Drop Shipping Business Plan
Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their drop shipping companies. We have the experience, resources, and knowledge to help you create a great business plan.
In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a drop shipping business plan step-by-step so you can create your plan today.
What is a Drop Shipping Business Plan?
A business plan provides a snapshot of your drop shipping business as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.
Why You Need a Business Plan for a Drop Shipping Business
If you’re looking to start a drop shipping business or grow your existing drop shipping company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your drop shipping business to improve your chances of success. Your drop shipping business plan is a living document that should be updated annually as your company grows and changes.
Sources of Funding for Drop Shipping Businesses
With regards to funding, the main sources of funding for a drop shipping business are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for drop shipping companies.
How to Write a Business Plan for a Drop Shipping Business
If you want to start a drop shipping business or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your drop shipping business plan.
Executive Summary
Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.
The goal of your executive summary is to quickly engage the reader. Explain to them the kind of drop shipping business you are running and the status. For example, are you a startup, do you have a drop shipping business that you would like to grow, or are you operating a chain of drop shipping businesses?
Next, provide an overview of each of the subsequent sections of your plan.
- Give a brief overview of the drop shipping industry.
- Discuss the type of drop shipping business you are operating.
- Detail your direct competitors. Give an overview of your target customers.
- Provide a snapshot of your marketing strategy. Identify the key members of your team.
- Offer an overview of your financial plan.
Company Overview
In your company overview, you will detail the type of drop shipping business you are operating.
For example, you might specialize in one of the following types of drop shipping businesses:
- Print on demand (POD) drop shipping: This type of drop shipping business is one in which the business owner can create their own designs to be printed onto a product once a customer orders it. Popular POD products include apparel, keychains, and coffee mugs.
- Business extension drop shipping: This type of drop shipping business involves working directly with brick-and-mortar retailers who don’t have an online presence to sell their products online for them.
- Shopify drop shipping: This type of drop shipping business uses an established platform such as Shopify to make the drop shipping process easier. These types of platforms offer lots of tools to simplify the process.
In addition to explaining the type of drop shipping business you will operate, the company overview needs to provide background on the business.
Include answers to questions such as:
- When and why did you start the business?
- What milestones have you achieved to date? Milestones could include the number of customers served, the number of items sold, and reaching $X amount in revenue, etc.
- Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.
Industry Analysis
In your industry or market analysis, you need to provide an overview of the drop shipping industry.
While this may seem unnecessary, it serves multiple purposes.
First, researching the drop shipping industry educates you. It helps you understand the market in which you are operating.
Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.
The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.
The following questions should be answered in the industry analysis section of your drop shipping business plan:
- How big is the drop shipping industry (in dollars)?
- Is the market declining or increasing?
- Who are the key competitors in the market?
- Who are the key suppliers in the market?
- What trends are affecting the industry?
- What is the industry’s growth forecast over the next 5 – 10 years?
- What is the relevant market size? That is, how big is the potential target market for your drop shipping business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.
Customer Analysis
The customer analysis section of your drop shipping business plan must detail the customers you serve and/or expect to serve.
The following are examples of customer segments: individuals, schools, families, and corporations.
As you can imagine, the customer segment(s) you choose will have a great impact on the type of drop shipping business you operate. Clearly, individuals would respond to different marketing promotions than corporations, for example.
Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.
Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.
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Competitive Analysis
Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.
Direct competitors are other drop shipping businesses.
Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes other types of online retailers and brick-and-mortar stores. You need to mention such competition as well.
For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as
- What types of customers do they serve?
- What type of drop shipping business are they?
- What is their pricing (premium, low, etc.)?
- What are they good at?
- What are their weaknesses?
With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.
The final part of your competitive analysis section is to document your areas of competitive advantage. For example:
- Will you make it easier for customers to acquire your products or services?
- Will you offer products or services that your competition doesn’t?
- Will you provide better customer service?
- Will you offer better pricing?
Think about ways you will outperform your competition and document them in this section of your plan.
Marketing Plan
Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a drop shipping business plan, your marketing strategy should include the following:
Product: In the product section, you should reiterate the type of drop shipping company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you provide print on demand or business extension drop shipping services?
Price: Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.
Place: Place refers to the site of your drop shipping company. Document where your company is situated and mention how the site will impact your success. For example, is your drop shipping business located in a busy retail district, a business district, a standalone office, or purely online? Discuss how your site might be the ideal location for your customers.
Promotions: The final part of your drop shipping marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:
- Advertise in local papers, radio stations and/or magazines
- Reach out to websites
- Distribute flyers
- Engage in email marketing
- Advertise on social media platforms
- Improve the SEO (search engine optimization) on your website for targeted keywords
Operations Plan
While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.
Everyday short-term processes include all of the tasks involved in running your drop shipping business, including answering calls, connecting with suppliers, marketing your products, etc.
Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to make your Xth sale, or when you hope to reach $X in revenue. It could also be when you expect to expand your drop shipping business to a new city.
Management Team
To demonstrate your drop shipping business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.
Ideally, you and/or your team members have direct experience in managing drop shipping businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.
If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a drop shipping business.
Financial Plan
Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.
Projected Sales, Gross Profit & Net Income
Income Statement
An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.
In developing your income statement, you need to devise assumptions. For example, will you expect to sell 10-20 products per day, and will you offer discounts for repeat customers? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.
Example 5 Year Annual Income Statement
| FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | ||
|---|---|---|---|---|---|---|
| Revenues | ||||||
| Revenues | $335,073 | $355,713 | $377,624 | $400,886 | $425,580 | |
| Total Revenues | $335,073 | $355,713 | $377,624 | $400,886 | $425,580 | |
| Direct Costs | ||||||
| Direct Costs | $18,203 | $18,755 | $19,324 | $19,911 | $20,515 | |
| Total Direct Costs | $18,203 | $18,755 | $19,324 | $19,911 | $20,515 | |
| GROSS PROFIT | $316,869 | $336,957 | $358,300 | $380,974 | $405,064 | |
| GROSS PROFIT % | 94.6% | 94.7% | 94.9% | 95% | 95.2% | |
| Other Expenses | ||||||
| Salaries | $58,251 | $60,018 | $61,839 | $63,715 | $65,648 | |
| Marketing Expenses | $0 | $0 | $0 | $0 | $0 | |
| Rent/Utility Expenses | $0 | $0 | $0 | $0 | $0 | |
| Other Expenses | $12,135 | $12,503 | $12,883 | $13,274 | $13,676 | |
| Total Other Expenses | $70,386 | $72,522 | $74,722 | $76,989 | $79,325 | |
| EBITDA | $246,482 | $264,435 | $283,577 | $303,985 | $325,739 | |
| Depreciation | $6,000 | $6,000 | $6,000 | $6,000 | $6,000 | |
| Amortization | $0 | $0 | $0 | $0 | $0 | |
| EBIT | $240,482 | $258,435 | $277,577 | $297,985 | $319,739 | |
| Interest Expense | $8,000 | $8,000 | $8,000 | $8,000 | $8,000 | |
| PRETAX INCOME | $232,482 | $250,435 | $269,577 | $289,985 | $311,739 | |
| Net Operating Loss | $0 | $0 | $0 | $0 | $0 | |
| Use of Net Operating Loss | $0 | $0 | $0 | $0 | $0 | |
| Taxable Income | $232,482 | $250,435 | $269,577 | $289,985 | $311,739 | |
| Income Tax Expense | $81,368 | $87,652 | $94,352 | $101,494 | $109,108 | |
| NET INCOME | $151,113 | $162,782 | $175,225 | $188,490 | $202,630 | |
| Net Profit Margin (%) | 45.1% | 45.8% | 46.4% | 47% | 47.6% |
Balance Sheets
Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your drop shipping business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.
Example 5 Year Annual Balance Sheet
| FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | ||
|---|---|---|---|---|---|---|
| ASSETS | ||||||
| Cash | $186,027 | $353,278 | $532,869 | $726,280 | $853,098 | |
| Other Current Assets | $28,551 | $30,310 | $32,177 | $33,407 | $35,465 | |
| Total Current Assets | $214,579 | $383,588 | $565,047 | $759,687 | $888,563 | |
| Intangible Assets | $0 | $0 | $0 | $0 | $0 | |
| Amortization | $0 | $0 | $0 | $0 | $0 | |
| Net Intangibles | $0 | $0 | $0 | $0 | $0 | |
| Fixed Assets | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 | |
| Accum Depreciation | $6,000 | $12,000 | $18,000 | $24,000 | $30,000 | |
| Net fixed assets | $24,000 | $18,000 | $12,000 | $6,000 | $0 | |
| Preliminary Exp | $0 | $0 | $0 | $0 | $0 | |
| TOTAL ASSETS | $238,579 | $401,588 | $577,047 | $765,687 | $888,563 | |
| LIABILITIES & EQUITY | ||||||
| Current Liabilities | $7,465 | $7,691 | $7,925 | $8,075 | $8,320 | |
| Debt outstanding | $80,000 | $80,000 | $80,000 | $80,000 | $0 | |
| Total Liabilities | $87,465 | $87,691 | $87,925 | $88,075 | $8,320 | |
| Share Capital | $0 | $0 | $0 | $0 | $0 | |
| Retained earnings | $151,113 | $313,896 | $489,121 | $677,612 | $880,242 | |
| Total Equity | $151,113 | $313,896 | $489,121 | $677,612 | $880,242 | |
| TOTAL LIABILITIES & EQUITY | $238,579 | $401,588 | $577,047 | $765,687 | $888,563 |
Cash Flow Statement
Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and business owners don’t realize is that you can turn a profit but run out of money and go bankrupt.
When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a drop shipping business:
- Cost of equipment and office supplies
- Payroll or salaries paid to staff
- Business insurance
- Taxes
- Other start-up expenses (if you’re a new business) like legal expenses, computer software, and equipment
Example 5 Year Annual Cash Flow Statement
| FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | ||
|---|---|---|---|---|---|---|
| CASH FLOW FROM OPERATIONS | ||||||
| Net Income (Loss) | $151,113 | $162,782 | $175,225 | $188,490 | $202,630 | |
| Change in Working Capital | ($21,086) | ($1,532) | ($1,633) | ($1,079) | ($1,812) | |
| Plus Depreciation | $6,000 | $6,000 | $6,000 | $6,000 | $6,000 | |
| Plus Amortization | $0 | $0 | $0 | $0 | $0 | |
| Net Cash Flow from Operations | $136,027 | $167,250 | $179,591 | $193,410 | $206,817 | |
| CASH FLOW FROM INVESTMENTS | ||||||
| Fixed Assets | ($30,000) | $0 | $0 | $0 | $0 | |
| Intangible Assets | $0 | $0 | $0 | $0 | $0 | |
| Net Cash Flow from Investments | ($30,000) | $0 | $0 | $0 | $0 | |
| CASH FLOW FROM FINANCING | ||||||
| Cash from Equity | $0 | $0 | $0 | $0 | $0 | |
| Cash from Debt financing | $80,000 | $0 | $0 | $0 | ($80,000) | |
| Net Cash Flow from Financing | $80,000 | $0 | $0 | $0 | ($80,000) | |
| Net Cash Flow | $186,027 | $167,250 | $179,591 | $193,410 | $126,817 | |
| Cash at Beginning of Period | $0 | $186,027 | $353,278 | $532,869 | $726,280 | |
| $186,027 | $353,278 | $532,869 | $726,280 | $853,098 |
Appendix
Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your product catalog, or testimonials from happy customers.
Summary
Writing a business plan for your drop shipping business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the drop shipping industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful drop shipping business.
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Don’t you wish there was a faster, easier way to finish your Drop Shipping business plan?
With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!
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