What is dropshipping? How the model works, with pros and cons

Dropshipping is a fulfillment model where a store sells products it doesn't keep in stock. When an order comes in, the store forwards it to a supplier, who ships the goods directly to the customer. The store owns the listing, the price and the customer relationship; the supplier holds the inventory.

How dropshipping works

  1. You list a supplier's products in your storefront at a retail price you set.
  2. A customer places an order and pays you.
  3. You pass the order to the supplier and pay its wholesale price plus any fulfillment fee.
  4. The supplier ships to the customer and sends you the tracking number.

Your gross profit per order is the retail price minus the supplier's price, shipping, payment fees and any refunds you absorb. In a hypothetical example, a lamp sold for $60 that costs $32 from the supplier, $8 to ship and $2 in payment fees leaves $18, before advertising and overhead.

Why it matters for an online store

Dropshipping lowers the cash you need to start, because you don't buy stock up front, and it lets you test products or widen a catalog without warehouse space. The trade-off is control. You depend on the supplier's stock levels, quality and delivery speed, and because the products are rarely exclusive, competitors can often list the same item, which pushes prices and margins down.

Your obligations stay with you

Customers, card networks and regulators treat the store as the seller, not the supplier. In the United States, the FTC's Mail, Internet or Telephone Order Merchandise Rule requires a reasonable basis for any shipping time you advertise, or for shipping within 30 days if you state none. If you can't meet it, you must ask the customer to consent to the delay or refund them promptly. FTC staff guidance says that when a drop shipper causes a violation, the seller is liable.

In the EU, the Consumer Rights Directive requires the trader to deliver without undue delay and no later than 30 days after the contract, unless agreed otherwise, and gives consumers 14 days to withdraw from most distance contracts. Your returns policy has to work even when your supplier's does not.

Common mistakes

  • Promising delivery times the supplier can't meet, which leads to cancellations and chargebacks for products not received.
  • Overlooking taxes and duties on goods shipped from abroad, which can surprise customers at delivery (see VAT).
  • Updating stock by hand instead of syncing supplier inventory to each SKU, which causes overselling.
  • Pricing on product cost alone and forgetting advertising cost per order, which can wipe out a thin margin.

Dropshipping is a fulfillment choice, not a brand strategy: a DTC brand that makes its own products can also use a third party to ship them.

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