The dropshipping business model is popular amongst budding entrepreneurs who want a simple way to make money from selling goods online without needing to manage inventory or shipping. If you’d like to know how to start a dropshipping business in the UK or learn how the business model works, check out our handy guide.
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Dropshipping is an order fulfilment business model that lets you sell products online from third-party suppliers, such as manufacturers, wholesalers or retailers without holding the stock yourself. You can create an ecommerce store to trade various types of products, while third parties store and ship them to customers – you just run the store and manage the marketing.
The global dropshipping market is on the rise, with the market’s value expected to reach $351 billion in 2024 and grow to $2.2 trillion by 2033 (at a rate of around 23.6% per year).
The dropshipping model is fairly straightforward and low-risk. Prospective “dropshippers” just need an online store to start selling third-party goods (plus a few legal and operational fundamentals). In fact, in today’s booming ecommerce space, around 27% of online retailers use the dropshipping business model as their primary method to fulfil orders. Manufacturers and suppliers are also reaping the rewards of dropshipping growth – so, it’s a win-win.
There are various reasons to start dropshipping as a side hustle or small business venture. Here are the main benefits of dropshipping:
There are some potential considerations to bear in mind however, including the small margins on product sales. The average dropshipper makes between 10% and 30%, depending on the product type. However, the scalable model means you can still see healthy returns. Other points to bear in mind are the lack of control over product quality, fulfilment efficiency and customer experience – you’re at the mercy of third-party providers.
Although dropshipping is a lean business model, there are still various set-up tasks to consider before getting started.
Here are the main considerations in the initial dropshipping business planning phase:
These steps require time and money, so you need to craft a strategic business plan.
Before we look at the costs involved, here are a few pointers on building an effective dropshipping business plan:
Wondering how much money you need to start dropshipping in the UK? Although you won’t be responsible for managing shipping or inventory, most steps mentioned above cost money. So, below, we’ll help you understand the main costs of starting a UK dropshipping business.
You can expect to pay between £20 and £100/month. Shopify is the leading ecommerce platform for dropshipping, and Shopify’s basic plans start at around £20/month, but if you want more features, this can rise to £100/month. Learn how to start dropshipping with Shopify.
WooCommerce is a free option, a complementary plugin for WordPress sites, but any premium plugins and themes will see costs rack up and WordPress itself comes with further costs. Compare the pros and cons and pricing of different ecommerce platforms before choosing one.
You can use Amazon for your dropshipping venture but while this saves you money on hosting and site-building, Amazon takes between 8% and 15% in referral fees and will charge you £25/per month for a professional seller account. Learn how to start Amazon dropshipping.
Domain registration typically costs £5-£15 annually, from common providers like GoDaddy and Hostinger. Hosting will cost around £5-£30/month – there are lots of hosting solutions to choose from, with some offering annual payment options at a reduced monthly rate.
Website design and development costs vary based on your approach and budget. You can pay anything up to £500 (and beyond) to achieve a well-functioning ecommerce website, which requires a clear user journey, compelling design, various integrations and technical SEO best practices.
Factors include the CMS themes, templates and features you want to use, and whether you design it yourself or employ a developer for customisations. Also, consider if you need ongoing maintenance.
There are numerous dropshipping apps for product sourcing, order management and automation, and costs range from £10-£100/month. Common tools include Oberlo (for Shopify) and Spocket for sourcing/adding products from suppliers to your store, AfterShip for order tracking and Printful and Printify for product customisation (for products like clothing, mugs, etc).
Promotional activities for dropshipping typically involve social media, search ads and email marketing. So, things like Google Ads and Facebook Ads Manager (and other social tools), Mailchimp and social media management apps. There are various SEO research and tracking solutions, while Google Analytics and CMS/CRM platforms help you monitor website performance.
Some tools are free or have affordable subscription levels, so costs depend on your level of promotional activity. However, where you’ll need to spend money is the ads themselves. Start small and test different ads, optimising performance as you go. Spending between £100-500/month is advised, and with subscription costs for other marketing tools, you’re looking at up to £1000/month.
You can also use influencers. Some micro-influencers will work with you in exchange for free products, whilst more established influencers can charge hundreds of pounds.
Aside from the cut of sales that third parties take, you’ll have to pay fees on customer transactions. Fees vary, depending on the ecommerce platform, payment gateway and payment type (i.e. credit card, mobile wallets, BNPL, etc).
Transaction fees from common payment gateways, like PayPal and Stripe, are between 1.4%-2.9% plus 20-30p per transaction. Some ecommerce platforms also charge transaction fees (around 2-3%), so find out the full range of fees when choosing payment solutions and forecasting profits.
Getting product samples enables you to judge quality and meet customer expectations. You can order samples from suppliers and assess the product quality, packaging and shipping experience to reduce the likelihood of product returns/refunds, complaints and negative reviews.
It’s difficult to quantify sampling costs, as it depends on various factors, such as product type and volume, shipping fees, etc. However, you can seek free samples or discounts from certain suppliers, to minimise costs.
There are always additional costs when running a dropshipping business. Common miscellaneous costs include legal advice, insurance, accounting solutions and business licences/permits – the latter depends on your location and business structure.
Costs will vary, depending on your circumstances, risk appetite and business scope. However, business insurance (such as general liability insurance and shipping insurance) ranges from £100-£500/year,
You’ll want wiggle room for unexpected expenses, such as operational errors, compliance issues, returns and refunds, dips in demand or personal circumstances. So, you might want to build an emergency fund for this purpose.
Again, costs vary, according to your situation and plans, but a pot in the region of £500-£1000 (or more if you want peace of mind) is a good buffer.
As you can see, expenses are variable, so your total investment costs will depend on your business needs. However, the estimated total dropshipping investment cost should be between a few hundred pounds and £3000.
Why not go through this list of set-up and operating costs with your business plan in mind, and tot up your likely investment costs?
Technically, you could start dropshipping in the UK for (almost) free or with minimal upfront investment. There are various ways to reduce costs, with several workarounds and free options to dip your feet in before fully committing.
Here are some of the ways you can reduce dropshipping costs:
You can start small if you don’t have a lot of capital, and scale and reinvest profits when you find your feet. When you want to build things up, you can seek capital from alternative lenders and secure business loans to meet your specific needs.
While starting a dropshipping business in the UK doesn’t require a huge amount of money upfront, business finance can help you get underway, and reduce initial pressure before the sales (hopefully) come flooding in.
Commercial lenders and business loan [link to new loan comparison blog] providers like iwoca can give dropshippers flexible finance options to get started and invest in key business areas, from purchasing software to marketing promotion. Fast access to funds, manageable monthly repayments and flexible solutions, like merchant cash advances, can give you breathing space to implement your strategy and build your dropshipping business.
If you need an injection of capital to kick-start your dropshipping business and cover initial set-up costs, iwoca can help. We offer flexible business loans to get your new venture off the ground.
Our Flexi-Loans and Micro Loans are ideal for entrepreneurs and dropshippers. You can borrow as little as £1000 for one day to two years. Tailor terms to your specific needs and get fast access to finance, without the fuss and stringent credit criteria of traditional bank loan applications.
Why choose iwoca for dropshipping business finance? Here are some of the key benefits:
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