What is Dropshipping: The Business Model Explained

Dropshipping is an order fulfilment practice in which retailers sell products to consumers, typically through online channels, and then source them directly from a supplier, usually a wholesaler, manufacturer or third party retailer.

Instead of buying inventory and storing it, the retailer only purchases an item (from the supplier) after it’s been sold to an end consumer.

In turn, the supplier ships the product directly to the consumer on behalf of the dropshipper. In most cases. the supplier will delivery the order in unbranded packaging.

How Does Dropshipping Work?

The typical workings of a dropshipping business involve selling products through online platforms such as eBay or Amazon, and then sourcing them directly from a manufacturer, wholesaler or in some cases another retailer.

When the dropshipper (aka retailer) sells an item, they order it from their supplier who then picks, packs and ships the product directly to the end consumer without including any paperwork, invoices or company branding, a technique known as blind dropshipping.

Tom runs an online eBay store selling DIY tools and hardware
When a customer purchases an item, they pay Tom directly
Tom orders the product from his supplier for the lower price
The supplier ships the product directly to Tom’s customer
Tom earns a profit for generating the sale for the supplier

What are the Benefits of Dropshipping?

Dropshipping has a extensive list of benefits. Not only does it allow anyone to instantly launch an e-commerce business without investing thousands of dollars on stock, but it’s also much less time-consuming than running a traditional buy and resell retail business.

The supplier handles most of the complicated aspects of fulfilling orders including stocking, prepping and shipping the products, while the dropshipper (you) focus on marketing, generating sales and managing customer service.

No buying stock upfront
Very little start-up costs
No need to hold inventory
Start selling immediately
Postage & packaging is done for you
Returns are easy to manage
Run the business for anywhere in the world
Scale and expand at a raid rate
Make a profit on every sale
More flexibility to test product popularity
No risk of being stuck with unsold stock
Sell in any country you want

What are the Disadvantages of Dropshipping?

Dropshipping is an extremely lucrative business model. However, it also has its fair share of disadvantages. A lack of control over stock levels, restocking times and price changes, as well as product quality and dispatch times are amongst the most common issues for dropshippers.

No control over stock levels
No control over price changes
No control over dispatch times
Difficult to find reliable suppliers
Competition can be fierce
Profit margins lower than buying in bulk
Refunds take longer to process
Can’t use your own product images

Managing a Dropship Business

A dropshipping business requires very little maintenance compared to the traditional method of running a retail or ecommerce store.

The logistics are much less complex or time-consuming, as you won’t have to hire staff, run a warehouse or physically process orders.

Once you’ve found a supplier, created product listings and started to generate sales, the general day-to-day operations of managing a dropshipping business include:

Processing customer orders in a timely manner (preferably the same day)
Uploading or forwarding tracking information when it becomes available (if applicable)
Addressing order problems and processing returns, exchanges or refunds
Regularly communicating with your supplier and the buyer to resolve issues
Following-up with customers after the initial sale to request feedback
Keeping accurate records of sales, profits and expenses for tax purposes
Listing new products and tweaking under-performing listings
Tracking the progress of listings and monitoring price/stock changes
Tweaking existing listings to stay ahead of the competition
Staying up-to-date with policies if selling on marketplaces like eBay

Can Anyone Start a Dropshipping Business?

Due to the low start-up costs and thanks to platforms like eBay, literally anyone can start a dropshipping business, even those with limited time, money or experience.

All that’s required is an internet connect, a passion to succeed and a good supplier to source products from. The addition of an easy to follow guide or tutorial would also be an advantage.

Here at SourceLow we have tons of free guides on dropshipping, including many comprehensive blueprints on eBay dropshipping, as well as Shopify and WooCommerce dropshipping.

How do People Sell Dropship Products?

Most people sell dropship products through an online marketplaces such as eBay or Amazon, while others opt to sell on their own websites.

Marketplaces are great for generating quick sales without having to invest a lot of time and effort on advertising, whereas having your own website is considered a more flexible, long-term solution as it allows for more control.

With a website, you won’t need to worry about marketplace selling fees or performance standards.

How Do I Get Started With Dropshipping?

To get started with dropshipping, you must first decide on what platform you want to sell on. With literally millions of global buyers, eBay and Amazon are two of the biggest marketplaces on the planet

Amazon and eBay are perfect for newbie dropshippers looking to generate quick sales while gaining experience in running an ecommerce business.

While it’s certainly possible to find a supplier and start dropshipping on eBay or Amazon manually, using automation software is a sure-fire way to fast-track your way to profits and eliminate the common issues associated with dropshipping on a marketplace.

From creating listings to managing inventory, tracking sales and repricing products, automation software handles it all. In some cases, the software can even automatically fulfil order and upload tracking information on your behalf.

Alternatively, dropshipping through your own website is another viable option. Many low-cost online store builders make it easy for non-techie people to create a web store in a matter of hours.

Shopify and WooCommerce are two of the most popular online store builders for dropshipping, each compatible with an ever-growing list of automation software programs.

Please refer to out list of the best dropshipping software solutions for more information.

Is dropshipping legal?

Dropshipping is simply a retail fulfilment practice which many sellers, including some well-established companies have been using for years.

Therefore, it’s perfectly legal and does not violate any laws. Check with your local government or ask a legal adviser to confirm (if necessary) for further piece of mind.

How much do I need to start a dropshipping business?

It depends on which platform you’re going to be selling on. Dropshipping requires no investment to purchase to stock, store inventory or fulfil orders.

The only start-up costs associated with dropshipping is for marketing and advertising, as well as any fees for using (optional) automation software or online store builders.

Whether you’re looking to sell on eBay or your own website, the costs will vary depending on software providers and country of residence. In general, you shouldn’t need more than $500 to start a dropshipping business of any type.

How profitable is dropshipping?

Dropshipping can be extremely profitable when done the correct way. Thousands of sellers, including many eBay users earn full-time income with dropshipping.

In fact, many dropshippers have harnessed the lucrative retail model to create 6 or 7 figure incomes. However, just like with any business, it takes time, work and effort to achieve success with dropshipping, and profits are not guaranteed.

Thankfully, with much less start-up costs compared to a traditional retail business in which products are usually purchased in bulk, it’s much easier and often quicker to make a dropshipping business profitable.

Is dropshipping a good business to start?

Dropshipping is a great business to start, as it requires very little start-up cash and comes with minimal (if not zero) risk.

By not having to purchase stock upfront, you can literally start selling as many products as you like and continue to expand your product range at a rapid rate, without being restricted by cash-flow.

Furthermore, you can work on building your dropshipping business on a part time basis, without giving up your primary career. It’s by far the best business opportunity for newbies to ecommerce and those who have limited time, money or experience.

Can I dropship on eBay?

Absolutely, dropshipping is allowed on eBay as stated in their terms in conditions. However, in order to dropship on eBay, you must be sourcing from a genuine wholesale or trade-only dropship supplier.

Sourcing products from another retailer, better known as retail arbitrage is not allowed on eBay. Please refer to our eBay dropshipping guide for more information.

Is it better to dropship on my own website?

While dropshipping on a marketplaces like eBay or Amazon can be highly profitable, building your own store is the better long-term solution.

With your own website, you’ll have full control over your own business and less competition to compete with. You’ll also avoid the high selling fees attached to selling on marketplaces and not be restricted by their selling limits or policies.

For the best chance of building a sustainable and scalable business which has the potential to become a popular, well-known brand, selling on eBay, Amazon and your own website, as well as any other channels is the ultimate solution.

While fine when first starting out, you should refrain from putting all of your eggs in one basket by focusing on one platform exclusively.

How do I find a dropshipping supplier?

Finding a supplier is first step towards starting a dropshipping business. From using a wholesale directory to searching on Google, attending trade shows and joining forums, there’s several effective ways to find suppliers.

For more information, please see our guide detailing 12 easy ways to find dropshipping suppliers. Alternatively, feel free to browse our dropshipping suppliers category which is overflowing with articles on finding reputable dropshippers from multiple locations across the globe.

Whether you want to sell on eBay, Amazon or your own website, we have a supplier to suit.

Where can I sell dropship products?

From selling on platforms like eBay and Amazon to building your own ecommerce store, you have multiple options when it comes to selling dropship products.

While selling on a marketplace can bring in quick sales, building your own website is the better long-term solution, as it gives you full control and more flexibility in terms of managing stock, orders and customer service.

You also won’t be restricted by selling limits, payment holds or performance standards. If you’re a newbie to the world of dropshipping, selling on eBay or Amazon would be a good starting point, while creating your own store should be the eventual goal.

Ultimately, if you want to build a popular and well-established brand, selling through eBay, Amazon and your own website is essential. The more platforms you sell on, the more sales and exposure you’ll get.

How do I choose products to sell?

Choosing the right products to sell is the key to success with dropshipping. Thankfully, not having to risk cash to buy inventory upfront means you have much more flexibility with dropshipping.

As a general rule, you should start with a category you have some knowledge on.

For example, if you’re a regular cyclist, why not tap into the cycling accessories industry? Alternatively, if you have a passion for animals, pet supplies may be your niche.

It’s also best to stick with low-cost products which generate high profit margins, particularly when you’re first starting out.

Can you lose money dropshipping?

While it’s unlikely that you will lose money with dropshipping, choosing the wrong supplier or spending too much money on advertising could lead to losses.

The success of your business will depend on a variety of factors including what products you’re selling, where you’re sourcing them from and what platform you’re selling on.

It’s important to study the free information that’s available on dropshipping. Knowledge is power in any business. The more you learn, the greater chance of success.

Refer to our comprehensive blog posts and guides for more information.

Do I need to use automation software?

While using automation software is not essential to start dropshipping, it’s highly recommend. Not only does software allow you to find products and create listing faster than ever before, it also eliminates the issue of selling products which have either ran out of stock or raised in price.

It’s extremely important to maintain accurate inventory when selling on a marketplace like eBay, as seller defects or negative feedback can seriously damage your business.

Using software is the best way to avoid such issues. However, if you only have a small number of listings and you’re confident prices and stock can be monitored manually, software may not be needed.

Please refer to our list of the best dropshipping software solutions to learn more.

Final Word

Dropshipping is a highly lucrative ecommerce business model, growing increasing popular amongst marketplace sellers and online retailers.

Particularly suited to newbies with limited time or money, it requires no upfront investment on stock, storage space or order fulfilment.

Never before has it been so easy for the average Joe to start an ecommerce business, without breaking the bank, thanks to the power of dropshipping.