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Dropshipping Step 10: Planning

August 16, 2020

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STEP 10: HAVE A PLAN!

You can't start a new business without having a business plan in place.


I know!


You're rolling your eyes right now and thinking: "But why, Ippei?"


A few years ago, I would have thought the same thing. A business plan sounds like a drag. 


And I will not lie to you, a lot of time and effort goes into it.


But.


The good news is, that if you went through the steps I suggested, you've already done most of the hard work. 

Why is a business plan important for dropshipping?

Dropshipping is so easy to start, many entrepreneurs won't plan.


Why spend time on a business plan when you can have a shop up and running within a short few hours? 


The answer is simple: you cannot build anything worthwhile without a plan.

You need a game plan to outline your vision.


If you don't have the patience to do a business plan, then you're already setting yourself up for failure. One of the main reasons dropshippers fail is because of inexperience and over-enthusiasm.


Yes, it's great to know that you can start a business with $1k.


It's wonderful to see all these gurus with their fancy sport cars and hearing about how they made millions.


You want to be that successful too! That's understandable. We all want that.


But. Many dropshippers get swept up by the hype and go blindly into dropshipping without knowing much about the business model AND without knowing the risks. 


There are no official figures, but it's estimated that only 10% of dropshipping stores survive


That's a 90% failure rate!


So.


Still think it's a good idea NOT to have a business plan?  


Let's start with the basics first.

Businessman working on his laptop. There are printed copies of a plan on his desk, as well as a digital plan on his laptop screen.

What is a business plan?

A business plan is basically your strategy or game plan to list your business goals and how you will achieve those goals.


Luckily, you need not apply for funding for your dropshipping business, so your business plan doesn't have to very detailed.

The main purpose of your business plan is to identify your goals and how you will reach them.


Ask yourself: What are you hoping to accomplish with your business? 


Luckily there are many free resources out there to help you with your business plan. Some are even country or region specific. 


Here are some country specific links to small business resources:

These offer solid info and step-by-step processes to use when creating your business plan. They even offer templates to get you started.


You can also do a simple Google search, starting with your city. Something like "new york small business services" will get you a lot of free resources to use.


Local Chambers of Commerce and even banks, also prove to be good sources of information.


Still haven't found a template you like? Google is your friend. Search for "free small business plans" or even "free dropshipping business plans" and you'll get hundreds of results.


I've included my Simple Dropshipping Business Plan here. It's free to use and based on one of the Small Business Administration templates. Just open it in your preferred Text Editor (such as Word) and edit the business plan where you see fit. 


A dart board with a dart in the bull's eye

Business Objectives

Before you compile your business plan, you need to first think of your business objectives or goals. Answer the following three questions.


Why are you starting this business? 


What is the purpose of this business? (For you as a business owner)


Why would people buy from you?


On the surface, they might look like questions that are easy enough to answer.


These questions, however, form the foundation from which you will build your business plan. You need to take time in answering them. Don't think about the answers whilst commuting to your day job, for example. 


Take time out from your busy day and carefully think of what your objectives and goals are for your business.


Person busy with analysis of business graphs and charts

SWOT Analysis

It's a good idea to include a SWOT analysis. This will help you focus on your business goals. 

A SWOT Analysis summarizes your business Strengths, Weaknesses, Opportunities and Threats.

Strengths and weaknesses are internal and refers to yourself and your business. 

Opportunities and Threats are external and refers to things that are outside of your control.

You can find great content on SWOT analysis from Xtensio.com

Blank clipboard on a table

The Lean Business Plan

I like the Lean Startup Plan from the United States Small Business Administration (sba.gov). This business plan is clear and concise and is on a single page. You don't need anymore than this as a dropshipper.  


The Lean Business Plan, as proposed by SBA, includes only nine elements.


I've adapted it and have ten elements specific to dropshipping. You can find the Dropshipping Sample Business Plan here.


Since you've done most of the research already in our previous steps, you can fill in the blanks without too much trouble. 


The nine elements of the Lean Business Plan, that focus on adding value, are:

  • Key partnerships: Who will you be working with to grow your business? 
  • Key activities: What is your competitive advantage? List what will make you unique in your niche.
  • Key resources: What will you use to create value for your customers? 
  • Value proposition: How does your business bring value to the niche?
  • Customer relationships: How can you build a personal and lasting relationship with customers?
  • Customer segments: Who is your target market? (You'll have a clearer understanding once you've worked through Step 11: Marketing.)
  • Channels: How will you communicate with existing customers, and how will you find new ones? 
  • Cost structure: Do you focus on reducing costs or maximizing value? What will your biggest expenses be?
  • Revenue streams: How are you planning to make money?

Why You Need an Exit Strategy

You might not think about an Exit Strategy when starting a new business. I know I didn't! 


It is, however, a good idea to have one. You shouldn’t only compile an Exit Strategy when you're ready to sell your dropshipping store. It should form part of your Business Plan and be updated and tweaked as your business grows.


Reasons for an Exit Strategy

1. Selling the business

You need an Exit Strategy when you want to sell the business, but there are other reasons. Here they are:


2. Life happens.

We can’t predict the future. Unplanned things happen. You get sick and can’t work. You’re in an accident and can’t work. There’s a natural disaster…


There are a million different things you can’t plan for. Each of them can keep you from running your dropshipping business.


If you don’t have an exit strategy in place, you might be forced to close the business completely.


We don’t want to think about it, but this is a very valid reason for an exit strategy.


3. New opportunities

Not only can disaster strike, but you might get a windfall or a better opportunity. You don’t want to just close up shop and move on. 


You’re online store was making money.


You put a lot of time and effort into it.


If you’re forced to sell quickly and you don’t have an exit strategy in place, you might not get what the business was worth.


4. Retirement

Don’t laugh! People who retire comfortably are people who started planning their retirement early in life. You’re never too young to start…


Having an exit strategy in place will ensure that you get a good price for your business if you still have it close to retirement.



How to plan your dropshipping exit strategy

You need to know of the potential deal breakers when setting up your exit strategy.


1. Optimization

You should optimize your dropshipping store to the maximum at all times. 


Use as many tools and apps as possible to ease and automate the business process.


This includes everything from having your

  • website optimized (both for SEO and user-experience), to the
  • ease of importing products, and
  • having tracking tools for customers.

The less a new business owner will have to do manually, the more attractive the sale.


2. Good relationships

Ensure that there is a good relationship in place with all your suppliers. Prove this to a prospective buyer by showing regular communication with suppliers.

Also show that good customer relations are in place. Show feedback to customers and how queries and complaints are handled.



3. Growth prospects

If you want to sell your online store, the best time to do it is during an upward curve. A business can still sell on a downward curve, but not if the curve is irreversible. 


For example: if you focused on a single product (like fidget spinners) and the fad is over, or production of the product has stopped.


It will also be difficult to sell if there is a very sudden decline in sales.


Potential buyers want to see that there is the possibility of continued growth or chance of recovery.


4. Facts and figures

You must be able to prove your dropshipping success. This needs to be backed by facts and figures. Bank statements. Tax returns. Meticulous financial records.


No one will buy your business based on a single spreadsheet. 


See why it is important to have some accounting knowledge? And if things are going well, you need to use a professional to do the books for you.


5. Transfer of business operations

You need to transfer your business in its entirety to a new business owner in a very short space of time. This includes training the new business owner on everything that is not automated.  


That’s why you follow the KISS Principle. 


Compiling well thought out and documented SOP’s (standard operating procedures), will greatly improve the ease of transfer.


Keep track of what you do and how you do it. Once you've put it to paper, you have an SOP.


6. Risk

New businesses always have an element of risk. For someone to buy your dropshipping business, they will want to know that the risks are manageable. They will also insist on knowing what the potential risks are.


Therefore, it’s good to know what is happening in the dropshipping industry. Knowledge is power! Thus, make sure you are using the latest methods and technology in your business and you’re aware of any changes that may come along. 


Forewarned is forearmed. This is exactly what a potential business owner would want.


7. Value of your business

There are many factors to consider when placing a value on your business.


7.1 You will have to be in business for at least 12 months before any buyers will take your business seriously. There have been exceptions, but this is generally the rule.


7.2 Your Net Cash Flow shows your profitability. Ideally, your Net Profit should show an increase, month-on-month.


7.3 Social media presence. The bigger your social media following and interaction, the better.


7.4 A buyer will want to know about all the factors that affect your Revenue. This includes how many trending or evergreen products you have, whether the seasons affects products, how many loyal or return customers you have, etc.


7.5 SERP metrics. If your store is on the first page of the Search Engine Results Pages, then you can negotiate a better sale price. SEO is thus not just important for ranking on Google, but also for selling your business.


7.6 Conversion rate. Buyers not only want to see a lot of visitors to your site, but they also want to see those visits convert into sales.


7.7 If you tick all the boxes above, then your store’s value could be as high as your Net Cash Flow multiplied by five. If you have a Net Cash Flow of $10k, then your selling price would be around $50k. 


When you’re ready to sell one day, I suggest you use a business broker to sell your dropshipping store.


Yes, you pay them a commission, but they are worth it. They are experts at selling businesses and will get you the maximum price. (The higher the selling price, the more commission they make). 


A good consideration is Empire Flippers. They also offer a free Valuation tool for your dropshipping business, which you can find here.


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Ippei Kanehara
Founder/CEO Ippei Leads

$52K per month providing lead generation services to small businesses

Ippei.com is for digital hustlers, industry leaders and online business owners.

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