeting without rushing you to tap into new ones beyond your means.
When it comes to dropshipping, your marketing plan will likely be the most important asset you can utilize in order to set yourself apart from your competition. As you won’t need to deal with inventory management and order processing, you’ll have a sufficient amount of time focusing on marketing and making sure you reach your targeted niche in the best ways possible. In this section, you have to list and explain all the marketing channels and tools you’ll be using and create a strategy for each while highlighting their benefits. By carefully planning your marketing efforts, you’ll ensure that you spend money only on effective advertising techniques and channels that will surely drive sales to your dropshipping business.
As a dropshipper, this section will likely be the easiest to write as most of your operations will be taken care of by your suppliers. Use the opportunity here to outline the questions you want to ask your supplier and how you are planning to deal with dropshipping returns.
Last but not least, you’ll have to create a financial plan as a part of your dropshipping business plan as well. This section will discuss your initial investment in your business and the ways you’ll be using it to create profit. This will be the longest part of your business plan, as it will need to be as detailed as possible and to include a balance sheet, a cash flow, and an income statement alike. Creating the right financial plan won’t only allow you to track your finances meticulously but will also give investors the confidence to invest in your business when you’re in need of extra capital for expansion.
Creating a well-thought-out and solid dropshipping business plan at the very beginning of starting your own business will go a long way in supporting you along your journey as an eCommerce store owner. Make sure you’re spending enough time and resources to complete your business plan and keep reviewing and updating it as your business grows. This plan can help you structure your long-term dropshipping business plan so you can always be on top of what is going on within your company.
About the Author
Fashion marketing professional turned digital marketer. My name is Lilla and I have been working in the fashion industry for 5 years. Currently working at BrandsGateway and helping with the development of the marketing strategy and on occasions writing articles for our audience. When away form the computer, I enjoy outdoors and running with my dogs.