What Is Dropshipping?

Discover the meaning behind the process retailers use worldwide

Female entrepreneur running her dropshipping business in a cafe and making money

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Dropshipping (or drop shipping) is a business model in which a company sells a product they don't currently possess to a customer.

Instead of the traditional method of shipping an item from a company's warehouse, a dropshipper will process a customer's order, then purchase the product from a third-party who will proceed to ship it to the original customer.

Using the drop ship business model allows the original company to sell a wide range of products without investing in any initial start-up costs they would've had to otherwise.

How is a Dropshipping Business Different?

While a traditional store would have to buy or manufacture their products before accepting orders from customers, dropshipping businesses only ever buy items from a third-party after individual orders are made.

For example, a regular shop may order 100 bracelets in bulk before selling them to 100 individual customers on Amazon. A dropshipper will accept an order for one bracelet, then buy that bracelet at a cheaper price from someone else and have that seller ship it directly to the customer. The dropshipper pockets the profit and never has to physically touch the bracelet. They simply act as a middleman.

What Are the Benefits of Dropshipping?

There are several benefits to running a drop ship business.

  • Low start-up expenses: All that's really needed to start a dropshipping business is an online storefront. There's no need to spend money upfront on products or warehouse rental to store merchandise.
  • Smaller team required: Since all orders are completed by a third-party, there's no need to hire additional staff for managing inventory and shipping products.
  • Time efficient: After the initial store setup, there's significantly less time and effort required to run a dropshipping business compared to a traditional store.

What Are the Disadvantages of Dropshipping?

Being a dropshipper isn't perfect and there are a couple of potential problems that could arise from using this business method.

  • Bad quality products: Because dropshippers never see the products they sell to their customers, there's always the chance the product's quality won't meet customers' expectations. A professional dropshipper will always order a sample product for themselves before selling it.
  • Untrustworthy suppliers: Those new to dropshipping will often run into several unreliable suppliers or even scammers before finding one they can trust. This can result in late shipping or no product being delivered to the customer at all. Some products may also look significantly different than promised in photos and many of the reviews may have been faked. This can frustrate or anger customers.

How to Spot Drop Ship Stock

The easiest way to tell if an online store is using a dropshipping business model is to inspect the packaging your product comes in and where it was sent from. For example, if the website you bought something from is based in New York and it's sent from Beijing, it's almost a guarantee the store is a dropshipping business.

However, most established dropshippers will have their suppliers post orders with custom branded packaging and paperwork, so it can sometimes be hard to tell if they're implementing a drop ship business model or using a traditional one.

Where Do Dropshippers Buy Their Products?

People who run a drop ship business can order their products from any store they want, as dropshipping is a style of business and not a specific place to purchase goods. However, there are two main online stores that are popular with dropshippers due to their product variety and inexpensive costs:

  • AliExpress: AliExpress is by far one of the most popular online marketplaces used by dropshippers. The majority of its sellers are based in China and sell domestically-made items that are massively discounted when compared to products made in the U.S. Many sellers on AliExpress also ship stock for free, which is very attractive to dropshippers.
  • Oberlo: While AliExpress can be used by anyone to buy items at a cheap price, Oberlo specifically targets dropshippers and supports native integration with Shopify storefronts. This integration allows Shopify users to add items from Oberlo to their own store with the click of a button, and many of the merchants are verified for legitimacy and reliability.