Startup cost
$200–$2k
TRUiC Business Ideas
How to Start an Amazon Drop Shipping Business
Decision Snapshot
Amazon Drop Shipping
Idea Score
62
Profit margin
11%
Break-even
4 mo–12 mo
Time to launch
12 wk–36 wk
Demand trend
Rising
5-yr failure rate
—
Capital intensity
Low
Time commitment
Flexible
Part 1 - How to start an Amazon Drop Shipping business - Background
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.
Our guide is in 3 parts:
- Part 1 - How to start an Amazon Drop Shipping business - Background
- Part 2 - Our planner tool to see if this idea is the right fit for you
- Part 3 - Action plan to get started
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.
Day-to-Day and Growth
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.
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Generating relationships with an ever-expanding list of wholesalers who’ll serve as your drop shippers
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Writing product descriptions and displaying your merchandise items for sale
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Conducting sales with customers, including answering questions, resolving complaints, and soliciting reviews
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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.
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.
Part 2 - Is an Amazon Drop Shipping business the right fit for you?
Business Evaluation & Strategy Tool
We'll walk you through the four pillars every business needs: Points of Leverage, Marketing Strategy, Financial Model, and Personal Compatibility. At the end you'll see a personalized report and your action plan below will be tailored to your answers.
Step 1 of 4 — Points of Leverage
Every viable business has natural advantages. Below are common leverage points across four categories. Pick the ones that apply to your Amazon Drop Shipping business. We've pre-suggested a few based on your idea — review and adjust.
Step 2 of 4 — Marketing Strategy
Without a way to connect with customers, even great businesses fail. Pick the channels you plan to use to reach your customers.
Step 3 of 4 — Financial Model
Enter your monthly baseline costs — the minimum overhead to keep the business running. Then we'll calculate how many sales per month you need to break even.
Step 4 of 4 — Personal Compatibility
A business that doesn't fit your life will fail no matter how good the numbers look. Tell us how this business fits you.
Your Amazon Drop Shipping Evaluation Report
Complete the four pillars and your personalized summary will appear here.
Points of Leverage
Marketing Strategy
Financial Model
Personal Compatibility
Part 3 - Action plan to launch your Amazon Drop Shipping business in 90 days
Nine concrete steps to take you from idea to open business, grouped into 30-day phases. Complete the planner above and we'll highlight what's most important for your situation.
First 30 days — Foundation
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Form your legal entity
An LLC keeps your personal assets separate from business debts and lawsuits — the most common reason small business owners choose this structure. Sole proprietorships and partnerships do not provide this protection.
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Get an EIN and register for taxes
Apply for your free Employer Identification Number through the IRS, then register for any state or local taxes that apply to your business (sales tax, franchise tax).
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Open a business bank account and credit card
A dedicated business account is required to maintain personal asset protection. Mixing personal and business finances ('piercing the corporate veil') can void your LLC's liability shield.
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Set up business accounting
Recording expenses and income from day one makes tax filing easier and lets you see when the business is actually profitable. Use software (QuickBooks, Wave) or a part-time bookkeeper.
Days 30–60 — Compliance & Risk
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Get permits and licenses
State and local requirements vary widely. Brick-and-mortar businesses typically need a Certificate of Occupancy; service businesses may need specific professional licensing; food businesses need health permits.
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Get business insurance
General Liability Insurance is the most common starting point. If you'll have employees, most states require Workers' Compensation. Specific industries need additional coverage (product liability, professional liability, etc.).
Days 60–90 — Launch
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Define your brand
Your brand is how customers perceive and remember you. A clear name, logo, and visual identity make every later marketing decision easier and protect you legally as you grow.
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Create your business website
Every legitimate business needs a website. Social media pages are not a substitute — you don't own the platform. Modern website builders mean you can launch a clean site in a weekend without a developer.
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Set up your business phone system
A dedicated business number keeps your personal life private, makes the business look legitimate, and lets you route calls professionally. Cloud phone services start under $20/month.