How to start a dropshipping business in the UK

Many budding entrepreneurs are turning to dropshipping as a simple way to make money from selling goods online without needing to manage inventory or shipping. If you want to know how to start a dropshipping business in the UK, how the business model works, and the benefits and requirements involved, check out our handy guide.

What is dropshipping and how does it work?

Dropshipping is an order fulfilment business model that lets you sell products online from third-party suppliers, such as manufacturers, wholesalers or retailers, without holding the stock yourself. You can create an ecommerce store to trade various types of products, while third parties typically store and ship them to customers – you just run the store and manage the marketing.

The global dropshipping market is on the rise, valued at over $350 billion in 2024 and expected to grow to $500 billion by 2026, according to Shopify.

The dropshipping model is fairly straightforward and low-risk. Prospective “dropshippers” just need an online store to start selling third-party goods (plus a few legal and operational fundamentals).

Is dropshipping profitable in the UK?

The popularity of dropshipping in the UK and globally is due to the ease of getting set up and relatively low costs compared to other business models. The model reduces product and fulfilment costs, as you don’t need to develop new products or cover order fulfilment staff wages, as your dropshipping supplier handles fulfilment. You only need to worry about sampling the products you want to sell.

The US is by far the global leader in dropshipping market share, but after America and Canada, the UK is the next in line. While it’s an increasingly competitive playing field, it can be a profitable side hustle or full-blown commercial success, especially due to the scalability of operations and infrastructure. 

On average, dropshipping businesses enjoy 15% to 30% margins. However, profitability levels depend on the products you sell and factors like your location, efficiency, reliability of suppliers, plus branding and customer experience.

What are the main benefits of dropshipping?

There are various reasons to start dropshipping as a part-time project or small business venture. Here are the main benefits of dropshipping:

• Relatively small set-up costs
• Minimal outgoings and overheads
• Low-risk business approach
• Third parties manage inventory and shipping
• Ease of scalability
• The vast choice of products to sell
• Flexibility of working location and capacity

The ecommerce space is booming. More than 80% of UK customers regularly purchase online, with mobile-based sales accounting for more than half of all transactions. Around 27% of online retailers use the dropshipping business model as their primary method to fulfil orders, while manufacturers and suppliers are also reaping the rewards of dropshipping growth.

Drawbacks of dropshipping to consider

However, it’s important to consider the potential downsides. Here are a few drawbacks of the dropshipping business model:

• Minimal control over product quality
• Fulfilment efficiency is largely out of your hands
• Difficulty in ensuring good customer experience – you’re at the mercy of third-party providers
• Significant online ad spend is often required due to your products not being unique, and the competitive market
• Lower profit level than some other business models  

Legal requirements for dropshipping in the UK

As mentioned, before starting a dropshipping business, you need to be aware of your key responsibilities and legal obligations, including tax, customs and other compliance rules.

Below, we’ve outlined the main legal requirements for dropshipping in the UK you need to know about before getting up and running:

• Registering your business: You must choose and register a business structure (e.g. sole trader, partnership or limited company) with HMRC or Companies House.
• VAT and other taxes: You’ll need to register for VAT if your turnover exceeds £90,000 or if you import goods into the UK (although you can choose to register prior to this). Also, ensure you file regular returns (VAT, income tax, corporation tax, etc.) and pay what’s owed promptly, to avoid potential HMRC penalties.
• Banking and record-keeping: It’s wise to set up a business bank account to keep things separate from your personal account, while maintaining proper records for ease of tax calculation, forecasting and cash flow management. 
• Customs: Make sure you understand UK import duties, tariffs and customs declarations if sourcing products from abroad. When importing goods, you’ll need to obtain an EORI (Economic Operator Registration and Identification) number, which you can get from HMRC.
• Product compliance: While you’ll be using third parties for developing, shipping and fulfilling products, you have a responsibility to ensure products meet the required UK standards, such as maintaining accurate product details and specifications, providing safety labels and instructions in English and following other product-related compliance rules.
• Insurance: Consider the various insurance policies you may need when dropshipping, which are good practice to have, including product liability insurance, public liability insurance and business interruption insurance, which protect you against claims or disruptions.
• Data protection: You need to meet your data protection requirements for processing consumer data on your site, in communications and payments – this includes publishing a privacy policy and notifications about cookies, consent, etc. So, get to grips with GDPR compliance rules (and other data handling and storage laws) and register with the ICO (Information Commissioner’s Office).
• Consumer rights: You’ll inevitably encounter issues with deliveries, errors, and products not meeting expectations, so you must provide clear terms and conditions and details about your refund policy and complaint handling procedures. Follow the Consumer Rights Act and Consumer Contracts Regulations for information on your obligations. 

How to start a UK dropshipping business

Although dropshipping is a lean business model, there are still various set-up tasks to consider before getting started.

Key steps to start a dropshipping business in the UK

Here are the main considerations in the dropshipping business planning phase:

• Choose a business niche – what products are popular and what are you passionate about? Decide on the type of products you want to sell.
• Find a dropshipping supplier – to source suitable suppliers, dropshipping marketplaces like Oberlo, Spocket and AliExpress give you access to countless products and thousands of suppliers, and you can integrate supplier directories into your ecommerce store.
• Design the brand identity – you’ll need to establish a name, identity and unique design to promote your brand and build recognition.  
• Build an online store – explore solutions for creating ecommerce stores, such as Shopify, WooCommerce and BigCommerce, and broader site builders like Wix and Squarespace with ecommerce integrations. Also, you can operate dropshipping via Amazon, but you must be registered as an Amazon seller.
• Get registered – choose your business structure, register with HMRC for tax purposes and obtain any required licences. If you’re a limited company, you must register with Companies House and create a business bank account.
• Take care of the finances – assess your financial health and determine the money you have to set things up and what you’ll need once operating.
• Tick off your legal/compliance requirements – make sure you’ve fully understood your various obligations to meet compliance rules, implementing key measures to avoid breaches and potential penalties. 
• Promote your online store – you might consider setting aside money for marketing, as growing your business organically from a standing start is tricky.

These steps require time and money, so you need to craft a solid business plan.

How to make a dropshipping business plan

Before we look at the costs involved, here are a few pointers on building an effective dropshipping business plan:

• Conduct research into your niche, audience and potential customer behaviours.
• Look into industry trends and sector-specific considerations.
• Define your legal/compliance obligations (beyond what third-party providers are liable for).
• Carry out budget planning and determine your likely set-up costs and monthly expenses vs. expected revenue to gauge feasibility.
• Consider your operational tasks, such as payment and order processing, bookkeeping, etc.
• Decide your marketing approach and the channels to use (and where your audience spends their time), considering your research and buyer personas.

The cost of starting a dropshipping business in the UK

Wondering how much money you need to start dropshipping in the UK? Although you won’t be responsible for managing shipping or inventory, most steps mentioned above cost money. So, below, we’ll help you understand the main costs of starting a UK dropshipping business.

1. Ecommerce platform fees

You can expect to pay between £20 and £100/month. Shopify is the leading ecommerce platform for dropshipping, and Shopify’s basic plans start at around £20/month, but if you want more features, this can rise to £100/month. Learn how to start dropshipping with Shopify.

WooCommerce is a free option, a complementary plugin for WordPress sites, but any premium plugins and themes will see costs rack up, and WordPress itself comes with further costs. Compare the pros and cons and pricing of different ecommerce platforms before choosing one. 

You can use Amazon for your dropshipping venture, but while this saves you money on hosting and site-building, Amazon takes between 8% and 15% in referral fees and will charge you £25/per month for a professional seller account. Learn how to start Amazon dropshipping.

2. Domain name and hosting

Domain registration typically costs £5-£15 annually, from common providers like GoDaddy and Hostinger. Hosting will cost around £5-£30/month – there are lots of hosting solutions to choose from, with some offering annual payment options at a reduced monthly rate.

3. Website design and development

Website design and development costs vary based on your approach and budget. You can pay anything up to £500 (and beyond) to achieve a well-functioning ecommerce website, which requires a clear user journey, compelling design, various integrations and technical SEO best practices. 

Factors include the CMS themes, templates and features you want to use, and whether you design it yourself or employ a developer for customisations. Also, consider whether you need ongoing maintenance.

4. Dropshipping apps and tools

There are numerous dropshipping apps for product sourcing, order management and automation, and costs range from £10-£100/month. Common tools include Oberlo (for Shopify) and Spocket for sourcing/adding products from suppliers to your store,  AfterShip for order tracking and Printful and Printify for product customisation (for products like clothing, mugs, etc).

5. Marketing and advertising

Promotional activities for dropshipping typically involve social media, search ads and email marketing. So, things like Google Ads and Facebook Ads Manager (and other social tools), Mailchimp and social media management apps. There are various SEO research and tracking solutions, while Google Analytics and CMS/CRM platforms help you monitor website performance.

Some tools are free or have affordable subscription levels, so costs depend on your level of promotional activity. However, where you’ll need to spend money is the ads themselves. Start small and test different ads, optimising performance as you go. Spending between £100-500/month is advised, and with subscription costs for other marketing tools, you’re looking at up to £1000/month.

You can also use influencers. Some micro-influencers will work with you in exchange for free products, whilst more established influencers can charge hundreds of pounds.

6. Transaction fees

Aside from the cut of sales that third parties take, you’ll have to pay fees on customer transactions. Fees vary, depending on the ecommerce platform, payment gateway and payment type (i.e. credit card, mobile wallets, BNPL, etc). 

Transaction fees from common payment gateways, like PayPal and Stripe, are between 1.4%-2.9% plus 20-30p per transaction. Some ecommerce platforms also charge transaction fees (around 2-3%), so find out the full range of fees when choosing payment solutions and forecasting profits.

7. Sample products

Getting product samples enables you to judge quality and meet customer expectations. You can order samples from suppliers and assess the product quality, packaging and shipping experience to reduce the likelihood of product returns/refunds, complaints and negative reviews.

It’s difficult to quantify sampling costs, as it depends on various factors, such as product type and volume, shipping fees, etc. However, you can seek free samples or discounts from certain suppliers to minimise costs.

8. Miscellaneous costs

There are always additional costs when running a dropshipping business. Common miscellaneous costs include legal advice, insurance, accounting solutions and business licences/permits – the latter depends on your location and business structure.

Costs will vary, depending on your circumstances, risk appetite and business scope. However, business insurance (such as general liability insurance and shipping insurance) ranges from £100 to £500/year, 

9. Emergency fund

You’ll want wiggle room for unexpected expenses, such as operational errors, compliance issues, returns and refunds, dips in demand or personal circumstances. So, you might want to build an emergency fund for this purpose. 

Again, costs vary, according to your situation and plans, but a pot in the region of £500–£1000 (or more if you want peace of mind) is a good buffer.

Total estimated investment costs

As you can see, expenses are variable, so your total investment costs will depend on your business needs. However, the estimated total dropshipping investment cost should be between a few hundred pounds and £3000. 

Why not go through this list of set-up and operating costs with your business plan in mind, and tot up your likely investment costs?

How to make your dropshipping profitable fast

As mentioned earlier, dropshipping can be a simple way to get started in ecommerce and a lean and profitable business model, if managed efficiently. However, there are several ways to accelerate sales and make good profits in a short period of time. 

Here are just some of the ways you can make your dropshipping business profitable quickly:

• Develop a rapid market validation strategy, scoping out consumer needs, defining your audience, conducting and validating market research and doing small, scalable tests and gauge demand in key marketplaces. 
• Look for products with high consumer demand and low competition to get an edge in the market.
• Take inspiration from proven influencer tactics and keep an eye on emerging trends and competitor successes.
• Optimise and scale your paid ad spend – as you test, monitor results and optimise, you can boost your spend on what is working best.
• Partner with fast, efficient and reliable shipping partners – this helps to improve client trust and increase repeat orders.
• Stand out from the crowd with eye-catching branding, impactful ecommerce pages and compelling messaging/communications. 
• Keep your costs down by closely monitoring your expenditure (both in general and on advertising/marketing) and looking to reduce inefficiencies and unnecessary costs. 
• Avoid costly mistakes – there are various pitfalls, which we outline in the next section, that you need to steer clear of to prevent mistakes damaging your profits and reputation.

Common mistakes to avoid

While dropshipping is a simple business model with minimal hands-on labour effort, you still need to put in the groundwork and respect your responsibilities to ensure you make it a success.

Here are some common dropshipping pitfalls and mistakes that can derail your efforts and reduce your profitability:

• Overlooking key legal and regulatory requirements – non-compliance will damage your credibility as well as your finances.
• Not vetting suppliers thoroughly – failing to properly check suppliers' credentials, track record and product quality will lead to various risks and poor customer experience.
• Inadequate tracking of orders, expenditure and contracts – bad record-keeping will cause an array of issues for your business. 
• Choosing products in overcrowded markets – if you’re not smart about product choice, you’ll struggle to grow your dropshipping business. 
• Poor branding – it’s vital to ensure your branding (including your ecommerce store) is slick, professional and well signposted, with clear product descriptions, delivery details and other key consumer notices and trust factors, to stand out and prevent consumer wariness.
• Overreliance on a single provider – if something goes wrong, it will have a widespread impact on your operations, reputation and profits.

Can you start dropshipping for free?

Technically, you could start dropshipping in the UK for (almost) free or with minimal upfront investment. There are various ways to reduce costs, with several workarounds and free options to dip your feet in before fully committing. 

Ways to minimise dropshipping business start-up costs

Here are some of the ways you can reduce dropshipping costs:

• Make use of free tools and platform trials – some dropshipping tools can be utilised later on once you’re up and running.
• Improve your social presence to build business traction without too much expense.
• Reach out to your network for free or cut-price support, such as designing or getting your website/ecommerce store set up.

You can start small if you don’t have a lot of capital, and scale and reinvest profits when you find your feet. When you want to build things up, you can seek capital from alternative lenders and secure business loans to meet your specific needs.

Applying for capital to kick-start your UK dropshipping business

While starting a dropshipping business in the UK doesn’t require a huge amount of money upfront, business finance can help you get underway and reduce initial pressure before the sales (hopefully) come flooding in. 

Commercial lenders and business loan providers like iwoca can give dropshippers flexible finance options to get started and invest in key business areas, from purchasing software to marketing promotion. Fast access to funds, manageable monthly repayments and flexible solutions, like merchant cash advances, can give you breathing space to implement your strategy and build your dropshipping business.

How to expand your dropshipping business 

Once you’re up and running with dropshipping and things are ticking over nicely, you may want to start being more ambitious. So, what’s the best way to grow your business and take things to the next level? 

Below, we outline some key ways to expand your dropshipping business and drive greater revenue:

• Diversify your product offering to attract new audiences and capture the interest of trending items.
• Broaden your customer base by exploring new markets and demographics. 
• Improve your branding and packaging to enhance your reputation and improve ratings and reviews.
• Explore new marketing channels and increase ad spend to boost your reach and get more eyes on your business.
• Implement automation in key areas to speed up processes, encourage repeat purchases and recover abandoned carts.
• Review existing supplier relationships to see where you can make improvements or renegotiate terms. 
• Increase post-purchase engagement, including upselling/cross-selling opportunities and encouraging more customer reviews.
• Consider using business finance to invest in various areas of growth

Finance your dropshipping business needs with iwoca

If you need an injection of capital to kick-start your dropshipping business, cover initial set-up costs or scale your operations while managing cash flow, iwoca can help. We offer flexible business loans to get your new venture off the ground.

Our Flexi-Loans are ideal for entrepreneurs and dropshippers. You can borrow between £1,000 and £1 million for a matter of days, right up to 60 months. We tailor loan terms to your specific needs, and you can get fast access to finance without the usual fuss and stringent criteria of traditional bank loans.

Why choose iwoca’s flexible business loans for dropshipping business finance? 

Here are some key benefits:

• Fast access to finance – you can apply in minutes (we only need basic details and an outline of your business plans) and you’ll get a funding decision within 24 hours.
• Flexible repayments – terms are tailored to your needs and cash flow, with options to repay early free of charge. 
• Only pay interest on the amount you draw down, saving you on unnecessary interest payments if your circumstances change. 

Find out how to apply for an iwoca loan or use our business loan calculator to see your likely repayments.