Dropshipping: What Is It and How Does It Work? (2024 Guide)

If you've clicked on this article, you're probably curious about the world of dropshipping.

Maybe you're looking to start your own online business, or perhaps you're just interested in understanding this popular business model.

Either way, you're in the right place!

In this article, we'll dive into the concept of dropshipping. We'll explain the meaning, how it works, explore its pros and cons, and more!

By the end, you'll have a solid grasp of what dropshipping is all about, and who knows, you might even be ready to start your own dropshipping store.

And don't worry if you're new to the world of ecommerce. We'll make sure to explain everything in a simple, straightforward way.

So, let's dive in!

What is dropshipping?

Alright, let's start with the basics: What is dropshipping?

Imagine you want to start selling products online but don't have a warehouse to store all those products or the funds to buy inventory upfront.

Sounds like a problem, right?

Well, this is where dropshipping comes to the rescue!

Dropshipping is a fulfillment method where you, as a store owner, don't keep the products you're selling in stock. Instead, when a customer makes a purchase from your online store, you forward the order to a third-party supplier. This supplier then ships the product directly to the customer.

You add the supplier's products to your online store, take the orders, and then let the supplier handle the rest, including storage, packaging, and shipping.

Essentially, you're a middleman in this transaction, linking the customer with the supplier.

One of the best things about dropshipping is that you don't have to worry about stocking products or dealing with complex shipping logistics.

This makes it an excellent choice for aspiring entrepreneurs who want to start an ecommerce store without massive upfront costs.

But where exactly does the term 'dropshipping' come from?

Simply put, it refers to products that are directly shipped to and dropped at your customer's address. You're also 'dropping' the responsibility of inventory management and shipping onto your supplier!

So, to sum it up, dropshipping allows you to operate an online store without having to stock inventory or handle shipping.

It's about efficiently connecting the customer, the product, and the supplier. Sounds awesome, right?

What is a dropshipper?

Great, now that we know what dropshipping is, let's discuss the most important role in this process: the dropshipper.

So, what is a dropshipper exactly?

A dropshipper is a business owner who operates an online store using the dropshipping business model. They're the individual or company that connects the customer and the supplier.

A dropshipper's primary responsibilities include the following:

1. Product selection. It's up to the dropshipper to decide which products to sell in their online store. This involves market research, trend analysis, and a good understanding of consumer demands.
2. Maintaining the connection with suppliers. The dropshipper builds relationships with dropshipping suppliers who can reliably provide the products being sold.
3. Marketing. Perhaps one of the most important tasks, a dropshipper is responsible for attracting customers to their store and convincing them to buy the products. This often involves social media marketing, email campaigns, and more.
4. Customer service. Even though a dropshipper doesn't handle the physical products, they are still responsible for customer service. They handle customer inquiries, manage complaints, and ensure customers have a positive shopping experience.

The life of a dropshipper is definitely not a walk in the park!

It requires hard work, diligence, and a good grasp of ecommerce strategies.

But it can also be an exciting adventure, allowing you to run an online store without the heavy lifting of traditional retail models.

And the best part? You can manage it all from the comfort of your own home (or anywhere with an internet connection, really).

How does dropshipping work?

Excited about becoming a dropshipper?

Perfect! Let's move on to the next part, a step-by-step guide on how dropshipping works:

Step 1: Choosing the right product to sell

Your first task as a dropshipper is deciding what to sell.

It's a critical decision because the right products can make or break your business.

You want to choose products that are in demand, have a "wow factor," or solve a problem.

But how do you find these 'winning' products?

Our favorite strategy is using product research tools like Sell The Trend or Dropship.io.

For example, here's a dropshipping product we found using Sell The Trend:

If you want to see more examples, check out our list of the best dropshipping products here!

Step 2: Finding a dropshipping supplier

Now that you've chosen what to sell, it's time to find the right partner for your business: a dropshipping supplier.

A dropshipping supplier is a manufacturer or wholesaler who manages inventory and shipping for a dropshipping business. They're the ones who make or supply the products, store them, pack them, and ship them directly to your customers.

When trying to find a dropshipping supplier, you'll find both local and overseas options.

On the one hand, working with a supplier from China, for instance, often allows for lower product prices, which could mean higher profit margins for you. Platforms like AliExpress and CJdropshipping are popular for finding overseas suppliers:

On the other hand, choosing a local supplier - from the US, Europe, or whichever region you're targeting - could mean faster shipping times, which is a significant factor for many customers.

You can use platforms like Spocket or AppScenic to find local dropshipping suppliers:

Step 3: Setting up your dropshipping store

With your products and supplier in hand, you're ready to set up your dropshipping store.

You can use ecommerce platforms like Shopify, WooCommerce, or BigCommerce, which offer user-friendly interfaces and plenty of customization options:

Tip: Have you already created your Shopify account? If not, sign up by clicking this link here to get a free 3-day trial + pay $1/month for the first 3 months!

Once you've chosen your platform, it's time to set up your store.

This includes choosing a theme that aligns with your brand, writing product descriptions, and adding payment gateways.

Step 4: Marketing your products

Now that your store is up and running, it's time to attract customers.

You'll need a strong marketing strategy for this.

Platforms like Facebook, Instagram, and Pinterest offer targeted advertising options that allow you to reach potential customers based on their interests, behaviors, and demographics.

Another effective marketing method is building an email list and sending out regular newsletters. You can share promotional offers or valuable content to encourage previous visitors to return and make a purchase.

Remember, effective marketing is not just about attracting visitors but also about converting them into customers.

You should experiment with different strategies, track your results, and continually refine your approach based on what works best for your audience.

Step 5: Managing customer orders and shipping

Once customers start placing orders, your role as a dropshipper truly begins.

Here's how it works: a customer places an order on your website, you receive and review the order, then you forward it to your supplier.

Your supplier then handles the packing and shipping, sending the product directly to your customer.

You manage the communication with the customer, ensuring they're informed about the order status and satisfied with their purchase.

And there you have it! This is how dropshipping works.

Pros of dropshipping

Fantastic! You're now familiar with the basics of dropshipping and the role of a dropshipper.

But why exactly should you consider dropshipping?

Below, we'll outline the main advantages of dropshipping:

1. Low startup cost

Okay, let's imagine you want to start a traditional business.

You'd probably need to spend quite a bit of cash upfront.

You'd have to buy loads of products (that's your inventory), find a place to store everything (a warehouse, most likely), and sort out how you'll package and ship everything.

Sounds expensive, doesn't it?

But with dropshipping, it's a different story.

You don't need to buy any products until after they're sold.

And the packaging and shipping? That's all taken care of by your supplier.

All you really need to get started is a good-looking website and a plan to get people excited about your products (that's your marketing strategy).

So, if you're on a tight budget, dropshipping could be the perfect business model for you!

2. Low risk

Now, let's say you've started a traditional business, and you've bought a whole lot of products to sell.

But what happens if those products don't sell?

You're left with a lot of stuff you can't get rid of. That's a big financial headache.

With dropshipping, though, you don't have this worry.

You don't order a product from your supplier until someone has bought it from your store. So, if something doesn't sell, you're not stuck with unsold stock.

This means your risk is much lower. You can test different products and find what sells best without significant financial gambles!

3. Wide product selection

Have you ever tried to store too many things in a small space?

It's a bit like that with traditional stores. They can only sell as many different products as they have room for.

But as a dropshipper, you don't have the same limits.

You can offer a huge variety of products in your online store. You could sell everything from kitchen gadgets to fashion accessories to high-tech devices, even all at the same time!

4. Location freedom

Another cool thing about dropshipping is that it can be managed virtually anywhere in the world. All you need is a reliable internet connection.

Whether you're sitting in your home office, sipping a latte in your favorite coffee shop, or exploring the world as a digital nomad, your business can move with you.

It's a great setup if you're looking for a business that fits around your lifestyle.

5. Scalability

As your business grows, scaling up can be a challenge in traditional retail models.

You might need to find larger storage spaces or hire more staff to help with all the extra orders.

With dropshipping, however, your supplier takes care of these operational challenges!

6. Time efficiency

Operating a traditional ecommerce business can be time-consuming.

You've got to manage your inventory, process orders, and sort out all the shipping. It's a lot to handle!

Dropshipping takes some of this load off your shoulders. Your supplier deals with the inventory and the shipping, leaving you free to focus on other important things.

Now, you can focus on other aspects of your business, such as marketing your products, upgrading your website, providing excellent customer service, and planning for business growth!

Cons of dropshipping

Now that we've painted a rosy picture of dropshipping, it's only fair to discuss the other side of the coin - the potential disadvantages.

Every business model comes with its drawbacks, and dropshipping is no exception:

1. Lower profit margins

Dropshipping stores typically operate with lower profit margins compared to traditional retail or manufacturing businesses.

Why? Because you're not purchasing large quantities of products upfront or producing your own goods.

It's like the 'hidden' cost of dropshipping.

Your per-item cost is higher, making your profit margin on each sale smaller. This means you might need to make more sales to generate significant profits.

2. Inventory management issues

While you don't have to deal with physical inventory management when dropshipping, you can still run into inventory issues.

For example, there can be mix-ups with how many products your supplier actually has.

If your website says an item is available, but your supplier has run out, you'll have to cancel the order.

It's not a great experience for your customers and can harm your business's reputation.

To avoid this, we recommend setting up an inventory management app on your dropshipping store, which automatically updates your supplier's stock levels with your online store.

Note: Many integration apps from dropshipping suppliers also have inventory syncing features.

3. Challenges with shipping

If you're working with multiple suppliers - which isn't uncommon when dropshipping - shipping can become complex.

Different suppliers will have different shipping times and costs.

For instance, if a customer orders several products from your store and these products come from different suppliers, the items will arrive separately.

This can confuse your customers, who might not be too happy about it.

4. Limited control over order fulfillment and shipping

With dropshipping, you rely heavily on your suppliers to handle order fulfillment and shipping.

This also means you have limited control over these processes.

If a supplier is slow to ship a product or makes a mistake with the order, your customer will blame your business, not the supplier.

This lack of control can be stressful and, if not managed well, can negatively impact your customer relationships.

5. High competition

Since it's easy to start a dropshipping store, it's a popular business model.

This can result in a lot of competition, especially for popular products.

And since some competitors sell the exact same product as you, it can be challenging to make your store stand out.

Once again, it's a reason to focus on your marketing strategies and provide top-notch customer service!

6. Refunds can be complicated

Handling returns when dropshipping can be a bit tricky.

Since you don't physically handle the products, you must coordinate with your supplier when a customer wants to return a product.

Each supplier may have different return policies, and negotiating these can sometimes be complex.

7. Limited branding options

When you run a dropshipping business, your ability to brand your products can be limited.

Since your supplier also sells to other people, they usually can't add any labels customized to your brand. (At least not for a cost-effective price.)

This can make it harder to establish a brand identity and create a unique unboxing experience for your customers.

If you do want to focus on branding your products, it's best to work with a dropshipping supplier that supports white labeling, like Supliful:

How do you start dropshipping?

Excited to start your own dropshipping business? Perfect!

Let's walk through the first steps to becoming a dropshipper:

1. Choose your niche and products. First, find a niche you love! (Here are some great examples.) Then, pick products that match the criteria for a winning product. A tool like Sell The Trend can help with this.
2. Look for good suppliers. Next, find a reliable supplier who can deliver your chosen product. Take your time, read reviews, and even order a product sample to check the quality.
3. Set up your online store. Now it's time to build your dropshipping store. The most popular ecommerce platform for dropshipping is Shopify.
4. Configure payment methods. Lastly, set up payment options for your customers. You want to make sure they can pay with their preferred methods!

Remember: These are just the first steps to starting a dropshipping store. To learn more, you can read our dropshipping guide here!

Is it easy to start dropshipping?

Seeing these initial steps may look intimidating, and you may wonder how easy it is to start dropshipping.

In all honesty, starting a successful dropshipping store is not easy.

Yes, setting up a dropshipping store is relatively straightforward compared to traditional retail business, as you don't need to worry about inventory or shipping logistics.

However, like any business, it requires hard work, dedication, planning, and a constant learning mindset.

Remember, success in dropshipping doesn't come overnight. (Unlike what you may have heard from the 'dropshipping gurus.')

Dropshipping is a real business.

It's about continuously testing products, understanding your customers, providing excellent service, and improving your store!

How profitable is dropshipping?

We've walked through the what, why, and how of dropshipping, so now let's address a key question that's likely on your mind: just how profitable is dropshipping?

Well, it's not a simple yes or no answer.

The profitability of dropshipping can fluctuate quite a bit and depends on many factors. However, with the right moves, you can certainly make a good profit.

Here's what can influence your earnings:

• What you're selling. The items you choose to sell are mega important. Pick things many people want but not many stores sell, and you will do well. Price them right, and you could be looking at some serious earnings.
• What your supplier charges. How much your supplier charges impact how much you can make. If you can get your products at a great price without compromising on quality, you're one step closer to increasing profits.
• Marketing costs. Yes, these can be substantial for a dropshipping store. The more effectively you can draw in customers, the more money will be left in your pocket.
• Keeping your customers happy and loyal. If your customers love what you do and keep returning for more, you're doing something right. Excellent customer service can turn one-time shoppers into loyal customers, meaning more profits for you.

Curious about potential profit margins? If so, check out our profit margin calculator to get an idea of how profitable your dropshipping store could be!

Note: Remember, profitability is not guaranteed with dropshipping. It's a real business!

Examples of successful dropshipping stores

Looking for inspiration as you start your dropshipping journey?

Let's explore some successful dropshipping stores that have found their niche and built profitable businesses:

1. Fresh Juice Blender

Fresh Juice Blender started around June 2021 and became a company in the UK on 26 August 2022 — meaning: something is going right!

Just look at their homepage; doesn't that look like a professional brand that is here for the long term?

2. Sage & Sill

Sage & Sill is another one that doesn't look like a typical dropshipping store. But in reality, it is one!

When going through their website, you can see that they use a dark green color throughout their website. This gives the store a branded and ‘uniform' feel.

Even most of their products are green!

3. For My Doggy

The last dropshipping store example is called For My Doggy.

This one is an AliExpress dropshipping store in the pet niche!

Want to see more examples? Check out our list of the 23 most successful Shopify dropshipping store examples here!

FAQs about dropshipping

If you have more questions about dropshipping, take a look at these FAQs!

Summary

Before we go to the conclusion, we've created a quick summary of this article for you, so you can easily remember it:

• Dropshipping is a fulfillment method where a store doesn't keep the products it sells in stock. Instead, it purchases the item from a third-party supplier, who then ships it directly to the customer.
• A dropshipper uses the dropshipping model. They connect customers with suppliers and earn profits from the difference between retail and wholesale prices.
• Dropshipping involves choosing the right product, finding a reliable supplier, setting up an ecommerce store, marketing the products, and managing customer orders.
• The benefits of dropshipping include low startup costs, less risk, wide product selection, location flexibility, scalability, and time efficiency.
• The drawbacks of dropshipping include lower profit margins, inventory issues, shipping complexities, limited control over order fulfillment, high competition, and dependence on suppliers.

Conclusion

If you're looking for a flexible and relatively low-risk way to jump into ecommerce, dropshipping might be your perfect solution.

But remember, it's not a magic way to become an overnight millionaire

Success in dropshipping comes from making good choices about what to sell, working with trustworthy suppliers, building a customer-friendly store, using smart marketing strategies, keeping your customers happy, and more!

We hope this guide has cleared up your questions about dropshipping, inspired you with success stories, and given you the info you need to kick off your own dropshipping adventure.

Good luck with everything!

Want to learn more about dropshipping?

Ready to move your dropshipping store to the next level? Check out the articles below:

• 18 Things to Know Before Starting a Dropshipping Store
• How to Start a Dropshipping Business in the US (2024 Guide)
• Shopify Dropshipping: A 20-Step Guide to Starting Your Store