If you’re looking to get into the ecommerce world, one of the first decisions you’ll need to make is whether to start your own store from scratch or buy an existing one. Dropshipping businesses are a popular option for many entrepreneurs because they require less upfront investment and can be run relatively easily. But, before you take the plunge, you should know a few things about buying a dropshipping business.
Why Is Buying a Dropshipping Business Important?
Starting an online store is a dream for many. The freedom to be your own boss, set your own hours, and make money from anywhere in the world is appealing.
And the best part is that anyone can do it, really.
But, because it’s so simple to set up an online store, there is a lot of competition in the ecommerce space. 90% of ecommerce stores fail within the first 120 days and it’s usually because aspiring entrepreneurs don’t see what they’re truly up against.
This is where buying an existing dropshipping business comes in. You’re getting a leg up on the competition by purchasing an already established store.
On marketplaces like Flippa and Empire Flippers, you’ll find various businesses for sale in different industries and price ranges. Some people start and scale online businesses just to sell them on platforms like these.
While there isn’t much data that compares buying a dropshipping store to starting one, there are several things to consider in general before taking the plunge and buying a dropshipping business of your own.
Quick Tips for Buying a Dropshipping Business Today
When it comes to buying a business of any kind, there are many things to be mindful of. In the case of online businesses that can be bought and sold from anywhere by anyone, these things become even more prevalent.
1. Do your due diligence
The first step (and most important) is to make sure you’re getting what you’re paying for. Never assume that the listing valuation is accurate.
There are a few key things to look out for:
- Check the store’s traffic sources and see if they’re sustainable. If the store solely relies on one traffic source (Facebook ads, for example), that’s a big red flag.
- Look at the store’s order history and analyze their numbers. This will give you a good idea of the store’s potential and whether it is actually making money or not.
- Look into existing supplier agreements. You don’t want to be left high and dry without any inventory to sell.
2. Expand your knowledge of ecommerce and dropshipping
If you plan to buy an ecommerce business, you probably don’t want to start one from scratch and get stuck in the sandbox.
But don’t fall into the trap of believing you can buy a business and not have to put in any work. Just because someone else built it doesn’t mean it will run itself. In other words, don’t expect to purchase a business and then sit back and relax. Be prepared to roll up your sleeves and get involved in the day-to-day operations.
Your knowledge of ecommerce is especially important because you’ll need to be able to hit the ground running once you assume ownership.
But, if you’re specifically interested in dropshipping, there are a few extra considerations to keep in mind.
First, dropshipping businesses require a high level of organization and attention to detail. You’ll need to be able to keep track of orders and inventory and ensure that products are shipped out on time, without having direct ownership of the inventory or even the fulfillment process.
It’s also critical to understand the market well and know from where you should source products. You’ll need to be able to find suppliers who can provide the high-quality goods customers want at a competitive price.
And finally, you’ll need to be comfortable to some degree with modern technology and software. Many dropshipping businesses rely on automation, so you’ll need to be familiar with the platforms that can help you manage and streamline your dropshipping operations.
By expanding your knowledge in these areas before you buy, you’ll be well-positioned to successfully run a dropshipping business.
3. Consider your budget
First things first, if you don’t have the cash to buy a dropshipping business outright, you have a couple options.
A lot of people find investors or partners who are keen to help you finance the purchase. Or, you can look for businesses willing to do seller financing, which means they’ll allow you to make payments over time.
Of course, you can just look for businesses within your budget. Just remember to adjust your expectations accordingly. A business that costs $50,000 will be a lot different (and have a lot more potential) than one that costs $5,000.
When it comes to budgeting, you should also consider whether or not that money could be better allocated to startup costs.
Having $50,000 to spend on a business isn’t the same as buying a $50,000 business. Once that business is yours, you’ll take on its operating costs, ad spend, and inventory.
In other words, you’ll need to have more than the bank’s purchase price to make it work.
For most people, starting from scratch and building a business up gradually is better—especially if you already have $50,000! With dropshipping, that’s especially easy to do since you don’t need to carry any inventory yourself.
You can start small, build up your knowledge and customer base, and then reinvest your profits into scaling the business.
But if you do have the budget and business acumen to outright buy a business and scale it, it can be a great way to get started in ecommerce with a head start—especially if you find the right one.
4. Map out your business goals
If you’re serious about buying a dropshipping business, the next step is to closely examine everything you want to do with the business.
You’ll want to look into the business’s financials, marketing efforts, supplier relationships, and the like. This will give you a good idea of what you’re getting yourself into and whether or not the business is a good fit.
You should also think about what you want to achieve with the purchase. Are you looking to take over an existing customer base and product line? Or are you looking for a platform you can use to launch your own products?
Knowing your goals will help you narrow down your search for the right business for you.
Long-Term Strategies for Buying a Dropshipping Business
If you do decide to buy a dropshipping business, make sure you know what you’re in for.
Here are a few things to keep in mind to help you prepare:
1. Know an opportunity when you see one
When you’re looking to buy a business, it’s important to be able to spot a good opportunity.
A business that’s already profitable and has been for some time is always a good bet. In most cases, you’ll be able to take over the business and continue to run it profitably.
A business with a loyal customer base is also appealing. There’s already demand for the business’s products or services, and if you can find one that requires recurring purchases, that’s even better.
With your experience and knowledge, recognize businesses with a solid foundation in place. Look for strong supplier relationships, a particularly well-optimized website, and an effective social media presence.
All of these things will make it easier for you to take over the business and hit the ground running.
But if you have unique marketing, technical, or other expertise, some of these things aren’t necessary. In fact, their absence may present an opportunity.
Say you’re an SEO expert. Finding a business with a less-than-optimal website could actually be a good thing. You could take over the business, work your magic on its website, and then start generating more traffic and sales.
The same goes for a lack of social media presence or paid advertising. Even if the business is low-value and generating few sales at the moment, on-page edits and tweaks that increase the site’s traffic can help you shoot out of the gates.
In lots of cases, businesses that aren’t running ads are great opportunities. If their products have good margins, you could rank them for keywords with high purchase intent and quickly give the business a boost.
And if these keywords have a low cost-per-click (CPC), running performance marketing campaigns could be a great way to scale the business quickly and profitably.
Of course, you don’t need to be an expert in all of these areas to find a good opportunity. But if you have expertise in any of them, use it to your advantage.
2. Avoid any businesses reliant on one supplier
No matter how good the relationship a business has with its supplier, there’s always a risk that something could go wrong.
A supplier could go out of business, stop carrying the product, or raise prices unexpectedly. And if the business is reliant on that supplier alone, it could quickly find itself in serious trouble.
You’ll want to ensure any business you consider buying has multiple suppliers for their product lines.
If you are an experienced ecommerce seller in the niche, you may already know a few good suppliers. In that case, you have an advantage when negotiating the purchase price, knowing you can add those to the business’ existing supplier relationship or just replace their old supplier with your trusted ones.
3. Understand the business’ inventory process
One of the most important aspects of any ecommerce business is its inventory management process. This goes double for dropshipping, where inventory is rarely, if ever, held on site or even owned by the seller.
If a business doesn’t have a good handle on its inventory processes, it will quickly find itself falling behind on orders or flat-out out of stock and unable to fulfill any. This can lead to angry customers, lost sales, and a damaged reputation.
When you’re looking to buy a dropshipping business, pay close attention to the way its inventory is sourced and managed.
Ask questions about how orders are placed with suppliers, how often inventory is restocked, and what mechanisms are in place for when items are out of stock.
4. Know what kind of software they use
If the prospective dropshipping business doesn’t use any automation tools to streamline its processes, that’s a major flaw.
In today’s ecommerce world, there are few things more important than automation. From inventory management to customer service, a variety of software solutions can make running an ecommerce business much easier by streamlining and automating routine actions.
If the business you’re looking at doesn’t use any of these tools, it could be a sign that the owner isn’t tech-savvy or is running the business on a shoestring budget.
Really, this is a huge opportunity with the right dropshipping business. If they’ve been doing just fine without these tools, think of the potential of implementing them and upping sales efficiency after you purchase the business.
5. Align your goals with your bandwidth
It’s going to take work no matter what, but some businesses will require more work than others.
Keep in mind what you’re able to handle when assessing dropshipping operations to buy. Every missing element, from running ads to supplier relationships, will require your time and attention.
Think of it like real estate: people who buy rental properties that are already tenant-occupied look for buildings whose units are mostly full and need little immediate repair work. This way, they have steady income from the start and they can scale over time.
On the other hand, someone who flips houses might be looking for a fixer-upper and will be more interested in a property that needs some work but is priced accordingly and can gain a serious return from the investment of time to fix it up. Once the property has been rehabilitated, it will shoot up in value and can be resold.
The same goes for dropshipping businesses. It’s important to think about how much work you’re willing to put in and find a business in a state that’s in line with those goals.
The decision of whether or not to buy a dropshipping business is a big one.
There’s a lot to consider, and it’s important to do your due diligence before making any decisions.
This guide should have given you a good starting point for understanding the process of buying a dropshipping business.
From there, you can start doing your own research and begin the process of finding the right business for you.
If you’re ready to get started, take a look at the best ecommerce platforms to run your business on.