What it means
In dropshipping, the retailer lists products and receives customer orders, but a supplier stores the goods and ships them to the buyer, so the seller may never handle the physical product. That reduces the capital tied up in stock, but it also gives the seller less direct control over packaging, dispatch and inspection.
Shopify's fulfilment guide describes how order details pass to the supplier, which then ships directly, and its legal guidance reminds sellers to assess laws and obligations. The US Federal Trade Commission's mail-order rule is an example of jurisdiction-specific shipping and refund requirements, and US timing rules should not be assumed to apply to every country.
The seller is the customer-facing business in many arrangements, setting the listing, price, delivery promise and support process, so if the supplier sends the wrong item the customer usually contacts the storefront. The retail contract and local consumer law determine exact rights, but outsourcing fulfilment is not a free pass on service.
Supplier selection matters, so check product samples, safety documentation, stock reliability and how tracking is shared, and test an order to the target market before scaling advertising because a catalogue photo can hide poor materials or inaccurate dimensions. A cheap wholesale price means little if returns are frequent.
Inventory visibility can also be stale, since a supplier may sell the last unit to another retailer before the storefront's feed updates, so the seller needs a way to pause listings or offer a truthful alternative rather than continue taking orders for an item that cannot be fulfilled on the promised terms. Shipping times should include supplier processing and carrier transit, with cross-border customs and taxes adding delay, and the seller should state the destination and what the customer may pay on arrival, subject to local disclosure rules.
A claim of "two-day delivery" based only on carrier transit can be misleading. Price must cover more than wholesale cost, so add supplier shipping, platform fees, payment processing, advertising, customer service and expected refunds; if a product sells for $100, costs $55 from the supplier and incurs $10 shipping plus $15 other variable costs, simple contribution is $20 before fixed overhead, and a $45 gross spread is not the actual profit.
Returns require a defined route covering who authorises a return, where the customer sends it and who pays postage for defective goods. A supplier may accept only unopened items while local law grants broader customer rights, so the seller should reconcile these terms before listing the product, not after a complaint.
Product safety remains important too, since an item requiring certification or warnings in the customer's market needs evidence, and an overseas supplier's assertion that it is "compliant everywhere" is not enough, so products whose legality or safety cannot be checked should be avoided. Branding and packaging can affect trust, because a customer ordering from one store may receive a parcel with another company's invoice or logo, so packing slips and the use of customer information should be agreed, since a supplier with access to buyer details should follow data-protection and contract requirements.
Multiple suppliers increase complexity, as a single order may arrive in separate parcels with different tracking numbers and delivery dates, so the customer should be told what to expect, and order-level records should link the customer payment, supplier order, tracking number, delivery evidence and any refund, because a spreadsheet that only records sales can hide late orders and duplicate refunds. Dropshipping does not guarantee low risk or quick wealth, since advert costs can rise, quality varies and rivals may list identical goods, so contribution should be tested by product and customer cohort, and a workable operation makes the customer promise first, vets products and fulfilment, prices all variable costs and owns the customer response.
In practice
Real-world examples.
Example
An online store lists garden tools from a supplier's catalogue without buying any stock. When a customer pays, the store sends the order details to the supplier through an integration. The store sets its own price and shows the delivery estimate agreed with the supplier.
Example
A supplier ships each order directly to the customer in plain packaging with the store's name on the packing slip. The store receives the tracking number and passes it to the customer. If a parcel is damaged, the store handles the complaint and claims reimbursement from the supplier separately.
Example
A supplier's slow dispatch means orders for a phone accessory take two weeks to arrive. Customers leave poor reviews for the store, not for the supplier, because the store was the seller. The owner pauses the listing and switches to a faster supplier.
Formula
Calculation
Profit per order = selling price - supplier price - payment fees - marketing cost per order.
Worked example. A product sells for $100, the supplier price is $55, payment fees are $3 and marketing cost per order is $25. Profit per order is $100 - $55 - $3 - $25 = $17.
The profit margin on that order is $17 / $100 = 17%. If customers return 10% of orders and each return costs the seller the $3 fee plus $12 in lost shipping and handling, the expected return cost per order is 10% x $15 = $1.50, which lowers profit to $15.50 per order.Case study
Seen in the real world.
This illustrative and entirely fictional case follows Sand & Stem, an invented online home-goods shop testing a new lamp without stocking it. It checks the supplier's availability, delivery times and return address before listing the item. When a parcel arrives damaged, the shop handles the customer's complaint and seeks supplier reimbursement separately. The case does not guarantee margin or delivery speed.
Watch out
Common mistakes.
- Advertising delivery times without verifying the supplier's actual stock and dispatch process.
- Assuming the supplier, not the storefront, will handle every customer complaint and legal duty.
- Calculating margin without shipping, payment fees, refunds and advertising costs.
Questions
People also ask.
What is dropshipping?
Selling products that suppliers ship directly to customers.
What is the main advantage?
No need to hold stock.
What is the main risk?
Dependence on the supplier for quality and delivery.
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