What Is Dropshipping and How Does It Work? (2023) (2023)

If you’ve thought about starting your own ecommerce store, you may be wondering how you’ll get access to an inventory of products, or where you’ll store them.

Under the traditional business model, retailers are responsible for the order fulfillment process from start to finish. That often means leasing warehouse space for products, handling supply chain and inventory management, and managing shipping costs.

However, there’s an alternative business model for fulfilling customer orders placed through an online store: dropshipping.

Want in on the action? Here’s everything you need to know about the benefits of dropshipping for online store owners, and how you can start today.

Shortcuts ✂️

  • What is dropshipping
  • What is a dropshipper
  • How does dropshipping work
  • Benefits of dropshipping
  • Drawbacks of dropshipping
  • Start your dropshipping business in 2023
  • Dropshipping FAQ

What is dropshipping?

Dropshipping is an order fulfillment method where abusiness doesn’t keep the products it sells in stock.Instead, the seller purchases inventory as needed from a third party—usually a wholesaler or manufacturer—to fulfill orders.

The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock or own inventory—they act as the middleman.

What is a dropshipper?

A dropshipper is a person or business that uses the dropshipping model of buying inventory and fulfillment logistics from a third party, instead of warehousing and shipping the products themselves.

Because dropshipping relies on a third-party supplier to handle inventory warehousing and order fulfillment, a dropshipping operation may be managed by dozens of employees or a single business owner.

What Is Dropshipping and How Does It Work? (2023) (1)

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How does dropshipping work?

The dropshipping process is essentially a relationship between a customer-facing store and a supplier.

There are two common approaches to adopting a dropshipping business model. The first is to seek out one or more wholesale suppliers located in North America (or anywhere else in the world) on your own using a supplier database. Examples of popular online supplier databases include AliExpress, SaleHoo, and Worldwide Brands.

If you’re not interested in finding suppliers for all of the products you plan to sell, you can use an app that connects you and your store to thousands of suppliers. For this, we recommend DSers, a Shopify app that helps independent business owners find products to sell.

With DSers, you can browse AliExpress and import the products that pique your interest directly to DSers—which is connected to your Shopify store—with the click of a button. Once a customer buys a product, you’ll be able to fulfill their order in the DSers app.

Fortunately, DSers automates most of the dropshipping process. As the store owner, all you have to do is check that the details are correct and click the order button. The product is then shipped directly from the AliExpress supplier to the customer—wherever in the world they may be.

What Is Dropshipping and How Does It Work? (2023) (2)

Dropshipping is often seen as a no-hassle, get-rich-quick scheme. But it’s not. Just like any other ecommerce website, it takes dedication to get your startup running and successful. Done well, dropshipping companies can become reliable and convenient partners to growing ecommerce businesses to expedite order and fulfillment processing.

Benefits of dropshipping

Here are a few other reasons why dropshipping is such a popular ecommerce business model for both large and small businesses.

1. Less upfront capital required

Probably the biggest advantage to dropshipping is that it’s possible to launch an ecommerce store without having to invest thousands of dollars in inventory. Traditionally, a brick-and-mortar or ecommerce retailer has to tie up huge amounts of capital purchasing inventory.

With the dropshipping model, you don’t have to purchase a product unless you’ve already made the sale and have been paid by the customer. Without significant upfront inventory investments, it’s possible to start dropshipping and become successful with very little money.

Additionally, because you’re not committed to selling through any inventory purchased upfront, like in other business models, there’s less risk involved in starting a dropshipping store.

2. Easy to start

Running an ecommerce business is much easier when you don’t have to deal with physical products. With dropshipping, you don’t have to worry about:

  • Managing or paying for a warehouse
  • Packing and shipping your orders
  • Tracking inventory for accounting reasons
  • Handling returns and inbound shipments
  • Continually ordering products and managing stock level

3. Low overhead

Because you don’t have to deal with purchasing inventory or managing fulfillment centers, your overhead expenses are quite low. In fact, many successful dropshipping stores are run as home-based businesses, requiring little more than a laptop and a few recurring expenses to operate.

As you grow, these costs will likely increase, but will still be low compared to those of traditional brick-and-mortar businesses.

(Video) Watch This Video Before You Start Dropshipping In 2023

4. Flexible location

With dropshipping, a successful business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and provide timely service and support that meets customer expectations, you can run and manage your business.

5. Wide selection of products to sell

Since you don’t have to pre-purchase the items you sell, you can offer an array of trending products to your potential customers. Plus, you can rotate or change your dropshipping products list without having to worry about unsold inventory. If suppliers stock an item, you can list it for sale on your online store at no additional cost.

6. Easier to test

Dropshipping is a useful fulfillment model for both launching a new store and for business owners looking to test the appetite customers have for additional product categories, e.g., accessories or wholly new product lines. The main benefit of dropshipping is, again, the ability to list and potentially sell products before committing to buying a large amount of inventory.

7. Easier to scale

With a traditional retail business, if you receive three times the number of orders, you’ll usually need to do three times as much work. By leveraging dropshipping suppliers, most of the work to process additional orders will be done by the suppliers, allowing you to expand with fewer growing pains and less incremental work.

Sales growth will always bring additional work—especially related to customer support—but businesses that utilize dropshipping scale particularly well relative to traditional ecommerce businesses.

It’s important for people to understand that you’re building a machine. If you don’t pump money into the system, you can’t make it pump more money out. Dropshipping is a money multiplier.

Drawbacks of dropshipping

All the benefits we mentioned make dropshipping a very attractive model for anyone getting started with an online store, or for those looking to expand their existing product offerings. But like all approaches, dropshipping has its downsides, too. Generally speaking, convenience and flexibility come at a higher price.

Here are a few shortcomings to think about when considering a dropshipping business.

1. Low profit margins

Low margins are the biggest disadvantage to operating in a highly competitive dropshipping vertical. Because it's so easy to get started, and because the overhead costs are so minimal, many competing businesses will set up a dropshipping store and sell items at rock-bottom prices in an attempt to grow revenue. Since they’ve invested so little in getting the business started, they can afford to operate on minuscule margins.

Typically, these sellers will have low-quality websites and poor (if any) customer service, which can help you differentiate your dropshipping business. But that won't stop customers from comparing their prices to yours. This increase in competition will quickly hurt the potential profit margin in a niche.

Fortunately, you can do a lot to mitigate this problem by choosing the right products and selecting a niche/vertical that’s well suited for dropshipping.

2. Inventory issues

If you stock all your own products, it’s relatively simple to keep track of which items are in and out of stock. But when you’re sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory can change on a daily basis.

Fortunately, these days, there are a handful of apps that let you sync with suppliers. So dropshippers can “pass along” customer orders to a dropshipping supplier with a click or two and should be able to see in real time how much inventory the supplier has.

DSers also lets merchants take automated actions when a supplier’s stock hits zero. For example, when a product is no longer available, you can automatically unpublish the product, or keep it published but automatically set the quantity to zero.

3. Shipping complexities

If you work with multiple suppliers—as most dropshippers do—the products on your online store will be sourced through a number of different dropshippers. This means you have no control over the supply chain.

(Video) The UGLY Truth About Dropshipping That No Guru Will Tell You

Let’s say a customer places an order for three items, all of which are available only from separate suppliers. You’ll incur three separate shipping charges for sending each item to the customer, but it’s probably not wise to pass this charge along to the customer. And even when it does make sense to include these charges, automating these drop shipment calculations can be difficult.

4. Supplier errors

Have you ever been blamed for something that wasn’t your fault but had to accept responsibility for anyway?

Even the best dropshipping suppliers make mistakes fulfilling orders—mistakes for which you have to take responsibility and apologize. In addition, mediocre and low-quality suppliers will harm the customer experience via missing items, botched drop shipments, and packing or product quality issues, which can damage your business’s reputation<.

If you’re getting into the dropshipping model, research different dropshippers. Many overpromise and underdeliver. To run a good business, your customers need to be happy, so you need a good dropshipper.

5. Limited customization and branding

Unlike custom-made products or print on demand, dropshipping doesn’t give you a lot of control over the product itself. Usually, the product dropshipped is designed and branded by the supplier.

Some dropshipping suppliers can accommodate your business’s product changes. Even then, however, the supplier has the most control over the product itself. Any changes or additions to the product usually require a minimum order quantity to make it viable and affordable for the manufacturer.

Start your dropshipping business in 2023

Whether you’re interested in finding a side hustle, starting a new full-time enterprise, or changing the business model behind your existing online store, dropshipping may be the answer you’re looking for.

Yes, dropshipping comes with a number of built-in complexities you’ll need to address. But with careful planning and consideration, you can anticipate and resolve those issues to create a thriving, profitable dropshipping business

Ready to create your business? Start your free trial of Shopify—no credit card required.

Dropshipping FAQ

How much do I need to invest to start dropshipping?

Though it’s hard to predict the exact costs for an individual business, any dropshipping business will need to invest in creating an online presence with a domain name and ecommerce website, as well as marketing the business via online advertising. Ready to start dropshipping?

How do dropshippers make money?

Dropshipping businesses mark up the price of their products in exchange for distribution. This is why suppliers are OK having dropshippers market their products for them—dropshipping stores drive additional sales that the supplier would have otherwise missed out on. Ready to make money?

(Video) How To Start Dropshipping As A Beginner In 2023

Is dropshipping legal?

Yes, dropshipping is legal. It’s an ecommerce fulfillment model used by many global retailers. In fact, most retail stores you shop in are not selling products they personally manufacture. Dropshipping simply takes this curated approach and adapts it for an online business. Ready to start dropshipping?

Can you do dropshipping on Amazon?

Yes, Amazon allows you to create an ecommerce business based on dropshipping. However, margins are much slimmer on Amazon, with fees ranging between 10% and 15%, depending on the product type.

Can you dropship on eBay?

Dropshipping is permitted on eBay. However, listing a product on eBay and then purchasing it from another retail or marketplace that ships the customer’s order is not allowed.

What’s the difference between dropshipping and retail arbitrage?

Unlike dropshipping, retail arbitrage consists of reselling products bought from other retailers. With retail arbitrage for ecommerce, you simply sell items online at a premium price, then purchase the item at a retail store and ship it after it’s bought.

How do I start a dropshipping business?

  • Commit to starting a dropshipping business.
  • Choose a dropshipping business idea.
  • Do market research.
  • Choose a dropshipping supplier.
  • Build your ecommerce store.
  • Decide on a business structure.
  • Get your finances in order.
  • Market your dropshipping store.
  • Analyze and improve your offering.
(Video) What You NEED To Know Before Dropshipping in 2023

FAQs

What is dropshipping and how does it work? ›

Drop-shipping is where a seller sets up a website and sells products that the seller does not keep in stock. When an order is placed, the seller sends it to a third party — the manufacturer, another retailer, or a wholesaler — who ships the goods directly to the buyer.

Does dropshipping work in 2022? ›

Is Dropshipping Still Profitable? In 2022, absolutely yes. In fact, as more and more people have moved away from platforms like AliExpress, dropshipping has become all the more popular. It's an excellent option for those looking to jump in the ecommerce space.

Do you need a lot of money to start dropshipping? ›

It is possible to start a dropshipping company for as little as $100, making it a good option for those keen on bootstrapping a new venture. Best of all, dropshippers can sell a full range of products without ever having to purchase or hold any inventory.

How do dropshippers make money? ›

When a customer purchases a product from a dropshipping store, a third-party supplier ships it directly to them. The customer pays the retail price you set, you pay the suppliers' wholesale price, and the rest is profit.

How do you dropship for beginners? ›

Setting Up Your Drop Shipping for Dummies Guide
  1. Choose where to list your items for sale. ...
  2. Research a dropshipping supplier that can fit your needs.
  3. Research the items you plan to sell and the market for them.
  4. Start listing your items online.
  5. Collect orders and send them to your supplier.
  6. Automate your business.

Is dropshipping easy for beginners? ›

Is Dropshipping Easy to Start? Dropshipping is one of the easiest methods to start an eCommerce store. People will limited experience and budget can create a dropshipping store with low risk. Simply choose a niche and reliable supplier, build the store, take care of legality and finances, and market the business.

Is dropshipping worth it 2023? ›

Dropshipping is worth it in 2023 for both retailers and vendors, though success requires implementing an effective and multi-pronged strategy. For dropshipping to be profitable, retailers and vendors must develop and nurture symbiotic relationships to expand product assortment and increase reach.

Why do most dropshippers fail? ›

The main reason that 90% of dropshipping businesses fail is that they don't focus on adding as much value as possible for the customer.

Can I become rich with dropshipping? ›

Yes, dropshipping can be a profitable business model for merchants because you are not responsible for shipping or manufacturing. It's a low-risk business model that doesn't incur huge costs like a wholesaler would normally have and you can earn a good profit margin with the right suppliers.

How much money does it cost to start a dropshipping business? ›

Technically speaking, you can start dropshipping for less than $100. With the right combination of free trials and starter plans—and a willingness to look the other way and hope for the best when it comes to the quality of your products—a little investing is all that stands between you and a dropshipping store.

Can I dropship with no money? ›

How much money do you need to start dropshipping? The answer is you can try dropshipping with no money. There are no up-front fees for inventory or a warehouse where you keep your goods. In addition, since the products are supplied directly from your suppliers, you can avoid paying shipping and packing costs.

What are the disadvantages of dropshipping? ›

Before launching a dropshipping business, consider some of its disadvantages.
  • Dropshipping isn't simple. ...
  • No command over the supply chain. ...
  • Maintaining quality is difficult. ...
  • Building a brand can be challenging. ...
  • Customer service issues could occur. ...
  • It's a competitive market. ...
  • Low profit margins.
Dec 28, 2021

How much does a dropshipper make a month? ›

As of Dec 27, 2022, the average monthly pay for a Drop Shipping in the United States is $3,380 a month.

Is Amazon a dropshipping company? ›

Does Amazon offer dropshipping services? Fulfillment by Amazon (FBA) is an alternative to using a dropshipping supplier. You procure products from your supplier of choice while Amazon handles the shipping, customer service, and returns on your behalf.

Is it hard to start dropshipping? ›

However, contrary to popular belief, the dropshipping business model is not a get-rich-quick scheme. Sure, it seems like easy money — you sell other people's goods and take a cut for yourself — but when you factor in all the drawbacks, obstacles and day-to-day management, it's far from easy and can be hard work.

How can I start a dropship store with no money? ›

Well, there are many platforms that you can use to start a dropshipping business, with no money investment at all. Some of the major players are eBay, Amazon and Shopify. Often they offer a free trial for you to explore and test the plotform if it's suitable for you.

How much money do you make on average dropshipping? ›

You can make a rough estimate based on a 20% margin and 2% conversion rate but you need to factor into your profit calculation your discount from wholesalers might less than 20%, other expenses and competitors undercutting you at this profit margin.

What skills do you need to start dropshipping? ›

#Skill1: Technological skills Needed for Dropshipping.
  • Understanding of basic computer functions. ...
  • Create a website that sells products. ...
  • Basic knowledge of HTML and CSS. ...
  • Understanding of an eCommerce platform. ...
  • Creating graphics. ...
  • SEO skills to increase the organic reach. ...
  • Being able to gather market data and drive strategy.
Feb 19, 2022

How long does it take to become a successful dropshipper? ›

Yet for some reason people assume they can build a passive six-figure income with dropshipping after a few months of part-time effort. That's just not the way it works. It will realistically take at least a year to build a business that generates an average full-time income.

Is Walmart dropshipping worth it? ›

As with most business strategies, you'll get out of Walmart dropshipping what you put into it. Walmart's ecommerce arm accounted for 16% of its total sales in Q3 2022, making it one of the most valuable environments for sales. Walmart is even closing on the world's top ecommerce retailer – Amazon.

How long will dropshipping be profitable? ›

Once receiving the orders from customers, the merchants will send order details to suppliers and let them take charge from there. What is drop shipping? Dropshipping market observed a profitable result when reaching $128 billion in 2020 and is forecasted to reach $200 billion by 2026.

Can someone sue you for dropshipping? ›

Yes, but it's been tested – and it doesn't impact them as much as you'd think. So make sure you're very upfront about them. Say it'll take 2-3 weeks or, to be even more safe, 2-4 weeks. Protecting yourself from getting sued is something most sellers should prioritise – yet many fail to.

How do I get my first sale? ›

5 proven ways to get your first sale
  1. Ask friends and family to share with networks.
  2. Reach out to the press.
  3. Proactively reach out to potential customers on social.
  4. Send free samples to instagram influencers.
  5. Sell in person at a craft show.

Does dropshipping have a future? ›

Does Dropshipping have a Future? Yes, dropshipping can easily turn into a profitable model for E-commerce sites as the model is a low-risk one.

How much do dropshippers make a week? ›

How much does a Drop Shipping make? As of Jan 17, 2023, the average weekly pay for a Drop Shipping in the United States is $780 a week.

How do dropshippers pay taxes? ›

In most cases: The customer pays sales tax to the seller. The seller remits the tax to the state and provides a resale exemption certificate to the supplier. The supplier maintains the certificate as proof of sales tax exemption.

How much can you make dropshipping on Amazon? ›

Amazon dropshipping can be profitable. The average dropshipping margin is between 10% to 30% margins. Amazon takes around 15% off your top line revenue. So if your margins are around 30%, that means you'll have a new margin of 15% after selling a product via Amazon store dropshipping.

What's the best dropshipping idea for 2023? ›

100+ dropshipping ideas for 2023
  • Beauty and skin care.
  • Clothing and accessories.
  • Jewelry.
  • Books.
  • Art.
  • Coffee.
  • CBD products.
  • Baby products.
Sep 14, 2022

What products are hot right now for dropshipping? ›

Top 25 profitable dropshipping products
  • Toothbrushes. We all have teeth – well, almost all of us – and we all need to clean them. ...
  • Earplugs. ...
  • Yoga mats. ...
  • Gym tights and leggings. ...
  • Denim. ...
  • Sunglasses. ...
  • Pyjamas. ...
  • Non-precious jewellery.
Jun 3, 2022

What is the most sold item in the world? ›

What is the most sold item in the world? The most sold item in the world is clothing and fashion items. This ranges from women and men's outfits to children's clothing, shoes, accessories, and more. People love their clothes, and fashion isn't going anywhere!

Do you need a business license for dropshipping? ›

Business Licenses are necessary for dropshipping businesses, eventually. Most cities require business licenses yet this requirement may differ from state to state for dropshipping businesses.

Do I need a registered business to start dropshipping? ›

Do you need a license to dropship is the most common question people would ask when they want to start a dropshipping business? The simplest answer to this is an LLC is necessary for your dropshipping business, yes.

How much capital do you need for dropshipping? ›

In short, budget for around $290 and that should set you up for success. Then don't forget that as your business grows, you will have to keep spending money to stay afloat and turn a good profit. Once you make your first sales, reinvest the profit into building your dropshipping business.

Do dropshippers pay for shipping? ›

Even though dropshipping businesses don't ship products themselves, they are usually still charged shipping fees from their suppliers. Dropshipping businesses can choose from a variety of strategies to address these shipping fees: offer free shipping and have the shipping costs come out of their profits.

Who is the best drop shipping company? ›

The 6 Best Drop Shipping Companies of 2023
  • Best Overall: Importify.
  • Best for Value: Worldwide Brands.
  • Best for Newer Businesses: Oberlo.
  • Best for Quality Product Suppliers: Spocket.
  • Best for Integrations and Automation: Inventory Source.
  • Best for Apparel: Printify.

How much do dropshippers make an hour? ›

How Much Do Drop Shipping Jobs Pay per Hour?
Annual SalaryHourly Wage
Top Earners$60,000$29
75th Percentile$42,000$20
Average$40,566$20
25th Percentile$28,500$14

What is the downside to dropshipping? ›

Dropshipping isn't simple

Suppliers, order processing, returns and customer support are all issues that drop-shippers must deal with. They must also maintain their websites, attract online traffic and keep track of inventory changes and shipping prices with the manufacturer, all of which take time.

What is an example of dropshipping? ›

An example of dropshipping

Let's imagine you have an online store where you sell dog products. As a dropshipper, you don't need to buy hundreds or thousands of collars or leashes in advance and store them in a rented warehouse (or your garage) until you make a sale.

Do you need an LLC to dropship? ›

Do you need an LLC for dropshipping? The answer is simply yes. If you want to do business while protecting your dropshipping company and personal assets, you'll need an LLC. It's such a system to lawfully build your online store.

Which website is best for dropshipping? ›

Best Dropshipping Suppliers
  • Spocket. Spocket is a dropshipping marketplace that enables retailers to start and scale their online stores. ...
  • AliExpress Dropshipping. ...
  • Modalyst. ...
  • SaleHoo. ...
  • Doba. ...
  • Wholesale2B. ...
  • Worldwide Brands. ...
  • Sunrise Wholesale.

How much can you make dropshipping in your first month? ›

Once you factor in the 10–30% margins, you can expect to make between $1000-$3000 monthly in your first year of dropshipping.

How do I become a successful dropshipper? ›

How to be a successful dropshipper
  1. Add value. Having a solid plan for how you can add value for your customers is the most crucial success factor. ...
  2. Focus on marketing and SEO. ...
  3. Specialize. ...
  4. Have a long-term perspective. ...
  5. Offer outstanding service. ...
  6. Don't get hung up on the details.
Jun 2, 2021

Is Walmart a dropshipping company? ›

Yes, Walmart lets you dropship in three different ways: Become a Walmart Drop Ship Vendor. Reseller Walmart products through sites like Amazon or eBay. Sell dropshipped products on the Walmart marketplace.

How much money do you need to start dropshipping on Amazon? ›

How Much Does It Cost to Start Dropshipping on Amazon? Amazon dropshipping requires everyone to sign up as a seller on Amazon's website. Their Individual plan costs $0.99 per unit sold, while the Professional plan will cost you $39.99, regardless of how many items you sell.

How to dropship with no money? ›

Two of the top-notch platforms that stand out for dropshipping with no money are Shopify and WooCommerce. While Shopify offers a free trial for you to try and experience the store for free before starting selling, WooCommerce (a WordPress plugin) is also free to download and use.

Who are the most successful dropshippers? ›

1: Andreas & Alexander. Andreas Koenig and Alexander Pecka are among the richest dropshippers.

What is the most successful dropshipping store? ›

We've included what each store is doing right and how they've taken off in the dropshipping world.
  • Notebook Therapy.
  • Club Fit Wear.
  • Oddity Mall.
  • Until Gone.
  • Dog Pawty.
  • Mooshe Socks.
  • Bidet Genius.
  • Blue Crate.

What are the pros and cons of dropshipping? ›

Dropshipping: The Pros, The Cons & How it Works
  • There's no need to buy inventory up front or store it. ...
  • Low overhead costs. ...
  • Flexibility and wide array of products. ...
  • Easier to grow your business. ...
  • Can be more expensive than traditional retail. ...
  • Limited control over quality and branding.
May 16, 2020

Videos

1. WATCH THIS VIDEO BEFORE YOU START DROPSHIPPING IN 2023
(Success With Sam)
2. HOW TO START DROPSHIPPING WITH A LOW BUDGET FOR BEGINNERS (2023 Guide)
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3. Amazon Dropshipping in 2023: A Step-by-Step Guide For Beginners
(Mike Vestil)
4. How Shopify Dropshipping Works
(CNBC)
5. STOP Using Aliexpress to Dropship (NEW 2023 Method)
(THE ECOM KING)
6. What is Dropshipping for Beginners? How to Make Money Online in 2021
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