What is dropshipping and does it work in 2025?

Dropshipping is a great way for anyone to start an e-commerce business Suppliers take care of shipping and logistics, so you can concentrate on sales, customer service, and growing your business.

Table of Contents

You’ll learn what it takes to get started and build a successful e-commerce business in this dropshipping guide.

What is dropshipping?

Dropshipping is a type of e-commerce business model It is appealing to certain entrepreneurs because you do not need to purchase stock in advance or handle storage, as is the case with traditional e-commerce Instead, you function as an intermediary and store manager, listing products for sale on your website or other digital platforms.

When a customer places an order, you pay your supplier for the items in the order, and the supplier sends the items directly to your customer. You never actually handle any items or packages.

You can offer a diverse range of products using a dropshipping model, similar to how you can sell products across various categories on conventional e-commerce platforms The flexibility and minimal financial investment mitigate the risk of launching new online stores and introducing new products.

How does a dropshipping business work?

Probably the most unique about dropshipping businesses is the way they fulfill orders. With a traditional e-commerce business model, your team fulfills orders or you work with a third-party logistics partner who does so on your behalf.

”It’s a dropshipping business that handles all the steps for order fulfillment, so you don’t have to worry about it Here’s how it works”

A customer makes an order.

The whole process begins when a customer visits your online store and makes an order At this point, it’s just like any other online sale – the customer has paid for their items and is now waiting to receive them.

You forward the order to your supplier.

In dropshipping, rather than fulfilling the order from the inventory you do have on hand, you are simply relaying that order to your wholesale supplier. Most of the time, this can be automated through your online store platform.

Your supplier packs and ships the order.

Hence, your dropshipping supplier chooses or manufactures supplies from their inventory, pre-packages, and sends off the items for shipping to your customer. They take the shipping, whereas you can pay them a shipping fee based on the location of a customer.

The customer receives the order.

Your customer receives the dropshipped items from a final-mile logistics provider, like UPS, FedEx, or DHL. Once the customer receives their package, the order lifecycle is usually complete, unless they have an issue with the item.

Drop shipping versus other types of e-commerce.

Dropshipping is just a change in responsibilities compared to regular e-commerce or brick-and-mortar retail stores The main differences come down to who keeps the stock and who handles orders.

In traditional e-commerce, the store owner or brand has a lot more responsibility:

Purchasing goods from suppliers
Covering the shipping costs from the supplier
Storing stuff in a warehouse and making sure we’ve got enough stock to make money Sending out orders to customers

But if you know how to dropship, you can shift your attention to growth activities.

”Forecasting and Demand Planning concerning What the Customer Wants”
Finding new products and dropshipping partners to help you expand
Marketing and advertising, including planning and creating content

It’s expected that regular online stores would want to put effort into these things, but at the top level, you might end up overwhelmed Handling orders and growth is a big task With dropshipping, starting a new business becomes way easier and doable

How to get started with dropshipping

Getting started with dropshipping is pretty straightforward You can follow these steps in order or tackle them all at once

Perform market research

Start your dropshipping store by doing some good ol’ market research Check out what people want, see who else is selling similar stuff, and figure out how much moolah you can make in different product categories Use free tools like Google Trends to search out the demand and see if it’s worth diving into

Choose an e-commerce platform for your store.

Knowing which platform to use for your e-commerce store will be quite helpful in streamlining the operations once you launch Consider Shopify, BigCommerce, or WooCommerce; these are some popular choices that can serve as the foundation of your storefront They will provide you with essential tools and features to start your dropshipping business.

Source drop shippers

Find good dropshipping companies by checking out the app store on your e-commerce platform or browsing through dropshipping marketplaces and directories Test things like prices, minimum order quantities, shipping times, and return policies as you explore Also, make sure that the dropshipping supplier can integrate with your online store’s platform for automated orders.

Build an online store.

”Set up an online storefront once you have selected your e-commerce platform and dropshipping suppliers”

”First, consider a suitable and memorable domain name that aligns with your brand identity
Next, create page layouts for product categories and individual product pages based on the themes or templates provided by your e-commerce platform.
Finally, populate your store with products, including their color or size variations, along with compelling marketing descriptions and images”.
Set up payment processing using whichever storefront builder you prefer, and make sure there are plenty of payment options for customers.
Before you launch your store, try it out on different devices to make sure everything works smoothly.

Develop your marketing

Focus on setting up your marketing now that your shop is ready

Create a plan that includes the channels you want to use, like social media, ads, and influencer collaborations.
Create eye-catching visuals and compelling copy, and set deadlines and goals for deployment and results.
Share relevant content to drive traffic to your store, and experiment with both organic and paid content to see what works best for you.

Record and analyze data.

Keep an eye on and look at important stuff like website visits, sales numbers, how well your marketing is doing, and other things This will help you tweak your game plan By staying on top of things and figuring out where you can do better, you’ll be able to make smart moves to boost your dropshipping business.

What products can I drop ship?

You can sell products from different categories using dropshipping If there’s demand for it and you can find a supplier, try adding it to your store Ideal dropshipping products should have something special that appeals to a wide range of people:

Clothing and accessories
Household items
Pet care items
Home workout equipment

Avoid stuff that’s delicate or has too many pieces Making it is a pain, and if it breaks, you’re the one who has to sort it out You could also do personalized items, like T-shirts with cool designs Some dropshipping suppliers can print them as needed, in different styles and colors.

Even if you’re not a manufacturer, you still have to follow most of the product laws For instance, strict US rules say no selling knockoff stuff, like sneakers, bags, or belts that look just like the real deal Also, stay away from anything made with forced labor, even if it’s a few steps removed in the supply chain Most dropshipping setups are pretty safe, but do your homework to be sure.

Pros and Cons of Dropship Fulfillment

As you learn how to dropship, you’ll soon get the hang of seizing opportunities and minimizing risks, considerations, and limitations Once you’ve got all that down, you can start crafting solid strategies to make your dropshipping business successful over time

Pros to Dropshipping

The dropshipping business model is appealing to a lot of people who want to start their own business because it doesn’t require as much money as other types of retailing

Lower startup investment

Startup costs can be much lower since you don’t have to invest in inventory If you’re just starting as a sole proprietor, you can put in less money And if you’re already established and looking for investors, you might be able to keep more control over your new business because you won’t need to raise as much from others

You don’t have to worry about setting up the fulfillment infrastructure because your dropshipping supplier handles those aspects of the business

This includes:

Warehouse rental or ownership
Inventory storage or carrying costs
Boxes, infill, and other packing materials
Warehouse labor picking/packing
Transportation to/from warehouses

The reduced investment requirement is one of the main reasons why many entrepreneurs have been attracted to dropshipping This factor can significantly impact the ability to start a business, particularly during challenging times.

Managing a business is easier.

This way You only need to focus on the digital and customer aspects, since the fulfillment side is handled by suppliers and doesn’t require as much specialized knowledge as other types of retail

Product-market fit.
Brand Development
Online store optimization
Marketing and Advertisement

It means having less stress, so you can start and grow your business without needing to hire employees to handle orders As you expand, you might want to add more products or try buying inventory upfront, but it’s simpler to learn as you go with a dropshipping approach for your business

Dropshipping cons:

Dropshipping, like any other business model, comes with risks and limitations Some of these are beyond your control, although there are ways to mitigate their impact As your business expands, you may find it easier to navigate some of the challenges—especially if you are aware of them before you begin

Lower profit potential

Earning less money in a dropshipping business is because of your margins.

Your cost of goods sold will almost always be higher when you partner with a drop shipper than when you purchase inventory before selling it This is because suppliers do not benefit from volume sales like traditional wholesalers, which means you cannot obtain volume discounts This is another common method to negotiate discounts and increase profit margins in other retail models.

You’re also passing on the cost to them by giving more business tasks to the dropshipping supplier Things like managing inventory and handling orders can be expensive With these additional costs, your supplier includes them in the price they charge you.

”You also lose control over landed costs to dropshipping suppliers or other warehouses and customers The landed cost is the total cost of bringing goods in from manufacturers, including overseas One important way retailers squeeze more profit out of their supply chains is through optimizing landed costs There are a couple of ways to do this”

The labor can be assigned based on saving money, and it can help reduce costs a lot Some companies give important tasks to skilled workers and automate the boring or less important tasks.
When comparing packaging options, choosing lighter, cheaper materials can still protect the product Even small changes can matter when done on a large scale.
Negotiating shipping rates can help save a lot of money when shipping from manufacturers to suppliers or from suppliers to customers.

But if you’re not in control of the fulfillment, then you’re not in control of the landed cost. You can bet the suppliers are not going to want to share that data with other online shops. When they optimize, they benefit, not you.

Less control over product availability

Limited products based on the quantity available in your supplier’s inventory
No control over the continued availability of existing products

Finding products to sell might be tougher than you thought Your stuff might not stand out compared to what others are selling But hey, you can make them your own with some cool branding! Dealing with availability issues, though, can be trickier Delays or running out of stock can mess with customer satisfaction

The truth is, most of the time you won’t know the inventory levels or turnover ratios for your dropshipping supplier Unless you have that kind of info, you can’t tell if they’re running low on your products Some might have a notification system, or you could ask now and then, but anything less than real-time visibility is just a hassle

These gaps could lead to stockout messages on your store, missed sales opportunities, and lower customer satisfaction, And that can create a bigger problem: keeping customers happy impacts how much you spend to acquire new ones So, if you lose existing customers, you’ll have to find new ones – which usually costs money

Sometimes stockouts can become a problem You might have to give refunds, depending on how long it takes for customer orders and how long it takes for the dropshipping suppliers to fulfill them And guess what? You’ll have to cover the cost of processing the refund, including any third-party fees So in the end, you’re losing money

Slower customer deliveries

Delivery times can be a harsh reality for dropship store owners. Orders may not be fulfilled for up to a week or longer and then they still have to ship.

In traditional e-commerce stores, pick and pack usually begins minutes or hours after orders are placed Inventory is stored on shelves and moves through warehouses to carriers for final-mile delivery.

However, in the case of dropshipping, items may not be produced until customer orders have been placed and transmitted to suppliers If products require production or customization after ordering, lead times could be even longer Sometimes, speed cannot be the top priority.

Limited control over customer satisfaction

Aside from stockouts and slow delivery, there’s a lot more that dropshipping can mess up when it comes to keeping customers happy You don’t have much say or insight into problems So, be ready to work closely with your supplier if anything goes wrong You might have to fix things without really knowing what’s going on And that could bum out customers, making them not want to buy from you again or leave negative reviews.

Some companies just swap out items because it’s quicker and simpler, but it ends up costing money and hurting your profits If this happens a lot and you can’t track it well, it can mess up your SKU analysis and make certain items seem less appealing to customers, even though it’s your dropshipping supplier’s fault.

Lower scalability

Some of the dropshipping-related risks might slow down overall growth Usually, this would be a chance for any online store, but with dropshipping, you can’t control important factors like product availability and delivery speed Without that control, it’s hard to predict and predictability is crucial for growth.

You could technically expand your product range through one channel, like adding more items or variations on your website You could also promote your marketing on different platforms, such as using the same ads from Facebook on Instagram.

However, there’s a chance of losing money or resources since the company doesn’t have full control over product quality and availability.

Tips to Success in Dropshipping

Learn the ropes properly; you might need some trial and error to get the hang of dropshipping Industry tips and best practices will boost your chances of success and help you avoid certain risks.

Select the correct product category.

Find something you enjoy When you can relate to your customers, you’ll be more motivated to find and promote products.
Check out what’s popular in the market Look at products that are in high demand but have low competition.
Also, consider the size and weight of the product Shipping costs can eat into your profits, especially for large or heavy items.

Find reliable dropshipping suppliers.

Check out the suppliers’ rep, dude Look up online reviews, hit up forums, or check industry sources.
Your e-commerce app store might have ratings and reviews for those dropshipping peeps Also, ask for samples to make sure their stuff vibes with your brand and won’t disappoint your customers.
Compare shipping costs and speed. Cost versus speed is an eternal dilemma of any online store, but since dropshipping has longer lead times, it’s even more important to find the right balance.

Calculate the pricing and profitability.

Calculate all the expenses Dropshipping is cool because you don’t need much money upfront, but it does cut into your profits So, add up what you pay to suppliers, shipping fees, and other costs like platform fees and marketing.
Check out what your competitors are charging – they’ve got their e-commerce game down!
Offer promotions to new and loyal customers Use sales, discounts, bundles, and upsells to increase order values.

Ensure good customer service.

Make sure to keep customers informed Even if delivery times seem long, being transparent about timing can prevent any potential disappointments with dropshipping.
Reply quickly to customers, and consider setting up an automatic response system to acknowledge their messages Don’t leave them hanging.
Go the extra mile to make sure customers are satisfied In dropshipping, you have less control over product quality, availability, damages, and other issues But you can offset these risks by offering great customer service Some stores even replace products without asking any questions.

Test new products.

Start with a few products See if your customers are responding to you before you start ramping up the inventory so you have limited investment in time, effort, and marketing or whatever it is upfront.
Launch with demand in mind Think seasonal or limited collections as a way to give customers a reason to come back to your online store.
Promote new products—run limited-time promotions to test the waters, then lean into pricing and expansion.
Replace slow-selling products with new ones using data and insights

Common challenges and solutions

How do I get reputable, quality dropshipping services?

Research at its finest. Directories and marketplaces such as AliExpress, SaleHoo, Sprocket, and others can supply businesses by category or other filters. Check for reviews and stories from customers to perceive the online reputation of dropshipping suppliers. Order samples to test reliability and quality.

How do I handle returns?

When it comes to using drop shipping, you may encounter various scenarios

Some drop shippers don’t do returns, especially if it’s personalized
Your dropshipping partners might have their own rules
You might have to set up different return processes with them, and customers might need to send back two items from the same order to different places

You might also decide not to accept returns, but this could lead to customer disappointment. One way around this is to calculate the cost of replacing items or providing refunds based on your data and work the cost into pricing. If your margins allow, this will let you provide a more generous return policy, especially compared to other dropshipping companies.

You may also need to partner with a 3PL if you sell using a dropship model on Amazon. That’s because Amazon processes returns if you use Fulfillment by Amazon, but not if you use dropshipping.

In this case, you could give customers a shipping label to return items to a 3PL partner that can help coordinate from there.

Can I do anything about slower deliveries?

Because dropshipping relies on suppliers for the fulfillment and shipping of products, you can’t be totally in control of the timing.

Mitigate risks to customer satisfaction with the following tips:

Choose suppliers with faster shipping options
Communicate expected delivery times clearly to customers
Offering tracking information to keep them updated
Provide discounts for next time to make up for delayed deliveries

How can I earn customer loyalty?

You can earn customer loyalty in similar ways to other retail or service-oriented businesses:

Quality products
Personalized communication
Sales, promotions, and other incentives
Answering questions quickly
Responding to feedback and reviews

When you have a dropshipping store, these factors may be more important. Since you have tighter profit margins, you don’t want to alienate customers. Fast, consistent customer service can help keep them interested in your store.

Drop ship fulfillment alternatives.

You can also select other e-commerce models for your new business or supplement your drop ship fulfillment model.

Retail arbitrage

Retail arbitrage involves selling items for higher prices on your site or other platforms that can support the price increase. It’s more manual than dropshipping companies and other business models. This means it’s not as scalable but can be lucrative in certain scenarios.

This model is best suited for niche product categories or products with dedicated fan communities, such as sneakerheads or celebrity fashion drops.

Additionally, it works well for very low-margin items where price sensitivity is minimal. For example, a customer might be willing to pay $3 for an item anyone could buy for $1. The difference is negligible for the customer, given the convenience or uniqueness of the product, but the margins can add up for you. Achieving volume this way isn’t always a sure bet, though.

Private label fulfillment

Private label fulfillment offers a middle ground between dropshipping and traditional e-commerce retail, allowing you to customize or differentiate products with your private label.

This approach lets you invest in lower quantities of products while maintaining control over quality, process, and profitability. And because you integrate your website with a fulfillment center, rather than a dropshipper that sells across multiple partners, you may have greater visibility. This could let you see more on inventory levels, fulfillment stages of orders, and other supply chain data.

The increased visibility can also help you resolve issues and make optimizations promptly, providing more opportunities for brand differentiation and loyalty.

Traditional e-commerce

It’s a traditional form of e-commerce that is very similar to the retail model, in which the seller upfronts the full capital investment in inventory and handles the fulfillment in-house. It differs from other models like dropshipping or retail arbitrage by holding an inventory. This is a financial commitment that logarithmically compounds with logistical challenges. In return, you get complete control over product selection, pricing, branding, and customer experience.

With traditional e-commerce, one can create a website and produce a product selection that is unique to attract customers. Inventory levels, shipping processes, and customer service are managed in-house or with a 3PL, putting one in complete control over all facets of the business operation.

While requiring more up-front investment and ongoing management, traditional e-commerce does provide higher margins, greater brand control, and long-term sustainability.