What Is Dropshipping and How does it work on Shopify?

Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer. As a result, the seller doesn’t have to handle the product directly.

The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the seller purchases inventory as needed from a third party—usually a wholesaler or manufacturer—to fulfill orders.

How does dropshipping work on Shopify?

Two of the most common approaches for dropshipping on Shopify are to seek out a supplier located in North America, or anywhere else in the world, using supplier databases, or to seek out a Shopify app that connects you and your store to thousands of suppliers.

For the latter, we recommend Oberlo, a marketplace developed by Shopify that helps independent business owners find products to sell. With Oberlo, you can browse AliExpress and import the products that pique your interest directly to Oberlo—which is connected to your Shopify store—with the click of a button.

Once a customer buys a product, you’ll be able to fulfill their order in the Oberlo app. Fortunately, Oberlo automates this process. As the store owner, all you have to do is check that the details are correct and click the “‘order”’ button. The product is then sent directly from the AliExpress supplier to the customer—wherever in the world they may be.

Benefits of dropshipping

Dropshipping is a great business model for aspiring entrepreneurs to start with because it’s accessible. With dropshipping, you can quickly test different business ideas with limited downside, which lets you learn a lot about how to choose and market in-demand products. Here are a few other reasons why dropshipping is such a popular model.

Less capital is required

Probably the biggest advantage to dropshipping is that it’s possible to launch an eCommerce store without having to invest thousands of dollars in inventory upfront. Traditionally, retailers have had to tie up huge amounts of capital purchasing inventory.

With the dropshipping model, you don’t have to purchase a product unless you’ve already made the sale and have been paid by the customer. Without significant up-front inventory investments, it’s possible to start sourcing products and launch a successful dropshipping business with very little money. And because you’re not committed to selling through any inventory purchased upfront, like in a traditional retail business, there’s less risk involved in starting a dropshipping store.

Easy to get started

Running an eCommerce business is much easier when you don’t have to deal with physical products. With drop shipping, you don’t have to worry about:

  • Managing or paying for a warehouse
  • Packing and shipping your orders
  • Tracking inventory for accounting reasons
  • Handling returns and inbound shipments
  • Continually ordering products and managing stock level

Low overhead

Because you don’t have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. Many successful dropshipping stores are run as home-based businesses, requiring little more than a laptop and a few recurring expenses to operate. As you grow, these costs will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.

Flexible location

A dropshipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and customers easily, you can run and manage your business.

Wide selection of products to sell

Since you don’t have to pre-purchase the items you sell, you can offer an array of trending products to your potential customers. If suppliers stock an item, you can list it for sale on your online store at no additional cost.

Easier to test

Dropshipping is a useful fulfillment method for both launching a new store and for business owners looking to test the appetite customers have for additional product categories, e.g., accessories or wholly new product lines. The main benefit of dropshipping is, again, the ability to list and potentially sell products before committing to buying a large amount of inventory.

Easier to scale

With a traditional retail business, if you receive three times the number of orders, you’ll usually need to do three times as much work. By leveraging dropshipping suppliers, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work.

Sales growth will always bring additional work—especially related to customer support—but businesses that utilize dropshipping scale particularly well relative to traditional eCommerce businesses.

Common questions about dropshipping

How much do I need to invest to start dropshipping?

Though it’s hard to predict the exact costs for any individual business, there are a few items every dropshipping business will need to spend money on to get started. Here’s a quick summary of the essential costs. Online store Estimated cost: ~$29/month You’ll need to find an eCommerce platform or website builder to create and host your online store. We recommend starting a Shopify store. 

You’ll be able to effortlessly sync with the Oberlo marketplace to source products, and you’ll get access to our full selection of themes and free branding tools so you can get your business up and running quickly. Domain name Estimated cost: $5-20/year It’s hard to build trust with customers without your domain name. While there are several top-level domains available (e.g., example. shop, example. co).

Online advertising Estimated cost: Scales with your business; we recommend budgeting at least $500 to get started Every e-commerce business should look for ways to reduce their average cost to acquire a customer through organic channels like content marketing, SEO, and word of mouth. But to get started, advertising is usually an essential channel for most product-based businesses. The most common channels include search engine marketing (SEM), display ads, social media ads, and mobile ads.

How do drop shippers make money?

Dropshipping businesses act as product curators, selecting the right mix of products to market to customers. Remember, marketing is a cost you incur, in both time and money, helping potential customers find, evaluate, and buy the right product. You’ll also have to include the cost of providing customer support whenever there’s a product or shipping issue. Last but certainly not least is the original price that your supplier sells the product for. 

With all of these costs to account for, dropshipping businesses mark up individual products in exchange for distribution. This is why suppliers are OK with having drop shippers market their products for them dropshipping stores drive additional sales that the supplier would have otherwise missed out on. To make a profit with your dropshipping business, it’s a good idea to find out how much it costs for you to ‘acquire’ a customer, and price your products with that in mind.

Is dropshipping a legitimate business?

Dropshipping is merely a fulfillment model, one used by many global retailers, and is perfectly legal. Like with any business, satisfying customer expectations and building a brand that resonates with the right audience is still key to long-term success. This question usually comes up due to a misunderstanding of how dropshipping works. Most retail stores you shop in are likely not selling products they manufacture. Dropshipping takes this curated approach and turns it into a fulfillment model fit for an online business. There are, of course, the more fundamental things you need to do to run your business legally. Consult a lawyer who specializes in these matters to ensure you’re conducting business legally in your region.

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