How to Start a Dropshipping Business in Canada

Find out how to begin your online venture with our guide to starting a dropshipping business in seven simple steps.

Dropshipping is an eCommerce business model where the digital store doesn’t hold onto inventory. It’s a common way for new entrepreneurs to step into the online business world because startup costs and risks are relatively low. At the same time, dropshipping businesses have the potential to do very well.

This article explains how you can start a dropshipping business in Canada.

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How Does Dropshipping Work?

Dropshipping is a business model where you make a sale, and another party (usually your supplier) ships the product to the end consumer. For example, you set up an online store that sells pet toys. When a customer purchases one, it notifies your supplier. Your supplier then ships the pet toy directly to the buyer.Dropshipping lets you run an eCommerce business without the hassle of managing inventory — usually a major problem. You don’t need to figure out how to store and ship merchandise because your supplier does that for you.

The three key components of a dropshipping business are the supplier, retailer, and customer:

• The Supplier: This is usually a business that manufacturers, holds, and ships the products to the end customer on your behalf. You may buy products wholesale and pay the supplier a storage and shipping fee. Alternatively, some suppliers only charge you for the product when it’s sold.

• The Retailer: This is your role! Your website sells the product under your own brand. You’re responsible for customer service, marketing, and creating and maintaining your website.

• The Customer: The buyer purchases the product from your website. They’ll likely contact you if they have an issue.

Related: Small business startup checklist

The Pros and Cons of Dropshipping

Dropshipping can be a low-risk business venture because you don’t hold inventory and sometimes only pay for products when someone buys them. Startup costs might only require a computer, internet, and a website. You don’t need to maintain unsold inventory or develop your product from scratch.

You can also automate a lot of the operations. For example, a customer purchase can trigger the supplier to prepare the shipment without you contacting them.The downside is that it’s a saturated field. Many people have seen it as a “gold rush” and gotten into dropshipping in recent years. As a result, it takes effective marketing or a unique product to differentiate yourself from the crowd.

You also need to make a large time investment in the setup. This means looking for suppliers, building your website, deciding on a pricing and marketing strategy, etc.

Seven Steps to Starting a Dropshipping Business in Canada

1. Find an In-Demand Product or Niche

Finding a good product to sell is probably the most important part of starting your business. You want to fill a niche because they are less competitive than ordinary items. Just imagine how many people are already selling cardholder wallets online! It’s hard to stand out in a crowded field.

But, a product like a staircase for your pet to jump onto your bed is more niche. Only so many people have pets, and only so many pet owners are looking for such a product.Niches aren’t limited to products. You can also fill geographical niches. Maybe Thailand doesn’t have many online stores selling nutritional supplements. This might be an opportunity to explore.You can discover ideas by viewing online forums, looking at best sellers on Etsy and Amazon, or looking for a product to fill a hole in your own life. Tools like Google Trends can let you see search volume to give you an idea of what’s popular.

It’s a significant benefit if you have a passion or interest in the product you sell, which can help you understand your target consumer. Exploring your hobbies and seeing what products you use is a great way to find merchandise for your dropshipping store.

Lastly, calculate your profit margin. Generally, a 40% profit margin is considered healthy. This gives you room if you need to write off a bad customer experience and refund someone’s purchase. 40% can also cover your operational costs while providing you with a nice profit.

However, this isn’t a hard and fast rule. If you sell more expensive products, for example, a thinner margin might be okay because you still make a sizable profit per sale.

2. Choose a Supplier

Your supplier is the key partner in all this. A good supplier works with you to provide a quality product that ships quickly. In contrast, a lousy one is a nightmare to work with. It could result in endless customer complaints about poor quality or slow shipping.

Many Canadian dropshippers use suppliers from China. You can find a lot of these suppliers on Aliexpress or Alibaba. Because China has a robust manufacturing industry, you can find almost any product sold at wholesale prices.

The disadvantage of a Chinese supplier is dealing with customs — which adds another layer of complexity to your company. Shipments from China to Canada can also take weeks, which may cause customers to look elsewhere for faster shipping.

Alternatively, search Google and use other online resources to find dropshipping suppliers. The business model is so popular now that there’s no shortage of companies fulfilling the supplier side of the equation.

Once you have five or six suppliers in mind, you’ll want to do more research. Look at their minimum order quantities and shipping times. On websites like Aliexpress, you can read reviews of what other buyers have said.

If you can narrow your five or six suppliers to two or three, ordering samples is next. Samples provide you with a realistic idea of your end consumer’s experience. Perhaps their shipping time is not as fast as they claim. Or maybe their product isn’t up to your standard of quality.

3. Develop Your Website

As the retailer in this chain, you’re responsible for building and maintaining the digital storefront. This website is your customer’s first impression of your product.

A fantastic website reveals your brand, which can be your product’s competitive advantage. Ultimately, your website drives sales, so investing in a good one is valuable.

Two important aspects of impressing customers are the right product images and descriptions. Suppliers commonly provide product images, but they aren’t always the best quality.

Additionally, other dropshippers purchasing from that supplier might use the same image. By creating your own product images, you can differentiate yourself from the crowd.Your product descriptions are also critical. A description explains how your product works and why customers should buy it.

Not only should it provide technical specifications like size, battery life, and weight, but also the benefits and experience of using it. For example, if you’re selling cut resistant gloves, enlighten customers on how your glove can provide a better protection.

Your website is also how your business operates. It needs a system to load pages, collect payment, send receipts, and notify your suppliers.

Platforms like Shopify or BigCommerce are popular for managing eCommerce sites, but you might also consider using the best eCommerce personalization software to enhance the shopping experience for your customers. Customizing your site’s look and functionality can set you apart from competitors.

Some dropshippers might opt to run their business through Etsy or Amazon instead. This, however, results in hefty fees every time you make a sale.

4. Purchase Insurance

Running any business involves significant risks. What happens if a customer sues you? Or someone steals your laptop, and you need to replace it. The right insurance mitigates these risks by paying for specific costs on your behalf if an unfortunate situation arises.

General liability insurance is usually a good start for any eCommerce business. General liability coverage protects you from lawsuits related to bodily injury and property damage. It also covers cases related to libel or slander.

Suppose a competitor sues you for $8,000 due to your last marketing campaign. They felt you unfairly represented their brand, and your messaging did irrefutable harm to their business. In this case, general liability insurance pays for legal fees and damage awards related to the lawsuit.

Other insurance policies that dropshipping businesses should consider include:

• Professional Liability Insurance: Protects you from lawsuits related to negligent services or advice.

• Contents Coverage: Pays replacement or repair costs if your business assets are damaged, destroyed, stolen, or lost.

• Cyber Security Insurance: Covers lawsuits related to cyber security problems — for example, if your customer database is hacked.

• Product Liability Insurance: Pays legal fees and damage awards if a customer sues you due to a faulty product.

Get a quote on our online platform today to learn how to reduce your dropshipping business’ risks.

5. Market Your Product

There’s no point in selling products if no one knows about them. A marketing strategy is key to your dropshipping business’ success.

Starting social media accounts can help you create an organic following to drive sales. TikTok and Instagram Reels are becoming increasingly powerful tools. The correct use can help your account go viral. Often, short videos of your product in use can drive thousands of buyers to your website.

Google and Facebook ads are also a core tool for your dropshipping marketing strategy. It’s common for buyers to visit your site and drop off. Sometimes they return, and other times they don’t. Facebook and Google can focus your ads on those who’ve visited your website before and increase the opportunity that they return to fulfill a purchase.

Lastly, consider search engine optimization (SEO). This tactic lets you rank higher on Google, so people can find your online store through the search engine. SEO is usually technical and may require you to write blog posts or other content related to your product. You can also optimize your web pages and product descriptions to be SEO-friendly by using the right keywords.

6. Optimize Your Business Strategy

After your store has operated for a certain period, visit your analytics. This lets you understand how people find your store, what products are selling well, and if anything is going wrong.

For example, if you realize most customers find you through your Facebook ads, you might increase your dollar spend to get more traffic. Or, if you sell beauty accessories and you find that your manicure sets have done exceptionally well, you may also decide to sell nail polish.

7. Speak to an Accountant and Lawyer

Accountants and lawyers are business owners’ best friends (along with a great insurance partner!). They can inform you about your tax and legal obligations. For example, a lawyer can help you incorporate your business and draft shareholder agreements with any partners you might have. An accountant can inform you of your tax obligations and help you deduct expenses to minimize your tax burden.

Related: How to start an online business?

Final Thoughts on Starting a Dropshipping Business

Starting a dropshipping business is a great way to step into entrepreneurship without a lot of risks or costs compared to other business models. It’s a profitable, although highly competitive field.

If you can find the right niche and product, you could be on your way to eCommerce success. But don’t forget that every business has risks. Your dropshipping business may be liable to expensive lawsuits due to the wrong move. That’s why it’s crucial to purchase the right business insurance.

Our custom coverage can help make the insurance part of running your business feel effortless. Get a free quote and purchase your business insurance plan in under five minutes with our easy-to-use online application.

Need Insurance for Your Small Business?

APOLLO and Gallagher have partnered to provide insurance designed for businesses and business professionals. Get a free quote online in under five minutes and receive your policy instantly.

Get a Free Online Quote

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