What is dropshipping?: A guide to dropshipping UK

Dropshipping in the UK: How to start a dropshipping business

The number of UK dropshipping businesses is growing year-on-year. Dropshipping is an alternative model to the traditional online store as it involves selling products using a third-party supplier to fulfill your customer orders. Although the profits vary between businesses, it can be a good way to make money; if you know what you’re doing…

But don’t worry if you don’t. Our guide to dropshipping in the UK covers everything you need to get started. This guide covers the basics of dropshipping, such as:

  • What is dropshipping?
  • How does dropshipping work?
  • Dropshipping FAQs
  • Advantages and disadvantages

But if you’re serious about starting a dropshipping UK business, we’ll also look at:

  • What you need to start a dropshipping business
  • Running a dropshipping business
  • Ways to increase your chances of making money from dropshipping
  • Is dropshipping worth it?

What is dropshipping?

Dropshipping goes on behind the scenes. It is a form of retail – usually e-commerce – which uses a different product delivery method to the direct retailer-to-customer shipping we’re used to.

With dropshipping, the retailer doesn’t hold items in stock. Instead, items remain with a third-party supplier until they’ve been bought. The customer’s order details are sent directly to the supplier who then handles packaging and shipment on the dropshipper’s behalf.

This means that a ‘one man business’ could actually be a global effort. For example, the owner of the dropshipping business could be in the UK and the supplier in China.

How does dropshipping work?

    • Find a supplier to work with, choose which items you like, and list them on your website.
    • Customer buys something from your store and the order is passed directly to your supplier.
    • Your supplier ships the product to the customer.

Dropshipping UK FAQs

Is dropshipping profitable?

As with most forms of commerce, profits come from the difference between the wholesale and resale prices. How much do you buy the item for, versus how much can you sell it on for? The bigger that gap, the more profit you’ll be able to make. Therefore, how profitable dropshipping is differs from business to business.

However, things like return costs and discounts can eat into this profit. It’s up to you to find and optimise your dropshipping business’ profit-making potential. It pays to shop around when looking for suppliers because product prices can vary. The cheaper the cost for you, the better.

Is dropshipping legal in the UK?

Yes, dropshipping is legal. It’s just a method of outsourcing order fulfillment to a third party supplier, using a supply chain to manage packaging and shipping.

There are a few areas of legal understanding you’ll need so you can stay protected. Things like:

  • Local taxes.
  • Import fees (We cover the associated costs in more detail further on in the guide).
  • If the supplier ships counterfeit or damaged goods, you will be responsible. That means that it’s up to you to apologise to the customer and put things right.

How do I start a dropshipping business?

Spend time researching everything that goes into a dropshipping business so that you know what to expect beforehand. If you just jump straight in, you’re likely to run into any number of problems.

In the UK, you’ll need to register as a sole trader or limited company.

Read this guide! It’s full of information on how to operate a dropshipping business.

Is dropshipping worth it? (in 2021)

Around the world and especially in the UK, Dropshipping is an increasingly-competitive space. According to Google Trends, searches have risen over the last 5 years. And if you take a look at Reddit, you’ll find 124k members in the r/dropship [June 2021]. It’s worth reading through the threads to see what other people’s experiences of dropshipping.

Ultimately, you’re best placed to decide the answer to the question “is dropshipping worth it?”. The worth of something depends on what you want out of it. If you’re looking for a way to get rich quickly, dropshipping most likely isn’t the answer. Unless you nail your product choice, marketing, and sales. Instead, it takes a lot of hard work. The more time, effort, research, working capital, and good customer service you can put in, the better. And the higher your chance of success is.

Dropshipping predictions for 2021

No one knows what the next big thing will be. Which is why research and testing are so important. Use a tool like Google Trends to see what the most popular search terms are. You can then narrow this down to retail items. Engage with a supplier, add and test products, and see what happens.

As with most things, dropshipping is constantly evolving. For example, dropshipping through Amazon has become its own thing. Fulfilment by Amazon (FBA) has emerged as a popular offshoot of the wider dropshipping method.

Advantages and disadvantages

The advantages of dropshipping:

  • Low start up costs.
  • You don’t have to buy or store inventory.
  • Low overheads.
  • Easily add to or change the items you sell.

The disadvantages of dropshipping:

  • Lack of control over quality, trust, pricing, returns.
  • It can be difficult to keep an eye on your supplier’s inventory levels.
  • Communication with customers and suppliers can be time-consuming.

What you need to start a UK dropshipping business

  • Niche
  • Business plan
  • Brand
  • Website to sell from
  • A stock and inventory management system
  • Supplier or place to source stock from
  • Payment options
  • Email system

The list above isn’t exhaustive. These are just some of the things you’ll need to start a dropshipping business:

Niche

A niche is a specific theme or market segment that you choose to focus on or target. For example, a kitchenalia store will only offer things like cooking utensils and other items associated with the kitchen. If you list any and everything, you run the risk of looking like an online jumble sale and this can be confusing to site visitors. Choosing a niche will help you with your marketing efforts.

Your niche could determine how well your dropshipping business performs. There’s a fine line between going too niche and too wide. This is why it’s important to do customer research. You’re looking for a niche that has low competition and high search volume.

Some dropshippers choose to change their shop based on current trends. For example, looking at Google Trends data over the last 5 years, 2017 was a peak time for the term ‘fidget spinner’ in UK search. Many UK dropshipping businesses jumped on this as the ideal item for them to sell. They rode the wave of popularity. However, as demand dropped and the trend ended, these dropshippers will have had to make a decision. Remain a fidget spinner shop, expand the brand to feature similar items, or pivot and anticipate the next hot trend.

Business plan

Dropshipping seems to sit on its own, away from retail. But really, it falls under the ecommerce umbrella. That means that it needs to be given the same considerations as a ‘real’ business. Because it is one!

Setting up a business isn’t as easy as buying a website template and hitting ‘Publish’. The best businesses have a solid plan behind them. The owner knows what they want to achieve. Gov.uk has some fantastic resources on writing a business plan for your UK dropshipping business.

Brand

A brand isn’t just a logo. It’s everything that makes up your entire business: including the look, feel, experience, voice, service and name. Obviously this can evolve over time, but it makes sense to think about how you want to be seen.

Depending on your skillset or budget, your initial branding exercise can be as shallow or in depth as you like. Approach an agency, commission someone on Fiverr, or do it yourself. There’s lots of information available online on branding for beginners if it’s not something you’ve done before. As a start though, here are some of the things you’ll need to think about and do:

  • What is your business and what is its mission?
  • What do you want potential customers to think about when they think of your business?
  • The benefits and features of your products.
  • Create a voice. Is your brand chatty and conversational or more formal?
  • Be consistent with your content to build trust through multi-channel marketing. A set of templates and brand guidelines can help with this.
  • Name, logo, and tagline. If your business had to be summed up this concisely, what would that look like?

If you choose to operate as a Sole Trader (UK), it’s worth knowing that there is no official register of Sole Trader business names. To register a business name in the UK, you’ll either need to form a limited company or get a trade mark. See the Gov site for more information on setting up as a Sole Trader.

Website to sell from

You need somewhere to show off the items you have for sale. And an ecommerce website is probably the answer.

But don’t worry if you don’t know anything about building a website – you don’t need to start from scratch. There are a number of website builders you can choose from to set up your store cheaply, quickly and without needing to have any knowledge of coding. One of the most popular is Shopify.

If you’re starting out with just a few products, then it might make more sense to have a landing page rather than a full website. Instapage or Unbounce can help you set up a landing page. You can always scale up later if you need to.

One of the most important things you’ll need to do is optimise your site to encourage sales. Each conversion point in the user journey needs to be looked at to make sure the buying process from start to finish is as smooth as possible.

A stock and inventory management system

With dropshipping, you can either list items manually or use a service to do it for you. If  you choose to do it manually, you’ll need to write, add, and update your product descriptions as and when your supplier has the stock. This is time-consuming and can be difficult to keep track of. Especially if your supplier doesn’t keep their stock levels up to date or you’re using multiple suppliers.

Oberlo is an example of a service that can do it all for you and streamline your processes. It integrates Shopify with AliExpress, meaning that you can find products for your store, add them to your site, and organise shipping quickly and seamlessly.

Oberlo also offers advice on things like what products to sell and what prices to put on them. It’s up to you whether or not you take the suggestions onboard but it’s handy info to have!

A supplier or place to source stock from

There are three options of supplier when it comes to dropshipping:

  • Manufacturers

Manufacturers make products and usually sell in bulk to wholesalers and retailers, rather than selling directly to the public. There are pros and cons to choosing a manufacturer as your supplier:

ProsCons
It’s the cheapest way to bulk buy items.There’s usually a minimum order requirement.
You’ll have the biggest margin for profit potential.You may need to stock and ship the items to the customer.
  • Wholesalers

A wholesaler is a company that buys goods in bulk from a manufacturer before marking the prices up slightly and then reselling. They usually sell the goods on in large quantities at what are still relatively low prices (especially when compared to the final retail price). Again, here are some pros and cons:

ProsCons
Tend to operate within a niche which makes it easier to find something suitable for your business.Most wholesalers choose to sell to retailers rather than directly to the public.
Generally a lower minimum order requirement (than from a manufacturer).
  • Retailers

In dropshipping terms, a retailer could be a seller on Ali Express. If you choose them as your third party supplier, they will take care of individual orders and items. This approach means you won’t have purchase in bulk or store stock.

ProsCons
Can ship directly to customerWith so many options, it can be difficult to find the right seller for your business.
A lower minimum order requirement (individual).

There are lots of ways to find a supplier:

Google

If you do this, don’t just rely on the first page of results as you may miss out on the perfect fit for your business. For example, wholesalers, won’t necessarily be optimised for online searches and you therefore may need to click a few pages deep. The most popular dropshipping supplier at the moment is AliExpress.

Use a supplier directory

There may be a small charge to access this data, depending on the directory. However, using a directory such as Wholesale Central or SaleHoo could save you a lot of time in searching. Alternatively, if you know what your niche is or what you want to sell, you could call a manufacturer and ask for a list of the wholesale distributors they use.

Check out the competition

If you know of an online shop which consistently receives good reviews and is a dropshipping company, you could try to find out who their supplier is. One way to do this would be to order something from the shop and then say you want to return it. You’ll most likely be given the supplier’s details rather than the shop you bought from.

Attend a trade show

This offers you a one-stop opportunity to research potential products and make contacts at major suppliers. It’s a great way to get to know suppliers in your identified niche.

Be prepared to have to iron out some details when it comes to finding the perfect fit for your dropshipping business. Do your research beforehand, but don’t be put off if it doesn’t work out the first time. The chances are that the first supplier you choose won’t be the one you stay with for the lifetime of your business. Trial and error is ok.

You probably won’t be able to negotiate on prices at the start of your working relationship. It’s always worth an ask but they might not be willing. In the beginning, it’s more important to find a good, reliable supplier. The best price can be found later on.

But how can you tell if you’re picking a good supplier? There are a few signs to look out for when it comes to choosing a good dropshipping supplier:

Knowledge

Good suppliers should have sales reps that you can easily get hold of with questions or issues. These reps should know their stuff when it comes to their industry and products.

Location

Whilst location doesn’t indicate the quality of a supplier, it’s an important point to remember in terms of shipping times. And how long it could take for an item to reach the customer. For example, AliExpress (which is one of the most popular suppliers based on international search activity) is located in China and deliveries can take up to 60 days to arrive to the UK.

Good support

Something that keeps coming up again and again as a key element of a successful dropshipping business is the need for clear communication. A good supplier should provide you with a dedicated contact who is responsible for taking care of you and any issues you have.

Tech knowhow

This isn’t a make-or-break point but a technology-woke supplier is something you’ll find handy. For example, working with a supplier whose website has things like a detailed product catalogue and real-time inventory so you know what items are in or out of stock will make running your business much easier.

Take orders via email

Believe it or not, some suppliers don’t take orders through email. Instead, orders will need to be placed manually via their order system or by call in each individual order. This is extremely time-consuming. Dropshipping already has the potential to take up a lot of your time as it is, so try to save time where you can and choose a supplier you can contact via email.

Be organised

Along with communication, organisation is a key part of running a successful dropshipping company. Unfortunately, you won’t really be able to gauge how good a potential supplier is until you’ve actually used it. Some will be amazingly efficient while others will mess up every other order.

Payment options

How will customers pay for their purchases? PayPal is an internationally-recognised online payment system. It’s a trusted method, but it’s not the only option. You could also choose to let customers pay via debit or credit card. There may be fees associated with individual payment options, so do your research first to find the right fit for your business.

Email system

Communication is one of the most important parts of running a business. Especially a dropshipping business where there can be a number of people involved. You’ll need to keep in touch with both your suppliers and customers. Make sure everyone knows what’s going on and that the ball hasn’t been dropped along the way.

Running a dropshipping business

While running a drop shipping business can be fun and profitable, it can also bring some challenges. Because of the way dropshipping works, there are a lot of moving parts and people involved. The primary role of a dropshipper is communication. That’s what you’ll spend most of your time doing. Next, we’ll look at some of the potential issues you could face and some ways to fix them:

Things will probably go wrong

The sooner you accept this, the sooner you’ll be able to fix any mistakes that happen. So how do you do that?

To the customer, you are the business. Therefore, when there’s a mistake at the supplier’s end, you have to own it. Whilst sorting it out and making it up to the customer. The best way to do this is through clear and fast communication. If the customer is kept updated with issues to their order, they’re more likely to forgive a mix up or time delay.

However, because you’re not in control of orders in terms of dispatch, etc, it’s difficult for you to know when an issue will be rectified. Hopefully, when you were researching potential suppliers, you’ll have taken notice of their customer service, including things like how long it took them to reply to your messages.

The worry here is that you’ll be left out of pocket. However, just because you have to take responsibility for mistakes doesn’t mean you should have to pay for them. A reputable supplier will usually take care of any mistake it’s made, including paying for shipping costs to return items.

Managing inventory + suppliers

Suppliers can run out of items. And because you’re not in control (ie buying in and holding your own stock) it can be difficult to get around this. For this reason, it’s a good idea to work with more than one supplier. That way, if there’s a problem with stock levels, you may be able to find a replacement or suitable alternative.

However, managing inventory status across multiple suppliers can be very challenging. You’ll really need to keep your eye on the ball with this one.

Shipping and delivery issues

Knowing how much to charge for shipping is something a lot of dropshippers struggle with, especially in the early days of their business. It’s made even more complicated if you choose to use multiple suppliers. So how do you decide how much to charge? There are a few methods but one example is Flat rate shipping. This is where you charge the same rate for a delivery, regardless of its weight or size. You could also choose to offer free shipping across all orders, which would make things easier but the cost would have to be swallowed elsewhere in your business.

International shipping also comes with its own challenges. When you ship internationally, you’ll need to think about things like the different weight and length limitations imposed for different countries, additional charges from suppliers for processing international orders, and higher costs for shipping large or heavy items. So is it even worth it? Really, that’s up to you and what you’re comfortable offering within the margins you’re making on sales. For example, if you sell small items with higher margins, the increased market reach may mean that it makes sense for you to deal with the inconvenience and expense of offering international shipments.

Fraudulent orders

The idea of fraudulent activity is enough to scare anyone. However, it shouldn’t put you off starting or running a dropshipping business. There are a few things you can look out for when it comes to spotting potentially fraudulent orders:

Credit card fraud and security measures

Most fraudulent orders will contain two different addresses: one for billing and one for shipping. However, some legitimate orders do this too. Therefore, removing this option may mean you miss out on real orders while trying to avoid fraudulent ones. The AVS, or Address Verification System, is used to verify the address of a person claiming to own a credit card. It does this by checking that the billing address used matches the one held on file with the credit card company.

Another credit card security feature is the CVV2 number which is the three-digit number found printed in the signature space on the back of most credit cards.Along with different addresses, a combination of things like different billing and shipping names, weird or unusual email addresses and pricey shipping methods such as expedited delivery can also be cause for investigation. If you suspect an order is fraudulent, ring the number included in the order details.

Riskified is a company offering fraud and chargeback prevention services. It can be a good idea to protect yourself and your shop in this way.

Customer support

Responding to customer complaints and enquiries is where a lot of your time will be eaten up. And this can be extremely difficult if you’re running your dropshipping business alongside a traditional 9 to 5. Don’t underestimate how much time you’ll need to spend on customer service. Or the amount of work that is involved. Communication is key in dropshipping, so make sure you keep on top of things when it comes to speaking and listening to your customers.

The returns process

There’ll always be the chance of a customer wanting to return an item. It’s just part and parcel of the online sales world, unfortunately. Therefore, you’ll need to make sure you have a return policy available on your site. Research has found that 67% of shoppers check the returns page before making a purchase, so it’s a necessary addition to your site.

However, before you jump into writing one, you’ll need to check out the policies of each of your suppliers. Your terms will be somewhat dictated by theirs. There’s no point saying that you’ll accept returns within 30 days if your supplier will only accept items returned in 10. That doesn’t give you enough time to sort things out. Always make sure you leave enough time to accommodate the strictest supplier policy.

5 things to include in your return policy:

  1. The length of time a customer has to request a return. Remember, this will depend on your suppliers’ returns policy.
  2. Exempt items. Items like underwear are usually exempt from most stores’ returns policies for hygiene reasons.
  3. Who pays for returns? It’s a good opportunity to give a little something extra to the customer and offer free returns. 95% of shoppers say that a smooth return experience would encourage them to buy from a business again.
  4. Do you offer exchanges for returned items? And if so, is that only on defective products?
  5. If you choose to ship internationally, are all countries eligible for returns?

5 step return process:

  1. Customer contacts you to say they’re unhappy with their item and would like to return it.
  2. To go ahead, contact your supplier and ask for a Return Merchandise Authorisation (RMA) number. (Plus offer a refund and/or replacement if that’s your policy).
  3. You can either ask the customer to send the merchandise back to you, back to your supplier, or you can choose to let them keep the item. This may be cheaper and more cost-effective than you having to pay for return shipping.
  4. Once the supplier has decided they’re happy to process the refund, they’ll refund you the wholesale price of the item.
  5. You then refund the customer for the full price of the item. Throughout this process, keep the customer updated as much as possible. Keeping your customer happy, especially if they’ve requested a return/refund is one of your key duties as a business owner. There are extras you can offer the customer in order to change a ‘bad’ experience into a positive. For example, you could offer the customer a free upgrade of a similar item or store credit. Obviously you have to be mindful of your margins, but a little customer care can go a long way.

Unfortunately, returns and refunds will probably be a large part of your dropshipping experience. So it’s a good idea to have everything in place before you open your shop. That way, you won’t be caught out.

Damaged or defective items

If damage can be shown beyond reasonable doubt to have been caused either by manufacturing or shipping, the customer is well within their rights to request (and be granted) a refund or replacement. Most dropshipping suppliers won’t cover return postage for defective items.

However, you should ALWAYS compensate the customer for the return shipping fees for defective items. It’s a cost you’ll have to swallow on individual sales, but you should be able to average things out across your entire pricing system.

Related to this, it might make more sense to provide a refund or replacement item without the customer having to return the original item. This can be a great way to offer refunds as part of your policy, providing great customer service, without having to sort out deliveries.

Stand out from the crowd

Most of the time, if a customer wants to return a non-defective item, a company will expect the buyer to pay the costs of return shipping. Therefore, if you’re willing to offer free returns on everything, you’ll definitely stand out. How often do companies just ship out a new product without asking for the old one back? The answer is: pretty much almost never! You’ll score some major customer service points and maybe even some return custom. On top of that, the customer will get the new item much faster than if they’d had to wait for the old one to reach the supplier before the new one could be shipped back out to them.

However, this has the potential to get expensive, so please make sure this is a viable option for you and your business if it’s something you’re interested in doing.

VAT: costs and considerations

Costs such as VAT and import and export fees depend on where items are stored. And where they’re shipped from and to. For the purposes of this guide, we’ll focus on the EU and ‘third countries’. A third country is one which isn’t part of the EU and therefore doesn’t share the same economic structure. For example, the EU has the single market and customs union. A third country business would need to fill in customs declarations when importing and exporting.

Since leaving the EU and coming to the end of the transition period of the Withdrawal Agreement, the UK is now a third country. As the owner of a dropshipping business in the UK, you’ll need to establish where goods are stored and supplied from. This will help you with VAT charges.

An importer of record is usually responsible for paying necessary import VAT upon receipt of goods.

Registering for VAT

VAT registration is usually required when you reach a certain annual turnover. Also known as the VAT threshold. A VAT identification number would also be needed if items are stored within an EU member state. This is why many UK dropshipping businesses choose to work with suppliers in China.

At the time of writing, business-to-customers sales from the UK to the EU made between 1st January 2021 and 30th June 2021 are regarded as exports from the UK, which are zero rated. However, if selling from the EU to the UK, you’ll need to register for VAT. Make sure you do your own research first as this is a complicated area.

Changes

If you plan to accept orders from customers in EU member states, then you should be aware of the changes brought in during 2021. There have been a number of changes and some are still to be implemented but here are some of the most important:

  • Uniform VAT threshold for distance selling.
  • Abolition of LVCR (Low-Value Consignment Relief) which means that VAT has to be declared and payment made to HMRC on goods sold for £135 or less.
  • Introduction of a One Stop Shop (OSS) procedure to make it easier for businesses and online sellers to handle VAT requirements for importing/exporting with multiple countries.
  • Abolishment of tax exemption for products from third countries.
  • Mandatory to declare EU imports to customs.

These changes will mean that many dropshippers will need to pay import tax for the first time. Something they may have been able to avoid previously. Obviously, this can eat into profit margins. But does it mean that dropshipping is no longer worth doing?

This is just an overview of the changes. For more details, see the Gov.uk site.

Ways to increase your chance of dropshipping success

There are lots of ways to increase your chance of dropshipping success, aside from picking the right supplier and deciding on your returns policy. We’ll look at a few now:

Thoroughly research your niche

Make sure you’re picking an area that has growth potential. Or at least choose something you have an interest in or prior knowledge of. Once you’ve chosen your niche, give it a chance. Don’t just start adding random adding items, unless you’re looking to pivot. Otherwise, your shop will just be an Aladdin’s cave of anything.

Identify your target audience

This will be determined by your niche to some degree, but you need to know who you’re talking to. That way, you can make sure that you’re delivering your message in a way that will appeal to them. And more importantly, encourage them to visit and buy from your site over another that sells the same or similar products.

Build around your core site to increase its visibility

You can do this in a few different ways, including: optimising your content for search engines (SEO), running paid ads, targeting potential customers via social routes, and beefing up your content offering.

A content plan

This is one of the best ways you can add value to your dropshipping business. ‘Content is King’, so they say. And the term ‘content’ covers everything from blogs posts to video clips. A good online content strategy will boost your site’s visibility meaning more eyes on your business and hopefully more sales!

Think outside the box a bit too, when it comes to content. Instead of just copying and pasting an item’s photographs and details from the supplier’s site, why not buy one for yourself and create original content? Produce an unboxing video, film yourself giving a review, use the product in the real world, do a Q&A vid, the possibilities are endless! As long as your content is useful to the visitor and relevant to their needs, it’ll have a positive impact on your business. Think about the different places your content can be used, too. If you have longish videos onsite, you could repackage these to be suitable for social platforms.

Get social

Speaking of social platforms, how are you going to use them to find new customers? Return custom is fantastic, but not a given and you need to find a way to attract fresh meat / people who haven’t previously made a purchase from you. An active social strategy and overall outreach plan is something you should be aiming to produce, but there’s no magic number of posts so don’t just make noise for the sake of it. Again, this is linked to identifying your target audience and then finding the best/right/perfect way to talk to them. Asking social followers to share your posts is a good way to get more eyes on your content. And it’s free!

However, organic can only get you so far with the mysterious algorithms. As part of your outreach plan, you should look at paid adverts and sponsored posts on social. Cross-channel marketing and (re)targeting often requires the use of cookies. Cookies are small files which are dropped onto a user’s computer or mobile when they visit your site to record and store information related to that visit and any interactions they make.

Be responsible

With the storing and using of personal data comes great responsibility. Please look into GDPR (General Data Protection Regulations) and make sure you stick to the guidelines. If you’re outside of the EU, check your local data protection laws. Find more info on GDPR in the UK here.

Is dropshipping worth it in the UK?

The short answer is that it can be. Depending on your niche, success in targeting an audience, and how well your products sell, dropshipping can be a great way to earn money.

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