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’.
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.
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.
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:
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:
The detailed start-up requirements are given below:
|Research and Development||$42,750|
|TOTAL START-UP EXPENSES||$247,500|
|Other Current Assets||$222,500|
|Start-up Expenses to Fund||$121,875|
|Start-up Assets to Fund||$195,000|
|TOTAL FUNDING REQUIRED||$0|
|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|
|Liabilities and Capital||$0|
|Accounts Payable (Outstanding Bills)||$0|
|Other Current Liabilities (interest-free)||$0|
|Additional Investment Requirement||$0|
|TOTAL PLANNED INVESTMENT||$695,000|
|Loss at Start-up (Start-up Expenses)||$313,125|
|TOTAL CAPITAL AND LIABILITIES||$221,875|
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 strategic plans for you.
5.1 Market Trends
Drop shipping or ecommerce industry business 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:
The detailed marketing segmentation of our target audience is as follows:
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.
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.
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:
|Potential Customers||Growth||YEAR 1||YEAR 2||YEAR 3||YEAR 4||YEAR 5||CAGR|
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.
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
6.4 Sales Yearly
6.5 Sales Forecast
|Unit Sales||Year 1||Year 2||Year 3|
|Phones, Computers & Accessories||187,330||260,320||258,240|
|Home & Living||265,450||322,390||393,320|
|Baby, Toys & Kids||1,435,320||1,250,430||1,762,450|
|TOTAL UNIT SALES||3,229,790||3,418,800||4,239,860|
|Unit Prices||Year 1||Year 2||Year 3|
|Phones, Computers & Accessories||$140.00||$150.00||$160.00|
|Home & Living||$650.00||$750.00||$850.00|
|Baby, Toys & Kids||$140.00||$120.00||$100.00|
|Web hosting services||$214,800||$274,000||$333,200|
|Phones, Computers & Accessories||$120,050||$194,500||$268,500|
|Home & Living||$62,350||$72,300||$82,250|
|Baby, Toys & Kids|
|Direct Unit Costs||Year 1||Year 2||Year 3|
|Phones, Computers & Accessories||$0.70||$0.80||$0.90|
|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|
|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|
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
|Year 1||Year 2||Year 3|
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
|Year 1||Year 2||Year 3|
|Current Interest Rate||10.00%||11.00%||12.00%|
|Long-term Interest Rate||10.00%||10.00%||10.00%|
8.2 Brake-even Analysis
|Monthly Units Break-even||5530|
|Monthly Revenue Break-even||$159,740|
|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 1||Year 2||Year 3|
|Direct Cost of Sales||$15,100||$19,153||$23,206|
|TOTAL COST OF SALES||$15,100||$19,153||$23,206|
|Gross Margin %||94.98%||94.72%||94.46%|
|Sales and Marketing and Other Expenses||$1,850||$2,000||$2,150|
|Total Operating Expenses||$188,766||$220,744||$252,722|
|Profit Before Interest and Taxes||$105,205||$146,040||$186,875|
8.3.1 Profit Monthly
8.3.2 Profit Yearly
8.3.3 Gross Margin Monthly
8.3.4 Gross Margin Yearly
8.4 Projected Cash Flow
|Pro Forma Cash Flow|
|Cash Received||Year 1||Year 2||Year 3|
|Cash from Operations|
|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|
|Expenditures||Year 1||Year 2||Year 3|
|Expenditures from Operations|
|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|
|SUBTOTAL CASH SPENT||$35,296||$35,489||$43,882|
|Net Cash Flow||$11,551||$13,167||$15,683|
8.5 Projected Balance Sheet
|Pro Forma Balance Sheet|
|Assets||Year 1||Year 2||Year 3|
|Other Current Assets||$1,000||$1,000||$1,000|
|TOTAL CURRENT ASSETS||$201,259||$237,468||$273,677|
|TOTAL LONG-TERM ASSETS||$980||$610||$240|
|Liabilities and Capital||Year 1||Year 2||Year 3|
|Other Current Liabilities||$0||$0||$0|
|SUBTOTAL CURRENT LIABILITIES||$9,482||$10,792||$12,102|
|TOTAL LIABILITIES AND CAPITAL||$198,839||$232,978||$267,117|
8.6 Business Ratios
|Year 1||Year 2||Year 3||Industry Profile|
|Percent of Total Assets|
|Other Current Assets||1.75%||2.02%||2.29%||27.40%|
|Total Current Assets||138.53%||150.99%||163.45%||54.60%|
|Percent of Sales|
|Selling, General & Administrative Expenses||74.29%||71.83%||69.37%||65.20%|
|Profit Before Interest and Taxes||26.47%||29.30%||32.13%||2.86%|
|Total Debt to Total Assets||2.68%||1.04%||0.76%||67.10%|
|Pre-tax Return on Net Worth||66.83%||71.26%||75.69%||4.40%|
|Pre-tax Return on Assets||64.88%||69.75%||74.62%||9.00%|
|Additional Ratios||Year 1||Year 2||Year 3|
|Net Profit Margin||19.20%||21.16%||23.12%||N.A.|
|Return on Equity||47.79%||50.53%||53.27%||N.A.|
|Accounts Receivable Turnover||4.56||4.56||4.56||N.A.|
|Accounts Payable Turnover||14.17||14.67||15.17||N.A.|
|Total Asset Turnover||1.84||1.55||1.26||N.A.|
|Debt to Net Worth||0||-0.02||-0.04||N.A.|
|Current Liab. to Liab.||1||1||1||N.A.|
|Net Working Capital||$120,943||$140,664||$160,385||N.A.|
|Assets to Sales||0.45||0.48||0.51||N.A.|
|Current Debt/Total Assets||4%||3%||2%||N.A.|
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