How To Start Dropshipping on Amazon in 2021

  • Gordon 

Side hustles have become the norm these days with many of us looking to make some extra money.  Back in the day, options were somewhat limited in scope and availability.  You had the newspaper back then and that’s still an option today with people listing items to sell. 

Garage sales are also a classic option and the advantage with that was that you didn’t have to leave your house.  You could also pack everything up that you had to sell and rent a table at the Flea Market. 

These are all traditional ways to sell items in and around the house and these ways are still valid today.  But, in today’s landscape, there’s a new option that’s been slowly percolating over the last decade and that’s online selling.

When it comes to online selling, there’s eBay of course and that’s probably the oldest and most well-known way to go about things. 

But, Amazon has not only cut into Ebay’s business model over the past decade, but it’s also taken over and created a new way to sell items online. This new way is Amazon FBA and it doesn’t require you to house items at your home.  FBA stands for Fulfilled By Amazon and it’s Amazon’s own arbitrage service.

The basics of the service entail that you can list items to sell and once the sale is made, you can source the item online from a purveyor and have the purveyor ship the item directly to your customer. 

The advantages of this are immense as there is almost no interaction between you and the customer once the sale goes through. Selling items in this way is called Dropshipping because the online purveyor is making the “drop” to the customer, not you. Sounds intriguing, doesn’t it?  How can you start up a business like this from your own home? We will cover these steps below.

In this article, we’re going to cover how to exactly start dropshipping on Amazon!

You need start-up money

Starting up a dropshipping business on Amazon with no money is one of the biggest appeals and selling points of this business.  Even though it’s an option to start this way, it’s not the smartest way to start. 

Therefore, you should have a small amount of money set aside when you list your first item.  Around $500 should be a good amount to have to lay around to start with. The reason that you have this money to start with is for insurance reasons.

When I say insurance, I’m not talking about insurance in the Geico sense, I’m talking about insurance against orders that go south. 

I’ll give an example:  Say you had a t-shirt listed for sale on Amazon for $10 and a customer purchases two of them.  You promise to the customer in your listing on Amazon that the items will be delivered within seven days. 

You know this delivery time will hold almost 100% because the t-shirt purveyor has fast shipping and is centrally located in the USA. The customer needs those shirts in seven days as he’s going to a photoshoot and he needs these particular shirts to complete his look for the pictures he’s going to take.

Immediately after this sale, you place the order with the purveyor and enter the customer’s address for the order.  Normally, the company ships on the same day that you place the order, so you wait for your shipping confirmation later that day.  That confirmation email never shows up and you start to worry. 

Three days later, the purveyor emails you to let you know that they can’t ship the shirts for two weeks due to an equipment breakdown.  If you had started the shipping business with no money, you would have no choice but to contact the customer and have them cancel the order and possibly not buy from you ever again.

But, because you started the business with the aforementioned “insurance” money set aside, you contact another shirt purveyor who has these same shirts

This other purveyor may charge a little more, but money is no object right now because you need those shirts delivered fast.  You order the shirts from this other purveyor and also stipulate guaranteed 2-day delivery (or overnight delivery if you have to) to ensure that the items will reach your customer in the allotted time. 

Even if you take an overall loss on an order like this, it doesn’t matter because you have the money already set aside to tie up loose ends like this and the customer will appreciate you going the extra mile to satisfy them.

This will result in repeat business from this customer and good word-of-mouth to his friends and family which is the best kind of advertising that you can get because it’s free!  So, always have insurance money set aside for situations like this.  You can start that fund at $500 and slowly raise that number up as your options increase it terms of big-ticket items that you’re selling. 

For instance, once you get into selling laptop computers for $2000 – $3000, you can have around $5000 set aside to take care of those items if need be.

Niche Selling – Narrow it down!

You can take the usual shotgun approach to the items that you sell and just sell anything that you can think of.  This kind of approach will give you limited results in your sales and you’ll feel a little disoriented as to WHAT to sell. 

This is where niche selling comes into play, you can narrow your focus to a certain item or certain kinds of items.  Niche selling offers the best chance at establishing an ongoing connection with your customers. 

Another instance:  If you’re a handyman and use high-quality tools and you happen to need more tools, would you go to a Walmart to get them?   Or would you go to a Home Depot or a Lowe’s?

Narrowing your focus to a selected group of items builds customer loyalty to your brand as the general consensus thought would be:  You sell a lot of these items, you must be an expert on these items.  Once you have that expert tag hung upon your brand, that will net even more sales and word-of-mouth about you.  And you WILL be an expert on what you sell because that ties in neatly with the next step on this list.

Market research

Any seller worth their salt will have conducted market research into the items that they market on Amazon.  You have to do your due diligence on what’s out there for sale and what items are good sellers on Amazon.  Ideally, you want to find a niche that sells well, profits well, and doesn’t have too many sellers marketing the product.

Let’s look at an example here:  You comb through Amazon and look at what’s selling, your first thought is that you’ll sell facial coverings and masks because we’re still dealing with the global pandemic.  The profit margins aren’t so hot with these and EVERYBODY is selling these as it’s a hot ticket item.  So, the market is flooded with this item and you won’t make much of a profit to begin with, so face masks are out.

You move on to another item, let’s say it’s tennis shoes and the brand name is “21”.  Hmmm, “21” tennis shoes?  It’s 2021 now, that’s a good tie-in.  The shoes are made in China, and the customer reviews are pretty good about the quality.  The shoes are selling for around $75 elsewhere and Amazon only has one or two sellers selling them and they’re selling for around the same price.

You find a Chinese purveyor / shipper who sells these for $15, so you now have a target shipper who ships worldwide at pretty good prices and shipping speed.  You look through Amazon to see overall good reviews on these shoes and it’s not a #1 seller (at least not yet!) But it does seem to be in the middle of the pack and rising slowly.  You set the price on Amazon for $65 for these shoes as you have a little bit of wiggle room on the price.  Your profit margin will be $50 on each pair of shoes versus $60 if you sell at $75.  But, at that point…you’re essentially splitting hairs.  $50 is a great profit margin on an up-trending brand of shoes and you have the entire year of 2021 to go!  This is an example of a seller doing their market research and finding a brand or niche that will give them good sales and a good profit margin.

Establish a business – legally

Once you’re making enough sales in a month to where you’re making as much money as your IRL job, it’s time to consider establishing a business on paper.  You can either do this yourself through places like Legalzoom and other services or you can consult with an attorney or accountant to have them do the paperwork for you.  You can establish an LLC, Sole Proprietorship, or if you in this business with friends, you can establish a partnership.  No matter which way you do it, make sure all t’s are crossed and all i’s are dotted.

Keep a separate business account

Once the business is established legally, you can get a business bank account at your bank or any bank of your choosing.  Keeping your business money separated from your personal money is crucial in this day and age. 

There’s two reasons for this:  

  1. it helps immensely at tax time when you (or your accountant) are going through the books to do a tax return. 
  2. it’s good to do this for legal purposes, it protects you from any lawsuits that may or may not happen down the road. 

If all of your money is tied up in the business, then all of your personal belongings (house, etc.) could be exposed to loss under a judgement.  If your business / personal accounts are separated, then only your business portion would be exposed to possible loss. Let’s take a look below at two different scenarios:   

John has been a drop shipper on Amazon for a few years and he established his business legally as a sole proprietorship.  He never got a business bank account, so any money he makes on his items, he just puts them in his regular bank account.  Paul, another seller on Amazon, established his business as a sole proprietorship as well and he went ahead and got a separate bank account to handle his Amazon sales.

What happens when a customer sues over a faulty item that injures them and incapacitates them?  Think of an exploding battery inside of a laptop or tablet PC.  In Paul’s scenario, the customer can only sue his business as his business was established both legally and monetarily with the separate accounts.  In John’s scenario, everything is up for grabs because he never established that separation of business and personal income.  John could lose his house over the lawsuit, both literally and figuratively.

Keep records

Keeping proper records is just basic business practice 101.  You can keep a running database of all of your customers and each item that they’ve purchased from you.  This will keep your eyes on the prize in terms of where your business is running at in terms of profit and loss. 

This is also good to do from a legal perspective to protect you from anything that should arise legally.  This would be especially evident in a case of a tax audit or something similar.

Another aspect of keeping proper records would be to keep your eyes on how many times your customers order from you.  If you have a good repeat customer and they haven’t ordered from you in a while, you could reach out to them with a letter or an email. 

You can offer them a discount on their next order to entice them to come back and order something new.  You can send holiday cards to each and every one of your customers to strengthen that bond that your brand has with them. 

You can also offer discounts or coupons to customers who order the most.  There’s plenty of other ways that you can reach out to offer better customer interactions.

Social Media Marketing is a MUST!

Marketing has opened up quite a bit since the dawn of the internet.  Social Media has become the new marketplace in terms of getting the word out about your brand and your products.  Platforms like Facebook, Instagram, Twitter, and others showcase a place to advertise what you have for sale.  Ideally, you should start an account on each of these platforms under your Amazon business name. 

You’re not relegated to just posting when you have something to sell, you have to develop your following on each of these platforms.  A good way to do that would be to make posts about the niche that you’re in.

For instance:  if you sell baseball cards on Amazon, you could post baseball-related things on your Social Media, whether that’s baseball history (i.e. on this day in baseball history, etc.) or you could post some historical facts about the baseball card industry, news, etc.   Through these posts, you will start to get Followers who get your posts on their personal timeline feeds when you post something.

So, it stands to reason that with a pretty good following on Social Media, your advertisement posts about your items for sale will definitely get an uptick in sales.

Scale up!

Most of us who start drop shipping on Amazon are doing this as a second source of income.  Always scale accordingly, if your business sales go up, your insurance money that I mentioned up above should also go up in relation to your sales. 

When your sales reach a certain point through the proper ways with good customer relationships, marketing, etc.  You will reach a crossroads in your business.

That crossroads is whether you should keep things as they are sales-wise and keep your IRL job or should you quit your IRL job and throw all of your weight into the drop shipping business.  That’s a question that only you can answer as everyone’s situation is unique to them.  I don’t know if a Stockbroker making 500K a year would quit that job to drop ship on Amazon full time versus someone who’s only making 20k a year at their IRL job.  Once you’ve reached this point, congratulations!  It’s a crossroads that we all strive to reach in drop shipping.

Our tools

To get the absolute best out of your dropshipping business on Amazon, you need some good applications and tools to help you get to that crossroads I mentioned above. Here at AMZ One, we can help with everything.

Our suite of tools will make your business run smoothly because we cover all possible segments of it. Keyword Research, Product Listing Optimization, Negative Reviews Notifications… Make sure to check out our tools and feel free to start a FREE 14-day trial!