Do you want to start drop shipping business?

Are you thinking about starting a drop shipping business? The biggest benefit of starting this business is that you don’t need to keep products in stock. You can easily partner with wholesale suppliers who will stock their own inventory and ship the goods directly to customers. All you have to do is transfer the customer orders as well as the shipment details to the suppliers.
You can even start this business part-time and it will still be profitable provided that you invest one of out of the following two things: time or money. In any case, you will have to prepare a comprehensive business plan that will serve as the foundation of your startup. If you are wondering how to write one then here we are providing you the business plan for a drop shipping business startup named ‘Zee Online’.

Executive Summary

2.1 The Business

Zee Online will be a drop shopping business which will be solely owned by Jennifer Kates, a business graduate and an entrepreneur. The company’s office will be located in Texas city while the company will provide its services across the United States.

2.2 Management

The main management of the company will comprise of sales executives, managing assistants and customer representatives. The management is dedicated to make the dream drop shipping business model a reality by providing excellent service and adding value to the customers.

2.3 Customers

Our customers will be the men, women and the businesses located across the United States.

2.4 Business Target

The company’s three-year targets are outlined as follows:

Drop Shipping Business Plan - 3 Years Profit Forecast

Company Summary

3.1 Company Owner

Zee Online will be owned by Jennifer Kates, a business graduate from the University of Illinois.

3.2 Why the Business is being started

The business is being started with the aim of making profits in the online retail industry while also adding value to the customers through excellent drop shopping services.

3.3 How the Business will be started

The business will be located in a small office located in Texas but will operate across the United States. In addition to the usual inventory, the company will procure business internet connection along with computers, servers, peripherals and other office furniture. The startup summary is as follows:

Drop Shipping Business Plan - Startup cost

The detailed start-up requirements are given below:

Start-up Expenses 
Legal$75,500
Consultants$0
Insurance$62,750
Rent$22,500
Research and Development$42,750
Expensed Equipment$42,750
Signs$1,250
TOTAL START-UP EXPENSES$247,500
Start-up Assets$0
Cash Required$322,500
Start-up Inventory$52,625
Other Current Assets$222,500
Long-term Assets$125,000
TOTAL ASSETS$121,875
Total Requirements$245,000
START-UP FUNDING$0
START-UP FUNDING$273,125
Start-up Expenses to Fund$121,875
Start-up Assets to Fund$195,000
TOTAL FUNDING REQUIRED$0
Assets$203,125
Non-cash Assets from Start-up$118,750
Cash Requirements from Start-up$0
Additional Cash Raised$118,750
Cash Balance on Starting Date$121,875
TOTAL ASSETS$0
Liabilities and Capital$0
Liabilities$0
Current Borrowing$0
Long-term Liabilities$0
Accounts Payable (Outstanding Bills)$0
Other Current Liabilities (interest-free)$0
TOTAL LIABILITIES$0
Capital$0
Planned Investment$0
Investor 1$312,500
Investor 2$0
Other$0
Additional Investment Requirement$0
TOTAL PLANNED INVESTMENT$695,000
Loss at Start-up (Start-up Expenses)$313,125
TOTAL CAPITAL$221,875
TOTAL CAPITAL AND LIABILITIES$221,875
Total Funding$265,000

Services for customers

You must decide what products will you provide to your customers before thinking about how to set up drop shipping business because the planning of other subsequent components (such as finding relevant suppliers) depends on your products. Zee Online will provide following products to its customers:

  • Phones, Computers & Accessories: This category includes smartphones, laptops, tablets and other related accessories such as chargers, earphones, data devices etc.
  • Men’s Fashion: This category includes men clothing, shoes, wrist watches and other wearables.
  • Women’s Fashion: This category includes women clothing, shoes, handbags, cosmetics, artificial jewelry and other wearables.
  • Home & Living: This category includes household items.
  • Baby, Toys & Kids: This category includes all kinds of baby products and toys.

Marketing Analysis of drop shipping business

The most important component of an effective drop shipping business plan is its accurate marketing analysis. If you are starting this venture on small scale, you can take help from this drop shipping business plan template and carry out a marketing analysis yourself. Marketing analysis is extremely important because it gives you an idea of your position in the market therefore, it must be considered before you think about how to start a drop shipping business. If you are going to start a drop shipping business on a larger scale, it is better to seek the help of marketing experts since they will help you organize all your drop shipping business ideas and will according create a marketing strategy for you.

5.1 Market Trends

Drop shipping or Ecommerce industry is one of the largest industries in the United States as well as in the rest of the world. In United States, the Ecommerce sales were estimated to be $353.7 billion for 2017. The industry is growing at the forecasted rate of 17% and is estimated to become a $485.3 billion industry by 2021. As of 2016, there are 211 million digital shoppers in the United States and this figure will increase to 224 million by 2019. To be more specific, eight out of ten Americans are now online shoppers. Considering these statistics, one can imagine how big this industry is. Any business in this industry can be profitable provided that it has some competitive aspect so as to survive the environment shared by Ecommerce giants such as Amazon and Alibaba.

5.2 Marketing Segmentation

We will target all people living in the United States. Our experts have identified the following type of target audience which can become our future consumers:

Drop Shipping Business Plan - Market Segmentation

The detailed marketing segmentation of our target audience is as follows:

5.2.1 Women:

The biggest consumer of our services will be the women in the United States. It has been established by various surveys and studies that women are more likely to make online purchases than men. That’s why, American women will be the biggest contributor to our revenue. Except for the Men’s Fashion category offered by us, women will buy more products as compared to men in the remaining four categories.

5.2.2 Men:

The second biggest consumer of our products will be men. Although their contribution to our revenue will be less than women but still it will be of significant value.

5.2.3 Businesses:

We also hope to target the corporate sector for buying the products from our first category, computers and accessories.
The detailed market analysis of our potential customers is given in the following table:

Market Analysis
Potential CustomersGrowthYEAR 1YEAR 2YEAR 3YEAR 4YEAR 5CAGR
Women48%22,33432,34443,66552,54466,43210.00%
Businesses18%11,43313,34416,55318,74520,54513.43%
Men34%18,32219,45520,65522,86724,43315.32%
Total100%52,08965,14380,87394,156111,4109.54%

5.3 Business Target

  • To achieve the net profit margin of $10k/month by first year, $15k by second year, and $25k by third year
  • To add 3 more categories of electronic appliances, sports products and furniture by the end of the first year

5.4 Product Pricing

Considering the competition in Ecommerce industry, we have priced all our products in the similar ranges as of our competitors. However, the delivery changes are kept slightly less as compared to our competitors.

Strategy

Like marketing analysis, sales strategy is also an important component of a drop shipping business plan so it must be planned before you think about how to start drop shipping business.

6.1 Competitive Analysis

The biggest problem you will face while starting this venture is the intense competitive environment created by giants like Amazon, eBay, Alibaba etc. In addition to that there are tons of other drop shipping business with ranging magnitudes. That’s why, if you are thinking how to start a successful drop shipping business, the only answer is find a competitive advantage. Carry out an in-depth analysis of what your competitors are missing and how can you add vale to your customers.
Zee Online will achieve its competitive advantage by providing fastest shipping, minimal shipping charges and excellent customer service. As per the price of products, they are in same ranges as of our competitors since cutting them will impact the profitability of the business.

6.2 Sales Strategy

  • We will carry out a large scale paid social media advertisement campaign.
  • We will use digital marketing strategies, SEO and SEM practices for promoting our website and achieving higher search results in Google rankings.
  • We will offer various discounts on women’s fashion products during the first month of launch.

6.3 Sales Monthly

Drop Shipping Business Plan - Sales Monthly

6.4 Sales Yearly

Drop Shipping Business Plan - Sales Yearly

6.5 Sales Forecast

Drop Shipping Business Plan - Unit Sales

Sales Forecast   
Unit SalesYear 1Year 2Year 3
Phones, Computers & Accessories187,330260,320258,240
Men’s Fashion802,370815,430823,540
Women’s Fashion539,3207702301,002,310
Home & Living265,450322,390393,320
Baby, Toys & Kids1,435,3201,250,4301,762,450
TOTAL UNIT SALES3,229,7903,418,8004,239,860
Unit PricesYear 1Year 2Year 3
Phones, Computers & Accessories$140.00$150.00$160.00
Men’s Fashion$600.00$800.00$1,000.00
Women’s Fashion$700.00$800.00$900.00
Home & Living$650.00$750.00$850.00
Baby, Toys & Kids$140.00$120.00$100.00
Sales
Web hosting services$214,800$274,000$333,200
Phones, Computers & Accessories$120,050$194,500$268,500
Men’s Fashion$50,110$71,600$93,000
Women’s Fashion$139,350$194,600$249,850
Home & Living$62,350$72,300$82,250
Baby, Toys & Kids
Direct Unit CostsYear 1Year 2Year 3
Phones, Computers & Accessories$0.70$0.80$0.90
Men’s Fashion$0.40$0.45$0.50
Women’s Fashion$0.30$0.35$0.40
Home & Living$3.00$3.50$4.00
Baby, Toys & Kids$0.70$0.75$0.80
Direct Cost of Sales
Phones, Computers & Accessories$98,300$183,000$267,700
Men’s Fashion$66,600$119,900$173,200
Women’s Fashion$17,900$35,000$52,100
Home & Living$19,400$67,600$115,800
Baby, Toys & Kids$27,700$69,200$110,700
Subtotal Direct Cost of Sales$294,100$699,400$1,104,700

Personnel plan

You must also decide what staff will you need to run your company before you start your own drop shipping business because it will help you in estimating the accurate financial expenses.

7.1 Company Staff

Jennifer will act as the General Manager of the company and will initially hire following people:

  • 1 Accountant to maintain financial and other records
  • 2 Sales Executives responsible to market and discover new ventures
  • 3 Call Center Agents to receive complaints of customers and answering queries
  • 2 Managing Assistants to manage the company’s official website and social media pages
  • 6 Customer Representatives to record and place the orders with suppliers

7.2 Average Salary of Employees

 Personnel Plan   
Year 1Year 2Year 3
Accountant$85,000$95,000$105,000
Sales Executives$85,000$92,000$109,000
Call Agents$35,000$42,000$59,000
Managing Assistants$60,000$63,300$70,000
Customer Representatives$63,300$70,000$76,700
Total Salaries$243,300$267,300$314,700

Financial Plan

The success of a business heavily depends on its accurate financial analysis so make sure to pay special attention to your financial plan before you start drop shipping business. The financial plan of Zee Online is as follows.

8.1 Important Assumptions

 General Assumptions   
Year 1Year 2Year 3
Plan Month123
Current Interest Rate10.00%11.00%12.00%
Long-term Interest Rate10.00%10.00%10.00%
Tax Rate26.42%27.76%28.12%
Other000

8.2 Brake-even Analysis

Drop Shipping Business Plan - Brake-even Analysis

 Brake-Even Analysis 
Monthly Units Break-even5530
Monthly Revenue Break-even$159,740
Assumptions:
Average Per-Unit Revenue$260.87
Average Per-Unit Variable Cost$0.89
Estimated Monthly Fixed Cost$196,410

8.3 Projected Profit and Loss

 Pro Forma Profit And Loss   
Year 1Year 2Year 3
Sales$309,069$385,934$462,799
Direct Cost of Sales$15,100$19,153$23,206
Other$0$0$0
TOTAL COST OF SALES$15,100 $19,153 $23,206
Gross Margin$293,969$366,781$439,593
Gross Margin %94.98%94.72%94.46%
Expenses
Payroll$138,036$162,898$187,760
Sales and Marketing and Other Expenses$1,850$2,000$2,150
Depreciation$2,070$2,070$2,070
Leased Equipment$0$0$0
Utilities$4,000$4,250$4,500
Insurance$1,800$1,800$1,800
Rent$6,500$7,000$7,500
Payroll Taxes$34,510$40,726$46,942
Other$0$0$0
Total Operating Expenses$188,766$220,744$252,722
Profit Before Interest and Taxes$105,205$146,040$186,875
EBITDA$107,275$148,110$188,945
Interest Expense$0$0$0
Taxes Incurred$26,838$37,315$47,792
Net Profit$78,367$108,725$139,083
Net Profit/Sales30.00%39.32%48.64%

8.3.1 Profit Monthly

Drop Shipping Business Plan - PROFIT MONTHLY

8.3.2 Profit Yearly

Drop Shipping Business Plan - PROFIT YEARLY

8.3.3 Gross Margin Monthly

Drop Shipping Business Plan - GROSS MARGIN MONTHLY

8.3.4 Gross Margin Yearly

Drop Shipping Business Plan - GROSS MARGIN YEARLY

8.4 Projected Cash Flow

Drop Shipping Business Plan - Projected Cash Flow Diagram

 Pro Forma Cash Flow   
Cash ReceivedYear 1Year 2Year 3
Cash from Operations
Cash Sales$40,124$45,046$50,068
Cash from Receivables$7,023$8,610$9,297
SUBTOTAL CASH FROM OPERATIONS$47,143 $53,651 $59,359
Additional Cash Received
Sales Tax, VAT, HST/GST Received$0$0$0
New Current Borrowing$0$0$0
New Other Liabilities (interest-free)$0$0$0
New Long-term Liabilities$0$0$0
Sales of Other Current Assets$0$0$0
Sales of Long-term Assets$0$0$0
New Investment Received$0$0$0
SUBTOTAL CASH RECEIVED$47,143 $53,651 $55,359
ExpendituresYear 1Year 2Year 3
Expenditures from Operations
Cash Spending$21,647$24,204$26,951
Bill Payments$13,539$15,385$170,631
SUBTOTAL SPENT ON OPERATIONS$35,296 $39,549 $43,582
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out$0$0$0
Principal Repayment of Current Borrowing$0$0$0
Other Liabilities Principal Repayment$0$0$0
Long-term Liabilities Principal Repayment$0$0$0
Purchase Other Current Assets$0$0$0
Purchase Long-term Assets$0$0$0
Dividends$0$0$0
SUBTOTAL CASH SPENT$35,296 $35,489 $43,882
Net Cash Flow$11,551$13,167$15,683
Cash Balance$21,823$22,381$28,239

8.5 Projected Balance Sheet

 Pro Forma Balance Sheet   
AssetsYear 1Year 2Year 3
Current Assets
Cash$184,666$218,525$252,384
Accounts Receivable$12,613$14,493$16,373
Inventory$2,980$3,450$3,920
Other Current Assets$1,000$1,000$1,000
TOTAL CURRENT ASSETS$201,259 $237,468 $273,677
Long-term Assets
Long-term Assets$10,000$10,000$10,000
Accumulated Depreciation$12,420$14,490$16,560
TOTAL LONG-TERM ASSETS$980 $610 $240
TOTAL ASSETS$198,839 $232,978 $267,117
Liabilities and CapitalYear 1Year 2Year 3
Current Liabilities
Accounts Payable$9,482$10,792$12,102
Current Borrowing$0$0$0
Other Current Liabilities$0$0$0
SUBTOTAL CURRENT LIABILITIES$9,482 $10,792 $12,102
Long-term Liabilities$0$0$0
TOTAL LIABILITIES$9,482 $10,792 $12,102
Paid-in Capital$30,000$30,000$30,000
Retained Earnings$48,651$72,636$96,621
Earnings$100,709$119,555$138,401
TOTAL CAPITAL$189,360 $222,190 $255,020
TOTAL LIABILITIES AND CAPITAL$198,839 $232,978 $267,117
Net Worth$182,060$226,240$270,420

8.6 Business Ratios

 Ratio Analysis    
Year 1Year 2Year 3Industry Profile
Sales Growth4.35%30.82%63.29%4.00%
Percent of Total Assets
Accounts Receivable5.61%4.71%3.81%9.70%
Inventory1.85%1.82%1.79%9.80%
Other Current Assets1.75%2.02%2.29%27.40%
Total Current Assets138.53%150.99%163.45%54.60%
Long-term Assets-9.47%-21.01%-32.55%58.40%
TOTAL ASSETS100.00%100.00%100.00%100.00%
Current Liabilities4.68%3.04%2.76%27.30%
Long-term Liabilities0.00%0.00%0.00%25.80%
Total Liabilities4.68%3.04%2.76%54.10%
NET WORTH99.32%101.04%102.76%44.90%
Percent of Sales
Sales100.00%100.00%100.00%100.00%
Gross Margin94.18%93.85%93.52%0.00%
Selling, General & Administrative Expenses74.29%71.83%69.37%65.20%
Advertising Expenses2.06%1.11%0.28%1.40%
Profit Before Interest and Taxes26.47%29.30%32.13%2.86%
Main Ratios
Current25.8629.3932.921.63
Quick25.428.8832.360.84
Total Debt to Total Assets2.68%1.04%0.76%67.10%
Pre-tax Return on Net Worth66.83%71.26%75.69%4.40%
Pre-tax Return on Assets64.88%69.75%74.62%9.00%
Additional RatiosYear 1Year 2Year 3
Net Profit Margin19.20%21.16%23.12%N.A.
Return on Equity47.79%50.53%53.27%N.A.
Activity Ratios
Accounts Receivable Turnover4.564.564.56N.A.
Collection Days9299106N.A.
Inventory Turnover19.722.5525.4N.A.
Accounts Payable Turnover14.1714.6715.17N.A.
Payment Days272727N.A.
Total Asset Turnover1.841.551.26N.A.
Debt Ratios
Debt to Net Worth0-0.02-0.04N.A.
Current Liab. to Liab.111N.A.
Liquidity Ratios
Net Working Capital$120,943$140,664$160,385N.A.
Interest Coverage000N.A.
Additional Ratios
Assets to Sales0.450.480.51N.A.
Current Debt/Total Assets4%3%2%N.A.
Acid Test23.6627.0130.36N.A.
Sales/Net Worth1.681.290.9N.A.
Dividend Payout000N.A.