What is dropshipping? Get someone else to do the work
What is dropshipping? Get someone else to do the work

If you run an ecommerce business, or are thinking of diving into the online merchant space, you owe it to yourself to learn the ins and outs of dropshipping. Dropshipping is a product fulfillment method that enables ecommerce sites to avoid stocking the items they sell. Instead, when a customer makes a purchase, the business then buys the item or items from a third party, which ships directly to the consumer. In other words, fulfilment is handled by a third-party supplier.

This means your team will never actually handle the goods your customers receive. Dropshipping is a controversial and complicated process, but it can absolutely be the perfect solution for your business if executed correctly. Intrigued? Check out this comprehensive guide to dropshipping by Shopify, creators one of the biggest and best ecommerce platforms.

Dropshipping is currently very popular in the online sales space, and for good reason. As the guide explores in detail, dropshipping requires less startup capital for your business, far less overhead, ease of scalability, and the opportunity to offer a wide array of products. On the other hand, it’s much more challenging to hit high margins, as you are in essence a middle-man. You’re also relying on a third party to provide accurate and on-time shipping to your customers, which can be tricky business indeed.

Shopify’s guide features all kinds of additional information on dropshipping, including advice on the best products for this ecommerce method, tips on finding and working with suppliers, a checklist for starting a dropship-focused business, and loads more valuable details.

Have you had any experience with dropshipping, positive or negative? Let us know your thoughts!

  • Jacob

    Definitely a controversial topic. There’s lots of concerns when dropshipping products, the most important for sellers to consider being profit margins (they’re very slim, if not non-existant), customer satisfaction (not all companies that will dropship for you care about their drop shippers – they make more money on large wholesale orders and often times fumble their dropship orders leaving your customers unhappy when their product doesn’t arrive on time or in the condition they expected) and competition (if you can dropship it, everyone else can as well, which means you’re going to be competing against everyone and his mother – this ties in heavily with profit margins as well, complicating that whole matter).

    For those new to ecommerce, dropshipping is like a beautiful mirage – from far away it looks like there’s something there, but once you get closer the promise evaporates. You really can’t base an entire business off of this type of product sourcing. This is definitely something that can be used to supplement your product offerings for items that you don’t sell very many units of, but it’s definitely not a way you can source all of your products. A better option for those who don’t want to handle the logistics of running a web based business is buying larger quantities from wholesalers and hiring a order fulfillment company to take care of shipping and handling once orders are placed.

    • Ophelie Lechat

      The option of hiring a fulfilment company to handle orders is interesting. In your experience, are the margins similar for dropshipping and for buying wholesale and outsourcing fulfilment yourself?

      • Jacob

        It depends on what you’re selling and how much of it you’re ordering from the manufacturer/distributor at a time. Fulfillment companies are going to charge you a minimum for floor space either in sq. footage or # of pallets, so you’ll be losing money if you’re not stocking larger quantities with them. They charge similar rates for picking & packing as dropshippers, usually calculated as x amount for the first item and then an addon for each additional item picked for each order. If you’re selling items that are less expensive, you’ll either be forced to take a smaller margin, or pass the costs along to your customers, which makes you either less competitive or less profitable. The real advantage here is when you’re ordering larger quantities from the manufacturer/distributor and can afford to wrap the fulfillment costs into your sale price without being undercut by the competion and still maintaining a decent profit margin (difficult). This is much easier to do if you’re selling large quantities of product to your customers at one time, such as in a b2b situation, so that you’re overcoming the initial fees the fulfillment co. charges on each order (prices are generally tiered so that if you’re selling dozens or even hundreds of each item in a single order the fees become much more reasonable in comparison to the overall order total).

        Since the company does nothing but fulfillment, you won’t have to worry about your customers being dissatisfied as they’ll do a much better job than a manufacturer/distributor dropshipping small quantities for you on top of their “real” business. There are tons of these companies and they’re not hard to find, just Google for fulfillment company an you should run across plenty. You may even be able to save some on shipping costs by looking for companies that are working out of the same area as the manufacturer/distributor you’re ordering from, or if ordering from overseas by finding one located nearest to the port where your merchandise will enter the country.

        Whether or not this really is the best way to operate your business will depend on a lot of different factors, including the cost to get your merchandise to the company’s warehouse, their fees, your order sizes and what it would cost you (both in time and money) to do this yourself. The best way to do ecommerce with physical goods will always be establishing relationships directly with either the manufacturer or one of their distributors, then organizing fulfillment yourself. If that’s not an option, fulfillment companies are a better solution as you have much more control over your merchandise and are working with professionals whose sole job is to keep you happy.

  • Dropshipping can be great but you need to keep close attention on your dropshippers. Some are great, others not so much. Have them give you tracking info and send that to your customers immediately so they can track their own packages.

    Also, make sure you carry general commercial liability insurance. If a product you dropship hurts one of your customers (rare but it can happen and the damages can be huge!), you will be sued since you are in the chain of commerce. Commercial liability can be under $1,000 a year and you’re a fool if you run any kind of business without it.

    • “Commercial liability can be under $1,000 a year and you’re a fool if you run any kind of business without it.”

      To further minimize any personal liability, it’s a good idea to setup the company as an LLC or corporation.

  • Jeff Varner

    Drop shipping can work great if you are in the right industry. Make sure the products ship from here in the states and that you can acquire margins between 30-50%. As a person who has owned a multiple million dollar a year ecommerce company that drop shipped I have seen and felt the success.

    As far as being sued..it doesn’t matter if you have the inventory in hand or drop ship it anyone can get sued for any reason. You can sued if the mailman slips on your door mat but yes I agree liability insurance is an excellent idea!

  • I have dropship websites and others where I ship the goods myself. If there was any way at all that I could have them ALL dropship websites, I would do it in a heartbeat. I have not been able to take a vacation in more than three years because I would lose far too much money with the websites that I pack and ship for and it is far too complicated to teach anyone else (I’ve tried; people are not dependable, stupid or both!).

    Anyone who thinks dropshipping isn’t extremely profitable or who thinks the margins are non-existent has absolutely no clue what they are doing. Far too many people take the lazy way out, utilizing “wholesale distributors.” In most cases, you can get the actual manufacturers to dropship products directly to your customers for you. Major retailers like WalMart and huge online presences like Hayneedle have been dropshipping directly from manufacturers’ warehouses for years!

    You can view the article I wrote about how to contact manufacturers to set up a dropshipping account at Scooter Tells it Like it Is – Finding a Supplier (it’s like butter!)

    • Rex

      I also agree 100%. I have been selling dropship products on Amazon for years and a vacation without my Laptop is impossible but hey I am not complaining 🙂 I have great support from wholesale2b.com. Without them I would have to hire 2 or 3 people just to keep up!

  • Another related option is to use Amazon’s Fulfillment (FBA). Buy bulk from your wholesaler, ship to Amazon, and then have Amazon fulfill it – they are generally very good at fulfilling orders 🙂 In some cases, you might be able to get your wholesaler to send the goods directly to Amazon. I have done this for the past year, and it is working pretty well for items with high turnover rate.

  • Drop shipping is a wonderful way to give your webstore a genuine presence, you can show alot of inventory that you don’t need to actually spend any money on sell. That’s great. Of course the obvious should become obvious: 1. Keeping your website synced with a supplier is difficult and time consuming; 2. Dropshipping is adding little value and so absent MAP pricing restraints, pricing quickly becomes a ‘race to the bottom’ and finally 3. In many instances you actually wind up competing with your own supplier for sales if those suppliers sell retail direct.

    That being said, the old adage that 90% of your business is 10% of your product will still apply and those items that your website starts to gravitate toward, assuming sufficient volume exists, gives you the necessary volume to buy that product better.

    When that happens you can start wholesaleing these items, end any price wars, since you buy cheaper, and ultimately drive a larger margin on the product you tend to sell well.

    Dropshipping is a GREAT way to start a low margin, low risk business, it IS however a GREAT doorway to something particularly much more profitable armed with market knowledge gained through dropshipping.

  • If you are someone who enjoys making “brands” and creating compelling storefronts that get people to buy, it’s a great opportunity. Experience tells me to avoid selling items that take time to ship and are fragile, as shipping and customers impatience in receiving the item are the biggest headaches.

  • SP

    Drop shipping looks like an interesting business model for someone like me who is relatively new to online marketing.

    I have read some terrible stories of people getting ripped off by drop shipping scammers. Which course would you recommend to teach me all the ins and outs of drop shipping and where to find honest ande reliable drop shippers?

    Thanks

    • I learned everything I know from Dave Hermansen at storecoach.com. The course is the most comprehensive one I know of on eCommerce – particularly dropshipping. I earn a full time income from my eCommrece websites and am actually the “success” story featured on their home page (yes, that’s my voice in the whiteboard video).

      There are lots of scam courses out there that charge $1,000’s and give you very little. This is the real deal!

  • I use drop ship for two of my websites. Problems I face is keeping tabs of Whats IN stock and whats Out Of Stock. If a person places an order, especially via source such as Amazon, then only to find the product is Not in stock, not only does it affect your website credibility, but also your ratings on Amazon and other shopping channels.

    For one of my sites, http://www.toyswebsite.co.uk, the site is automated so is updated daily, which goes half way to resolving the problems about products not being in stock. However, though a customer may place an order, by the time you have processed the order and authorized it with your drop shipper, there is always a likely hood the product is no longer in stock, once again, affecting your credibility.

    Its also incredibly important to ensure the terms you put onto your website for selling the products, matches and are in line with your drop drop company, in particular, their Returns policy.

    Personally, I’d like to find a product which is fairly niche, has a reputable drop ship company behind it, and one where customer service is excellent and products are mostly available. Can any one suggest something or a source where I can find such thing?

    • A lot of this comes down to the level of communication with your supplier. I get notifications immediately when things are out of stock from one of my suppliers and because of that, I’ve never had anyone purchase something that was not in stock.

      Really, though, what’s the difference between someone trying to buy something online that is not in stock and someone going to the store and seeing that the product is not there? It’s frustrating either way, but that’s life!

  • Irene

    @ the e-mail that brought me to this blog post: “It’s the hottest craze in ecommerce: getting someone else to fulfill your shop’s orders.” Uh no. Dropshipping is not a “new craze” by any stretch of the imagination.

    Go direct to the manufacturer if you want to dropship. The margins will be better and you are directly sourced to inventory availability. It will also help if you work with products you enjoy and deal with inventory that has a low rate of product return.

    Like anything, you have to work at it. But it can be very profitable.

  • Perhaps the better question is, Am I cut out to be in a business of my own?

    At one time I owned 11 Subway Sandwich shops and I can tell you I often heard from a lot of franchisees that it was no way to make money. Others were doing just fine.

    As my Rowing Coach used to say, “if your grandmother is standing on the shore and thinks it looks easy . . .then you are probably doing a good job of it.”

    “Every time I try figure skating I fall down”, someone once said to me. I asked, “How many times have you tried?” . . . . “Twice Now” she said.

    One of the things that stands out for me most in the threads here, is the discussion of competition; and I can tell you, that your competition is staying up late at night trying to figure out how to put you out of business. If a person is not prepared for this, they might instead, try working hard for someone else. If you really are all that good, you will be rewarded handsomely by the right employer.

    Emery Williams

  • J Wilson

    Some considerations with drop shipping are:

    Margin: this has to be good enough to be competitive.

    Returns: if you have low margins then one return can take the profit from 10 sales

    Product: is the product good for dropshipping, will people buy online or do they need to see and feel it.

    Supplier: What is the rep of the supplier, who are they, what are their ethics.

    Supply: Does the product have supply issues, do they manufacture to order etc.

    Restock: Is there a restock charge, is the product difficult to sell if opened.

    Competition: Who are you up against, how much are they spending to be ranked.

    Traffic: What is the cost of Adwords for the keyword terms, is it viable.

    Payment: How will you take money, will a few client complains get your account suspended, can you afford 3rd party payment processors

    Cart: Is the software easy to use, manage, install and upgrade?

    Location: What are the sales taxes for you and your clients, can your cart handle it.

    Country: Will the client be put of from buying from you if you are in a foreign place.

  • Chris

    Considering that one of my main websites is http://dropshippingsucks.com – you can probably speculate my stance on drop shipping (or you can read about it there).

    However, if you find the right niche drop shipping can work. The trend is that most people looking to start a website or eBay business using drop shipping are looking to sell items that simply are better suited to wholesale. Items can can be easily crated/boxed and shipped in quantity and especially small electronic items are not good for drop shipping. However if your site sells large items and expensive items, drop shipping makes sense. I have a friend who sells commercial inflatable “moon bounces” or “bouncy castles” and these are all drop shipped directly from the manufacturer. It simply doesn’t make logistical sense to ship the item (which is big and heavy) two times. That adds unnecessarily to the cost.

    So, even though most people hoping to open a website and compete in a world of LOW PRICE BARGAINS (the web) using drip shopping are going to be quickly discouraged and be hit in the face with reality… Find the RIGHT product and it can work for you.

  • Thanks for sharing our dropshipping guide Ophelie! I really like the discussion going on here about the pros and cons of this type of business. In our guide we were careful to make sure we communicated that dropshipping is not a magic bullet and like most things it requires a lot of due diligence to make it work. We plan to release a bunch more guides this year to help ecommerce entrepreneurs so stay tuned!

    – Mark | Shopify

  • Ophelie,

    Thank you for highlighting the guide I co-wrote with Shopify!

    A few folks are targeting drop shipping in the comments – and like Mark said – it’s not an eCommerce panacea. Like any business model, there are definite downsides.

    But I’ve been using drop shipping exclusively to build a very solid business over the last five years, so it’s definitely possible to do. In fact, much of the advise in the Shopify guide was based on my real-world experiences running drop shipping companies.

    Again, thanks for sharing and I hope your readers find it useful!

    • Ophelie Lechat

      My pleasure, Andrew!
      This discussion is very interesting, and I’m glad people brought up their own experiences with dropshipping, good and bad. Overall, it’s like everything else in business: there are no shortcuts.

  • We just launched our website in march this year and have found drop shipping great for some our high value and weight products.

    Our business – http://www.pranked.com.au – is fairly low margin, high volume, but have found displaying drop shipping products are a great way to increae our product range, monetize traffic and test products to see if we should stock ourselves.

    But highly agree that a bunch of factors come into it and each product / business is different.

  • pichonJB

    Thanks for your article and the comments below. We are trying hard to develop dropshipping in France and Europe and most people have no idea what dropshipping is. But as we go and inform we manage to recruit some e-merchants to join our platform, http://www.ecopresto.com.

    The main hurdle however is people afraid of paying double shipping cost…whereas with enough margin from your dropshipping platform absorbs most of this double cost whenever it occurs.

    Anyway a lot to do in this field, great opportunities for us there.

    Thanks again for this chat.

  • Cpl Of Marines

    What are the up sides to providing a company with drop shipping in other words what are the benefits for me to partner with a company who wants me to drop ship for them?

  • Cheryl MacDonald

    Hi, I started an online business in June – http://www.bubbysteps.com where I sell all kinds of baby products. I have been connected with a few drop shippers, but have received very little interest. I would like to seek your advice on where to go from here? Perhaps where to find a wider range of drop shippers for my business.

  • DonL Banks

    Great blog.Thanks for sharing with us.

  • Jonathan at Difresh Factory

    Check us out, we are a drop shipping manufacturer out of Spain. DIFRESH manufactures cosmetics and beauty products, supplements and more. We have 23 products in our line at the moment. Drop ship anywhere in the world for free. Returns accepted and inventory held in the warehouse. http://dropshipping-usa. Register to be a reseller through the site 100% free or email me at [email protected]

  • riley

    This market is getting so crowded now, but there is still room for new comers. Just have to find the right niche.