One of the most popular types of online business these days is dropshipping. For the uninitiated, it is a type of retail fulfillment business that does not keep any stock of the products it sells. Instead, when it makes a sale, the item is purchased directly from a third party and that third party is the one that will ship the item directly to the customer. So it is basically the same as the standard retail model, with the difference being that a dropshipping business does not have any stock or inventory. In most cases, the merchant does not even get to handle the actual product.
First Thing’s First: Why Dropshipping?
There are numerous reasons why dropshipping is so popular, with the main one being that it requires less capital compared to traditional retail business models. This is because there is no need to invest thousands of dollars just to stock up on inventory, and you can launch an ecommerce store without needing any physical warehouse space. It’s one of the many retail business models that can grow to become successful on very little money.
Another benefit comes from not needing any physical products, which makes starting easier. There’s no need to handle packing and shipping of orders, tracking of inventory, or handling returns. A huge chunk of time is also saved because there is no need to order new inventory and manage stock.
Aside from the above benefits, lack of actual physical products also makes it easier to scale up. You don’t have to worry about increasing physical storefronts or adding new warehouses when your business grows. You can operate the business even in your home office regardless of how large the customerbase increases.
Writing a Business Plan for Your Dropshipping Business
Despite being one of the easier retail business models to start, a dropshipping business can still be a fairly involved process, so you need to have a good business plan. To start with, you need to decide which kind of business plan format to use. The United States Small Business Administration (SBA) currently presents a couple of formats – the formal business plan and the startup business plan. The former is the format that is meant to be detailed and comprehensive, while the latter format is more concise and will usually just consist of a single page.
Your dropshipping businessplan does not need to be comprehensive if it is only meant for internal use, most likely using a traditional business plan with the sections you don’t need culled. But if you need a business plan to get funding or as requirement for some other official purpose (such as registering your business or applying for a bank loan), then you need to create a full traditional business plan. It is a wise idea to clarify with the government body or the bank that is requiring the business plan as to what format they need.
Start Writing Your Business Plan
If you do not know where to start, there are several questions that will help you analyze your business idea and the direction of your business plan:
What is the reason for starting or expanding your business – for most people, the answer is straightforward, because they seek profits. But it helps if you can find a more deeper, at least lest curt answer. Because all businesses by design seek profits, but some have more substantial reasons for existing (or expanding), such as businesses that want to strengthen a local market, or businesses who seek to fulfill a gap in the industry, or even business who want to provide jobs to people with limited skillsets. What made you decide to start a dropshipping business?
Does your goals align with your business idea and values – in terms of dropshipping, does the concept of leaving all of the customer-facing aspects of the sales funnel to a third party coincide with your values? Its that necessarily a bad thing? This question helps you reflect on how confident you are in your business.
What do you bring to your business – there are a lot of reasons why business owners are almost indispensable. They own the company, for one thing, but other than that, they also bring something to the business. For most of them, it’s something as simple as the fact that they hold the keys to the vault, proverbially speaking. But some business owners also bring something else to the table. Such as unique expertise, excellent people skills, a rare knowledge that is valuable in the field, etc. You need to know if you have something extra to bring to the company.
The Contents of a Business Plan
After answering the questions above, you should have enough self-awareness and working knowledge of how the company should look to third parties. You are ready to write the business plan itself and get down to the nitty-gritty. While there are variations, the average business plan usually includes the following sections:
Executive Summary – this is the section that serves as a single-page summary of the entire business plan, and must be put in the beginning. It needs to contain the highlights, such as what your business does that will entice lenders and investors, its potential, your target market, and why you stand out from the competition. You need to drum up interest in your company, but make sure you provide realistic projections. Hyperbole and outright falsifications need to be avoided, as that’s usually a red flag for the people who are going to read your business plan.
Company Description – this is a more detailed, extensive description of your businss. It should provide in-depth introduction about your business, its location, the legal structure, as well as all pertinent information such as licenses, accreditations, business and TAX ID. This is also the part of the business plan where you explain the company’s mission and vision, the core values that it operates under, and its goals both long term and short term. If your company has already achieved milestones or accolades in the industry, this is where you put it. This section is particularly useful because you can use it as reference every time you need to create a company profile, which is going to be used when you create a website, a social media page, and other places where you need to introduce your business such as a directory or a brochure. Therefore, extra care must be taken to ensure that the information you provide is consistent.
Products & Services – as the section’s name implies, the Products & Services section of your business plan should include detailed information about what your business will sell to customers. In the context of a dropshipping business, this section should provide in-depth information on the products that you are planning to sell, including why customers will buy it, what kind of needs or problems it will address, the pricing compared to the competitors, the profit margin, and the logistics of the operation.
If you are partnering with a specific third party supplier, this is the place where you get to explain why you chose them and their products to sell. You can outline all of the unique selling points that their company and products have. This section should also include an explanation of your exclusive agreements with third party vendors, suppliers, and their ability to meet the demands of your customers. In a way, this section will contain something similar to a company description, though more concise and focused on your vendor and supplier partners.
The main goal of this section is to help the reader visualize how the dropshipping business works, which is particularly important as dropshipping is a relatively new industry that may be unfamiliar or a completely alien concept to the people that will read your business plan. Sell them in on the concept, though you need to do it realistically. Avoid hardselling as that kind of tone will be insulting to whoever is going to assess your business plan.
Market Analysis – this section of your business plan will contain any research you have don in order to get to know your target customers or potential buyers. This section will be used by the reader to gauge whether you really know what you are getting into. A business owner who does not even know his customers is unlikely to inspire confidence, so the market analysis section tends to be a make or break part of your business plan. If you fail to be convincing in this part, it may affect the chances of your business plan getting read in full.
Other researches that should be included in this section include an analysis of the industry you want to trade in, and an analysis of your competitors. The reader of your business plan is very interested in knowing whether the market you are planning to enter is large enough to accommodate a new entrant, whether your business is profitable, whether you can compete with established businesses operating in the same trade, and if you are seeking funding – whether they can expect a good return on investment.
Marketing and Sales – this section will show the reader whether you have a plan in place, as this section will include your strategy on how to engage your target demographic and how to sell your products to the potential buyer. You must include an outline of the marketing and advertising campaigns you plan to put in place (or have already put in place). In the case of dropshipping, which is online-focused, it could be search marketing, content marketing, social media marketing, email marketing, or any of the countless ways to market and advertise over the internet.
If you are a bit lost in this section, you can start by analyzing the marketing and advertising strategies of your competitors. Getting a good grip on their strategy can allow you to craft a similar or better one, which you can then explain in your business plan’s marketing and sales section. Dropshipping business owners are lucky in this regard as the marketing strategies being used in the trade are widely known, and can be seen simply with a Google search. All you need to do is look and them and try to find areas or approaches that can be improved. The only thing you need to avoid is to come off as a lazy copycat – don’t just cut and paste, but internalize your competitors’ strategies and try to design a better one, then showcase that on your business plan.
Management and Organization – this section may be shorter than the rest, as it will only include a description of your business’ structure, which could include details on the legal structure in place, the owners, the partners, and any other applicable departments that make up the company as a whole.
This section should also include a concise resume of the key members of your dropshipping business. This doesn’t need to be extensive, and is not expected to be populated too much especially if it’s a sole proprietorship. So don’t sweat the details and just try to be truthful, while also calling attention to any qualifications or accomplishments that can help convince the reader of your company’s importance.
Funding Request – this is very likely an optional section when it comes to dropshipping, because dropshipping businesses require very little upfront investment and very little running costs. But you should still take the time to craft one in case you need a business plan for a loan application. Be straightforward but informative in this section. Provide an outline of the amount you need, where it is going, and your expected ROI.
Financial Projections – this is the part where you come clean with your projected revenue for the next five years of your business, along with its expenses. Some assessors who don’t have much time usually go straight to this area after reading the company description, so this is another make or break section. You might want to put all your convincing skill in this section as it could make the reader more interested and willing to give your business plan a more thorough read.
Appendix – this is the final part, and must include any documents that you think is not necessary for the business plan but could still supplement any further inquiries into your business, such as credit histories, resumes, product sample brochures, legal documents, supplier contracts, etc. It helps if you contact the bank or government agency in charge of reading your business plan just to ask if they want any specific documents to be included in your business plan.