How to Start an Amazon Drop Shipping Business
An Amazon drop shipping business is essentially a middleman between customers who want to purchase products and businesses that sell them. A drop shipper will receive orders from customers, purchase those products from a separate retailer, and then ship those products directly to customers. This helps eliminate some of the costs and time associated with traditional distribution channels.
Learn how to start your own Amazon Drop Shipping Business and whether it is the right fit for you.
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Start an amazon drop shipping business by following these 10 steps:
- Plan your Amazon Drop Shipping Business
- Form your Amazon Drop Shipping Business into a Legal Entity
- Register your Amazon Drop Shipping Business for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Amazon Drop Shipping Business
- Get the Necessary Permits & Licenses for your Amazon Drop Shipping Business
- Get Amazon Drop Shipping Business Insurance
- Define your Amazon Drop Shipping Business Brand
- Create your Amazon Drop Shipping Business Website
- Set up your Business Phone System
We have put together this simple guide to starting your amazon drop shipping business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Exploring your options? Check out other small business ideas.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What will you name your business?
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
Luckily we have done a lot of this research for you.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Amazon Drop Shipping Business Name Generator
If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
What are the costs involved in opening an amazon drop shipping business?
One of the main advantages of the drop shipping business model is the lack of needed startup capital. You don’t buy the merchandise unless you have a sale. You also don’t need packing and shipping supplies or to directly pay for shipping.
As long as you have a computer with Internet access, you only need a few hundred dollars set aside against failure on the part of your wholesaler. (If your wholesaler doesn’t come through you’ll need to find the product wherever you can and at whatever price you must pay to try to preserve the customer relationship and avoid a negative review.)
If you keep your day job and start your business part-time, only selling a few products initially to test the market, you won’t even need to make enough to survive at first. You don’t need your own store online, but if you do, you should spend a few hundred dollars for logo development. Here’s an interesting article on the benefits of having your own ecommerce store even if you’re solely selling on Amazon.
At worst, you should be able to start your business with $1,800 for a computer, Internet access, logo development, and emergency funds.
What are the ongoing expenses for an amazon drop shipping business?
Your only expenses might be the cost of salvaging relationships if your wholesalers don’t deliver as expected. You can build an online store for free or a few hundred dollars at most.
Who is the target market?
You’ll have two “customers” in this business, and serve as the critical intermediary between both. Your end customers are the buyers of your products. Their profile will depend on what you’re selling. Your other critical parties are the wholesalers who will serve your needs and those of your customers. Your wholesalers must be reputable, dependable, and easy to work with. Before doing business with them, check online for customer complaints or any other feedback that would trigger a warning.
How does an amazon drop shipping business make money?
You won’t hold inventory or ship purchased items. Your only means of making money is by selling products held by the wholesalers at enough of a markup to generate a profit. To illustrate, if you can find a wholesale product for $15 that Amazon shoppers want at a $25 price point, you’ll make a $10 margin on the sale, minus your selling fees.
How much can you charge customers?
Try to make a 30-50 percent markup on most merchandise. This will pay for your time and all selling fees, and return a decent profit.
How much profit can an amazon drop shipping business make?
Some drop ship sellers have become millionaires. There are no ceilings. But here’s an interesting article about the realistic prospects of making $1,900 a month on a part-time basis.
How can you make your business more profitable?
At some point you’ll feel comfortable with the drop shipping business model and figure out how to turn a profit. When that happens, consider expanding beyond the Amazon platform. Ebay, Shopify, Etsy and many other ecommerce platforms accept drop shipping sales. If you conduct business from your own ecommerce store, you can work with a variety of platforms, or even deal platform-free to avoid all selling fees.
STEP 2: Form a legal entity
The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your amazon drop shipping business is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN through the IRS website. If you would like to learn more about EINs, read our article, What is an EIN?
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
Besides being a requirement when applying for business loans, opening a business bank account:
- Separates your personal assets from your company's assets, which is necessary for personal asset protection.
- Makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.
Get a business credit card
Getting a business credit card helps you:
- Separate personal and business expenses by putting your business' expenses all in one place.
- Build your company's credit history, which can be useful to raise money later on.
Recommended: Apply for an easy approval business credit card from Divvy and build your business credit quickly.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
Make LLC accounting easy with our LLC Expenses Cheat Sheet.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate an Amazon drop shipping business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
FInd out what types of insurance your Amazon Drop Shipping Business needs and how much it will cost you by reading our guide Business Insurance for Amazon Drop Shipping Business.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
Recommended: Get a logo using Truic's free logo Generator no email or sign up required, or use a Premium Logo Maker.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
How to promote & market an amazon drop shipping business
Once you’ve gotten your feet wet, consider opening your own ecommerce store. Use the name and logo to brand your company and encourage repeat business.This is important since most of your customers won’t know your business exists. They’ll think of you as being Amazon, which is no way to encourage repeat business.
How to keep customers coming back
As you brand your business, adopt such social media sites as Facebook, Instagram and Twitter. Use social media to promote good deals and showcase the line of products you represent.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Recommended: Get started today using our recommended website builder or check out our review of the Best Website Builders.
Other popular website builders are: WordPress, WIX, Weebly, Squarespace, and Shopify.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2023 to find the best phone service for your small business.
Recommended Business Phone Service: Phone.com
Phone.com is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
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Is this Business Right For You?
Success in this business model is dependent on your ability to establish fruitful relationships with drop selling wholesalers. You must also have a knack for finding products that will sell and marketing them in ways that will appeal to customers.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at an amazon drop shipping business?
Your typical workday could consist of a range of activities that include the following.
- Generating relationships with an ever-expanding list of wholesalers who’ll serve as your drop shippers
- Writing product descriptions and displaying your merchandise items for sale
- Conducting sales with customers, including answering questions, resolving complaints and soliciting reviews
- Communicating with your wholesale partners to check on and resolve product availability, shipping dates and other potential issues and roadblocks
What are some skills and experiences that will help you build a successful amazon drop shipping business?
Your twin keys to success are finding products Amazon shoppers want, at wholesale prices that net profits, and finding drop shippers that can be trusted to provide merchandise at the quality you expect. Your drop shippers must accurately, quickly, and efficiently ship your sales. Your reputation depends on it. Your customers won’t blame -- or even know -- your wholesalers. It’s your reputation at stake. Even one bad review could kill sales and shut your business down.
Check out this list of reputable drop shippers, or use your search engine to find your own prospective wholesalers.
What is the growth potential for an amazon drop shipping business?
Here are a couple interesting statistics from this 2017 survey by ecommerce service provider BigCommerce. Sixty-seven percent of millennials and 56 percent of Gen-X shoppers prefer online to in-store shopping. And 80 percent of all Americans made at least one Internet purchase over the last month.
As for Amazon, the company reported a sales gain of 23 percent in 2016 and forecast an additional 24 percent increase in the first quarter of 2017, according to Bloomberg Technology. Going back just a little farther in time, Amazon accounted for 60 percent of the total online sales growth in the United States in 2015, according to Market Watch.
In other words, ecommerce is skyrocketing, and Amazon is the rocket engine.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting an amazon drop shipping business?
Find a relatively unexplored niche. If you’re trying to market mass-audience merchandise, you’ll have so much competition that it will drive the selling price down. If that happens, your margins will be so narrow it will be difficult to make a profit once all selling fees are paid. When you’ve found a prospective niche, start by selling a lower-cost item or two to see if you can turn a profit. Even if you just break even on those beginner sales, it will teach you the process and build your confidence.
Also, keep in mind the importance of good Amazon reviews. If you have poor reviews or none at all, you won’t get the buy box on the item -- the prime selling position on the results page. Without the buy box, customers will have a tough time finding your item. If you have few reviews, start by selling -- or giving away -- products to friends and family in exchange for reviews.
How and when to build a team
Until your business gets very large, you’ll have no need for building a team. That’s the advantage of this form of business in a bottom-line way. However, by the time you’re perhaps making tens of thousands of dollars a month, you might see a need to add staff to process orders and answer emails. When that happens, it will give you more opportunity to build your brand and continue to develop productive wholesaler relationships.