What Is Dropshipping: A Detailed Breakdown for 2025

Article by Daniel Threlfall28 May, 2025

Are you seeking an online business opportunity? Dropshipping might be the way to go.

The dropshipping market is expected to nearly double, to $476.1 billion by 2026 from $243.42 billion in 2023. This growth suggests a promising future for aspiring ecommerce entrepreneurs.

What is dropshipping, and how does it work? This guide covers everything you need to know to launch your own dropshipping business.

What is dropshipping?

Dropshipping is an ecommerce strategy where you sell products on your website without having them in stock. Instead, when a customer places an order, you forward it to a supplier or manufacturer. They then ship the product directly to your customer. In this setup, you act as the intermediary between your customer and the supplier.

Dropshipping is great for entrepreneurs because running a store doesn't demand as much operational capital as the traditional retail model. You don't have to open a brick-and-mortar store, hire employees, pay overhead, or stock products. Instead, you open an online store and buy from suppliers who already have products and warehouse space.

Current estimates show that dropshipping brings in more than $300 billion in ecommerce sales each year.

What is a dropshipper?

A dropshipper is the business or person who takes customer purchases and sends them to a supplier for fulfillment.

Dropshippers typically run online stores to market and sell products. When a customer buys something, the dropshipper orders it from the supplier.

Picture owning an online store that sells pet products. If someone purchases a cat collar, you forward that order to your supplier, who ships it from their warehouse.

(Some sources might call the supplier a "dropshipper," but here, the focus is on those selling dropshipped products.)

What is a seller of record?

The seller of record is the business or individual who officially sells the product to the customer. As a seller of record, you handle pricing, payment collection, tax compliance, and following local regulations.

In dropshipping, you serve as the main contact point for customers. Your business information appears on invoices and packing slips, not the supplier's. You also manage customer support issues like returns and refunds.

When someone orders a cat collar from your pet store, you forward the order to your supplier. The supplier packages the item with a slip showing your business details and ships it directly to the customer.

What are dropshipping suppliers?

Dropshipping suppliers handle orders for retailers by storing products, packing them up, and sending them to customers. They take care of the logistics so you don't have to.

You might partner with a single supplier or use a platform that lists multiple suppliers, like AliExpress. Some manufacturers also double as dropshipping suppliers.

For example, if you run a home goods store, the supplier that packs and ships a set of candles to your customer is your dropshipping supplier.

What about wholesalers?

Wholesalers don't play a role in dropshipping. Instead, they sell large quantities of products to retailers, who then sell them to customers.

If your home goods store buys a bulk order of artisan candles at a discounted price, stores them, and then sells each one individually to customers, you're working with a wholesaler, not a dropshipping supplier.

How does dropshipping work?

Dropshipping is essentially a hands-off approach to selling products online. You set up a customer-facing store and leave the remaining duties to a supplier.

Here's how the standard dropshipping process works:

1. Partner with a dropshipping supplier

Find a supplier that offers products you want to sell. After signing an agreement, they handle storage, packaging, and shipping of customer purchases. You can work with individual businesses or use a dropshipping app to connect with multiple suppliers.

2. Set up your online store

Create your online store and list products from your supplier at prices you decide. Add a dropshipping app to keep product listings current and automatically forward orders to suppliers.

Popular dropshipping apps include:

Collective, which connects eligible merchants with top Shopify brands
DSers, which links stores to AliExpress
Zendrop, featuring over a million products
Spocket, with suppliers from the US, Europe, Brazil, and India
AutoDS, which uses AI to help find popular products

3. Receive and process orders

When customers visit your store and place orders, the checkout process happens normally. They pay, receive confirmation, and wait for delivery. You then forward order details to your supplier.

4. Supplier fulfills the order

The supplier prepares and ships the product directly to your customer. Many offer branded invoices and custom packaging to enhance the unboxing experience.

This dropshipping business model is straightforward. But remember, it's not a shortcut to instant wealth. Like any ecommerce business, it needs hard work and dedication to grow. If you do it right, dropshipping can become a reliable way to handle orders and shipping for your growing ecommerce store.

Benefits of dropshipping

1. Low startup costs

Because you don't buy inventory upfront, dropshipping requires minimal initial investment. Many stores operate from home with just a laptop, making it an attractive small business option.

2. Easy to set up

You don't need prior business experience to start a dropshipping business. If you take some time to learn the basics, you can quickly get your business off the ground, picking up more knowledge as you go.

Dropshipping removes many retail hurdles—you won't need to manage a warehouse, monitor inventory, or handle packing and shipping. However, successful dropshippers still keep a close eye on the fulfillment process to ensure that customers receive their orders smoothly and on time.

3. Wide product selection

Use dropshipping to offer a wide range of trending products to your customers. With no unsold inventory concerns, you can change your product catalog at will. If suppliers stock a new item, you can immediately list it for sale.

4. Location independence

A dropshipping business can be run from anywhere with an internet connection. As long as you can communicate with suppliers and provide timely customer support, there are few restrictions on where you live and work.

5. Easier to test

Want to try selling a new product but not sure if it'll be a hit? Dropshipping lowers the risk. You don't have to buy a bunch of stock upfront. Just list the product and see how it does. If it sells well, great! If not, you can easily remove it from your store without losing much.

6. Easier to scale

Scaling a traditional retail business takes forward planning. If many orders arrive unexpectedly, it can be challenging to accommodate them, and you may quickly sell out of inventory. Dropshipping businesses tend to scale more efficiently since suppliers handle the fulfillment.

7. Strong supplier network

Dropshipping opens doors to forming strong relationships with suppliers. These connections can be invaluable for future business ventures. Imagine you want to start a new product line or a completely different business. Having established supplier relationships means you have a network ready to support your new ventures.

Disadvantages of dropshipping

1. Low profit margins

The accessibility of dropshipping can lead to intense competition, resulting in lower profit margins as businesses undercut each other. Since starting a dropshipping store is easy and inexpensive, many merchants sell their products at low prices to attract customers.

You can address this issue by choosing the right products and selecting a dropshipping niche that's not oversaturated. Focus on aspects beyond price, like offering exceptional customer service, building a strong brand identity, or curating a unique product selection.

2. Inventory volatility

While dropshipping offers inventory management benefits, it also exposes retailers to sudden changes in product availability. With suppliers fulfilling orders for multiple retailers, inventory levels can fluctuate unexpectedly—something that's less of an issue when you stock your own products.

3. Shipping complications

When you run a dropshipping store with multiple suppliers, you'll face some shipping challenges. Working with multiple suppliers can complicate order fulfillment. If a customer orders three items from three different suppliers, you'll need to calculate separate shipping costs and taxes for each. The items may also arrive at different times.

For dropshippers sourcing products from international suppliers, cross-border shipping can introduce additional complexity. Understanding tariffs and Harmonized System codes is crucial when working with international suppliers. These codes determine what import duties apply to your products. Misclassified products can lead to unexpected fees, customs delays, and unhappy customers.

4. Limited branding and customization

In dropshipping, you don't get much say in how the products are made or look. The products are usually designed and branded by the dropshipping supplier, not you.

Sure, some suppliers might let you tweak the products a bit. But even then, they're the ones in charge of the actual product. Want to change or add something? Often, you'll need to order a bunch of them to make it work for the supplier, both practically and cost-wise. So if you're aiming to create a unique brand or custom products, dropshipping can be limiting.

5. Supplier mishaps

Have you ever been blamed for something that wasn't your fault but had to accept responsibility for it anyway?

Even the best dropshipping suppliers make mistakes fulfilling orders—mistakes for which you have to take responsibility and apologize. In addition, mediocre and low-quality suppliers will harm the customer experience via missing items, botched drop shipments, and packing or product quality issues, which can damage your business's reputation.

Should you give dropshipping a try?

Wondering if dropshipping might suit your business? Here are some signs that it could be a good fit:

You enjoy marketing

If you're skilled in SEO or social media, dropshipping could align with your strengths.

The main focus for dropshippers is driving traffic to their online store through platforms like Google, YouTube, TikTok, and Instagram. You'll need to use your content creation skills and understanding of search algorithms to connect buyers with the products you're selling.

You're focused on sales, not branding

If your priority is generating a high volume of sales rather than building a unique brand, dropshipping could suit your approach.

In traditional retail, branding plays a key role—stores work hard to make their products and packaging distinctive. But with dropshipping, branding opportunities are limited. It's more challenging to create a unique customer experience when your products are generic and packaging isn't customized.

You prioritize variety

Dropshipping allows you to offer a wide range of products without worrying about inventory.

However, this flexibility comes with less control over product quality. Aside from ordering samples, you won't have much influence over how products are made.

You're OK with slower shipping

Many customers expect quick delivery, which can be a challenge if you work with international suppliers. Shipping from places like China can take longer, potentially affecting customer satisfaction and your profit margin.

If you can find domestic suppliers or manage customer expectations about delivery times, dropshipping could still be viable.

You're ready to handle customer service

Even though you're not fulfilling orders yourself, you'll still be the main point of contact for customer issues. This means dealing with delays, defects, and returns—situations that are often beyond your control.

If you're prepared to manage these challenges and keep customers satisfied, dropshipping could be a good fit for your business.

You're ready to grow

Dropshipping isn't just for new stores. It's also a tool for established retailers looking to expand. By partnering with a supplier that can handle fulfillment, retailers can add complementary products to their inventory without sourcing, purchasing, or stocking them.

How much do I need to invest to start dropshipping?

Getting into dropshipping generally costs less than other ecommerce methods since you don't need to stock up on products right away. But, there are a few expenses to keep in mind, such as:

Website domain: The price can vary depending on where you get it, ranging from $5 to $25 or more per year.
Monthly hosting: Depending on the service provider, costs can start at around $5 a month and go up to $80 or more.
Advertising budget: You set your budget—daily, weekly, or monthly. Costs depend on the competition for your chosen keywords, with more competitive terms costing more per click.
Product samples: These are often cheaper than the regular price but can vary widely. A sample t-shirt, for example, will be less than an electronic gadget.
Software tools: Using tools for product research or keyword analysis can give you a leg up. Prices for these range from $10 to $200 or more each month.

The profit potential in dropshipping can be significant, but it depends on demand and competition in your niche. Focusing on effective marketing strategies in a niche with high demand but low competition can boost your earnings.

Dropshipping on the side

Thinking of a side hustle? Dropshipping fits the bill. It's flexible enough that you don't need to give up your day job. Many people run their dropshipping company alongside a main job that ensures a steady income. This approach allows you to venture into entrepreneurship with minimal risk.

Before you get started, make sure your employer is OK with you having a side business. Quick check: Look over your company's policy on side jobs and any contracts you've signed. No conflict of interest? You're set to start.

You won't need to pour endless hours into dropshipping. A couple of hours each day can get you up and running. But, balance is key. If you're swamped with your regular job, squeezing in time for dropshipping might be a bit of a stretch. It's about finding the right rhythm for your lifestyle.

Dropshipping full-time

Ready to go big? Dropshipping can also be your main gig. Start small, build your customer base, and gradually increase your sales. When the time feels right, you can switch from doing it part time to running a 9-to-5 dropshipping operation. Sure, it's more work, but the rewards can be pretty sweet.

A solid dropshipping business can even feel like you're earning passively. And the best part? You're not stuck offering one thing. If you want to, you can explore other side hustles while managing your full-time dropshipping store.

Feeling unsure? Many successful dropshippers started just where you are now. You don't need a ton of money or a business degree to make it work. What you do need is a solid strategy, a bit of dedication, and the willingness to learn as you go.

Dropshipping and the customer experience

You've bought products online hundreds of times before, but you've probably never thought about the experience. It's second nature for consumers. As a customer, you don't need to think about it, but as a retailer, you absolutely should.

Retailers can learn a lot by thinking about the ideal customer experience of ordering from a store. This may seem obvious, but if there are any snags in the customer experience, it could spell trouble for you as a retailer. It's important to know what your buyers expect.

Let's pretend you have a business called Fancy Water Bottles, a site called FancyWaterBottles.com, and a wholesaler called Water Bottles Worldwide. Here's what the ordering process would look like from the customer's perspective:

Customer A places an order for a water bottle on FancyWaterBottles.com and immediately receives an email confirmation of the purchase.
After a few hours, up to a couple of days, Customer A receives a notification that their order has shipped. The notification includes tracking information, so Customer A knows exactly where their package is while en route.
Customer A receives the water bottle.

It's the same process you go through each time you purchase something online, and there are two important aspects of this experience.

First, it's simple. All the customer has to do is order the product and pay for it. Everything else, like an order confirmation email and tracking information, is handed to them on a silver platter.

Second: The buying experience is extremely convenient in every way. An online purchase takes just minutes, and customers can browse any retailer's site at their leisure. And if all goes well, the customer won't even have to interact with anyone. It takes the minimum amount of effort to achieve the desired result of getting a product.

This experience is a lot like buying a water bottle at a big box store and using the self-checkout. It's a no-fuss process that doesn't present any problems. This is a big reason why people buy online in the first place, so your storefront has to give your customers that same level of convenience.

Last but not least, the customer never has to learn that any other parties besides the retailer are involved. Think about it. When you buy something online, you think, "I bought a water bottle from Fancy Water Bottles." You don't consider where the retailer got the product or who might be shipping your order.

This is how the dropshipping process ideally should look from the customer's point of view.

Dropshipping in 2025

In 2025, dropshipping remains a popular choice for online store owners, side hustlers, and established retailers. The market continues to evolve, but the core principles remain strong.

The traditional model, where products were sourced cheaply and sold at a markup, is quickly fading. The market is more saturated than ever. New stores emerge daily, ad costs are rising, and competition is fierce.

Moreover, consumers now have faster and more reliable options, like Amazon, which offers one-day shipping on many items. Given the choice between waiting weeks for a product from an unknown website or getting it in a day from Amazon, the decision is easy.

Does this mean dropshipping is dead? Not at all. But it does require a new strategy. Here are some ways to future-proof your dropshipping business:

Sell niche products that aren't easy to find on Amazon. You'll stand out and attract customers looking for something different.
Make sure your suppliers can ship fast. People want their orders quickly, and if you can deliver, they'll choose you over others.
Use targeted Google ads to reach shoppers who are already searching for your products. This way, you're putting your store in front of ready buyers.
Offer clear, detailed product descriptions with high-quality images. Customers want to know exactly what they're buying before they hit Add to Cart.
Focus on excellent customer service. Quick responses and easy returns keep customers happy and coming back for more.
Optimize your site for mobile shopping. If your store isn't mobile-friendly, you'll lose customers who shop on their phones.
Use email marketing to send personalized offers and discounts. It's a simple way to keep customers engaged and encourage repeat purchases.

Getting started with dropshipping

Dropshipping may sound like a complicated puzzle, but once you learn how to do it, it's a smooth process for everyone involved. You, the dropshipping merchant, can do everything remotely and never even touch a single product.

Remember that you don't need any business experience to open a dropshipping storefront (though it doesn't hurt). Many budding entrepreneurs don't ever chase their dreams because they believe they need an MBA or years' worth of experience. This isn't the case. One of the benefits of dropshipping is that you can learn how to do it as you go.

There also are numerous resources that help make dropshipping easy. You can have absolutely zero business experience and still make a profit.

Here are the steps required to start a dropshipping business:

Select a dropshipping business idea.
Conduct market research.
Find a dropshipping supplier.
Set up your ecommerce store.
Decide the legal structure of your business.
Organize your finances.
Launch and market your dropshipping store.

Your dropshipping business may be small at first, but all successful entrepreneurs have to start somewhere. Draw up a strategic plan, evaluate opportunities and costs, and make your business dream happen.

What is dropshipping FAQ

Is dropshipping legal?

Yes, dropshipping is legal. Many global retailers use this ecommerce fulfillment model to sell products without inventory. Just like most physical stores don't manufacture their own products, dropshipping applies the same principle to online businesses. Retailers select and sell products from various suppliers without manufacturing them.

Is dropshipping profitable?

Typical profit margins for businesses dropshipping products from open marketplaces range between 10% and 15%. Established retailers using products like Shopify Collective to dropship between stores can expect higher margins. By finding the right products to sell and fostering strong supplier relationships, you can build a profitable dropshipping business.

How do dropshippers make money?

Dropshipping businesses earn money from the profit margin between what they pay suppliers and what they charge customers. This margin typically ranges from 10% to 15%, though it can vary based on the products and market competition.

What are some alternatives to dropshipping?

Looking for other ways to run your online store? Third-party fulfillment is one option. Buy your products wholesale, then have a service take care of storing, packing, and shipping them. It's great for keeping an eye on quality and offering special deals.

Another path is making your own branded products. You can either spice up dropshipped items with unique packaging or go big by manufacturing your own products. This way, your brand gets exposure and customers remember you.

Or, consider affiliate marketing—you promote products, then earn a commission for every sale through your link. No selling or shipping hassles, just promoting and earning.

Even with these options, dropshipping often wins out. It's simple, low-cost to start, and highly flexible—perfect if you're new to ecommerce or want to try out business ideas with little risk.

What's the difference between dropshipping and retail arbitrage?

In dropshipping, you sell products in your online store without actually stocking them. When someone buys from you, a supplier ships the product directly to the customer.

Unlike dropshipping, retail arbitrage involves buying products from other retailers and reselling them at a higher price. So, when someone buys from your online store, you go out, buy the item from a retailer, and then ship it to the customer yourself.

Both are business models for selling online, but they handle inventory and shipping very differently.

Which platform is best for dropshipping?

Shopify is the best platform for dropshipping beginners. It's user-friendly and integrates seamlessly with major platforms like Amazon and AliExpress. This integration simplifies order fulfillment and shipping, making it easier to manage your business.

Do I need to register my business to use a dropshipping supplier?

You can run a dropshipping store without registering your business, but it could lead to complications. Forming an LLC or another legal entity can help limit your liability and make your business appear more trustworthy to suppliers.

Do dropshipping companies ship internationally?

Many dropshipping companies ship internationally. The shipping times and delivery fees vary depending on the supplier. If you plan to sell to international customers, make sure to check each supplier's policies on global shipping before you commit.