To some, it sounds like a pipe dream. No purchasing and
storing inventory? No having to deal with fulfillment? No
paying for a third-party logistics service? That’s where
dropshipping, a hands-off fulfillment model, shines.
Unlike in-house and
outsourced fulfillment, dropshipping is all about working with suppliers to sell
their products — that’s it. You source the products you want to
sell and mark them up on your site. When an order arrives to
your business, you route it to the supplier, purchase the
product, and they ship it out.
It’s mighty appealing. But there are some drop offs when
dropshipping. The phrase “you’re only as good as the company you
keep” is important here — when dropshipping, you’re relying
heavily on your supplier for two of the most important parts of
selling: the product itself and getting it to the customer.
The Upsides to Dropshipping
Shipping orders yourself via JIT means no relying on a
third-party — like a logistics provider or dropshipper — that
might put quality control at risk. You or your employees are
shipping the product; you control how an order’s shipped and
don’t need to worry about another service messing it up.
That control gives you the power to brand, something that
fulfillment models like
outsourced fulfillment and
dropshipping don’t guarantee.
Choose to brand your orders as you please with custom-branded
materials — package the order in logo-emblazoned boxes or add
thank you notes to shipments. It’s all in your power.
Dropshipping is appealing to e-retailers of all sizes, whether
they’re just-starting-out or robust. It’s all of the glitz and
glamor of online marketing without the baggage of storing and
the slog of fulfillment. There’s no cash tied up in inventory
and none of the tediousness of picking, packing, and shipping
Here’s a rundown of the benefits it offers:
No upfront, overhead costs
There’s no need to purchase inventory beforehand. You won’t need
to rent a warehouse. Heck, you don’t even need a living room;
you could run a dropshipping business from your car with an
internet connection. All you need to do is find a supplier,
market their goods on a site, and purchase product from your
vendors once an order arrives.
It’s a step further than outsourcing
Like outsourced fulfillment, your dropshipper manages all
aspects related to storing and shipping product. But unlike
outsourced, you won’t have to purchase inventory ahead of actual
sales or pay a bunch of storage fees.
Sales and marketing only
When dropshipping, the time-consuming tasks of storing, packing,
and shipping orders do not exist. That leaves plenty of time to
focus on the sexier aspects of ecommerce that lead to sales,
like online marketing, customer relations, and brand management.
Flexible product catalogs
There’s no requirement that you work with a single dropshipper.
It’s perfectly possible to leverage multiple suppliers at the
same time, selling a variety of products. Your options are
limited only by how many suppliers you can juggle.
Easy product testing
E-retailers with their eyes on a new product but who are
hesitant to buy up inventory can dropship to get an idea of the
product’s viability without the financial risk of purchasing
The model may sound like a walk in the park, but there are some
major tradeoffs involved with dropshipping. Although it’s a huge
plus for some, control over fulfillment can be a cause of
concern. Of all the fulfillment models, it offers the least
An e-retailer that’s dropshipping has no control over the
quality of a product or an order, and it’s to a greater extent
than other models. Unlike in-house or outsourced fulfillment, at
no point in time does a dropshipping e-retailer own or touch the
product, their very source of revenue.
It’s one thing to cede some control for the sake of not having
to deal with inventory and shipping, but a whole different thing
to hand off so much control to the supplier. That heavy reliance
can be a source of anxiety.
And, just like the outsourced model, the fact that you have no
say in fulfillment can create a few issues:
The e-retailer’s job when dropshipping is to successfully make
sales, and branding helps accomplish that. But employing branded
packaging materials? Good luck. Because they own the product,
sell to many other businesses, and control fulfillment,
suppliers may be unwilling to add your branded touch to their
Lack of inventory visibility
Not only is inventory stored away from you and with your
supplier, you don’t own it. You’ll definitely want to know if
they have inventory on hand, but because of those two factors,
you’re relying completely on the supplier for quantity updates.
And the issue of inventory visibility is only compounded if
you’re working with multiple suppliers.
Complicated returns management
Returned orders are inevitable in ecommerce, but just who will
the return be sent to, you or the supplier? Because you’re not
involved in fulfillment, it’s likely to be sent to the latter,
robbing you of insights into what went wrong and complicating
your customer relations. Plus, if a supplier must restock the
return, they’re likely to charge you a bit (we’ll get to costs
When you boil it down, a dropshipping e-retailer is a middleman
because they have no investment in inventory. The fact that
you’re essentially a dispensable service brings an element of
risk — the supplier can choose to “cut out the middleman,” so to
The second you send a successful order over to the vendor,
they’ve got a customer’s information. While it would definitely
undermine their credibility amongst merchants, it’s perfectly
possible for a supplier to cut the retailer out of the picture
unless it’s specifically forbidden in a Negotiated Service
And if they don’t want to cut the middleman (you) out, they can
easily replace you. Suppliers work with a variety of retailers
to get their goods out of the warehouse, and they tend to prefer
the ones that make the most sales. For the most part, they won’t
be picky — every sale is a good sale — but it’s important to
know that they’re working with other retailers like yourself.
Why else is it important? Other than the fact that they can
replace you, it means that you’re likely in price competition
with other similar retailers, online or offline, that sell the
same products. Margins when dropshipping can be mighty slim, and
the more retailers tapping the same supplier’s stock, the more
likely a race-to-the-bottom will occur.
Before picking a supplier, you should also vet their fulfillment
effectiveness in some way, whether it’s a firsthand look at
their process or reviews by other merchants that have worked
with them. If shipments are poorly handled — whether they’re not
reaching the customer on time or arriving damaged — it will
damage your business and brand far more than the actual vendor
who’s invisible to the customer.
At the end of the day, both e-retailer and dropshipper are in a
mutually beneficial partnership. But the latter has more
leverage in the dropshipping model because they own, store, and
fulfill the product.
Pick Your Supplier Wisely
Before we get into what you should ask your prospective
supplier, let’s briefly cover the supply chain. As a
dropshipper, you’ll be working with two potential suppliers, in
most cases the latter: manufacturers or wholesalers.
Manufacturers are the very source of the product, the people
creating it. They do not sell directly to consumers. Instead,
they sell in bulk to wholesalers or large retailers that
purchase high quantities. By selling in bulk, the manufacturer
frees up space for more products, has less cash tied up in
inventory, and can offer discounted prices.
Wholesalers will purchase product in bulk from those
manufacturers at discounted prices. They then stock and take
care of the product, and sell it to retailers (such as a
dropshipping e-retailer) at a reasonable markup.
You’ll be working with one of these two parties, but only if
they’re willing to dropship their products — because you’re
relying on your supplier to handle inventory and fulfillment,
you’ll only be able to sell their products if they’re willing to
dropship them. Some are also picky, only choosing to work with
retailers that buy up a lot of inventory at once.
As you go about finding your supplier, ask yourself these
questions to ensure they meet your demands:
How will they receive my orders?
Because you’re routing orders to them for fulfillment, quick
communication with your supplier is big. Does the supplier only
accept dropshipment requests in email form? Do they require a
call? Can they be integrated with your sales channels or order
management system for automated routing? How exactly they
communicate with you is crucial.
Are they located near my target customers?
You won’t be shipping, but you’ll be paying for it. Choose a
supplier with a warehouse located near your target market to
reduce those costs. If your target market is anyone, look to
centrally-located suppliers (think Kansas) to ensure 2 to 3 day
delivery across the country.
Are they efficient?
A no brainer, you’ll want a supplier that fulfills effectively
and without error, especially if you want to prevent returns.
Can I get a look at the product and process?
To be certain that their fulfillment quality is on par with your
standards, check out the supplier’s facilities if you can. And,
before even conducting business with them, ask for product
samples if possible. If they try to charge you for a sample,
that’s a red flag!
Are they understanding and supportive?
This is a relationship, but when we say understanding and
supportive, we mean do they know their industry (whatever
markets their products are in). Check if they also have
dedicated representatives to assist you if something comes up.
Finding suppliers is notoriously difficult because they do a
poor job marketing themselves. But there are quite a few
directories on the dropshipping scene that collect dropshipping
wholesalers, manufacturers, and all of their products for easy
access. Here are some to take a look at:
As per usual, a key disadvantage to this model is the cost.
Suppliers will want to be compensated for their services, even
if you’re doing the work to get the product off the shelf.
Dropshipping doesn’t come with quite as many costs as the other
models — after all, you won’t have to deal with buying and
storing all that inventory — but there are some critical
expenses to be aware of.
When an order is made, you will spend a bit purchasing the
order’s product(s). That’s the biggest cost on your end, but —
as most merchants understand — margins are what matters most,
especially when dropshipping.
The money you make dropshipping is all about margins, and
they’re slimmer than using other models like in-house or
outsourced fulfillment. You’re buying your product from a
third-party, most likely a wholesaler that bought it from a
manufacturer. It’s all a game of margins and markups.
As is the case with any business, the balancing act is ensuring
that your prices are affordable enough to get consumers buying,
yet high enough to have substantial margins. Pricing depends on
many factors, but the actual product is what tends to matter
To put it bluntly, margins can fluctuate wildly depending on the
product you’re looking to sell, and, as many industry-leaders
suggest, niches are the key to securing high margins. Niche
products are those that fit in a specific, narrow market.
For example, basic electronics tend to have slim margins due to
their wide availability. But something specific, like a
remote-controlled toy boat, maybe even an entire site
dropshipping remote-controlled products, is likely to a)
separate you from a competitive, crowded market that bogs down
prices and b) provide you with enough of a product-centered
brand to warrant above-average prices that reap good margins.
And because the money you’re making is directly related to your
product, the supplier is (once again) very important. Selecting
one with affordably-priced, dropshippable products is key.
Usually your suppliers will be wholesalers, and they’ve
purchased a ton of product from a manufacturer at a cheap price.
Get an idea of how much the product is sold for by manufacturers
to determine just how high the wholesaler has marked up the
Suppliers are fulfilling orders for you, and that’s going to
come at a cost. Like an
outsourced third-party logistics provider (3PL), you can expect a fee for every order fulfilled. Once the
supplier picks, packs, and ships the product, they’ll tack on a
per-order cost that varies depending on packaging materials
involved and the actual cost to ship the product. The per-order
fee can range from $2 to $10, potentially more if the product is
large or complex. It depends mostly on the product and where
it’s to be delivered.
Those directories listed earlier that you can use to easily
source suppliers and products? They want in on the action, too.
Some will charge based on monthly use, ranging from $25 to $100
depending on the level of service, and others will charge for an
entire year’s worth of access, which could be anywhere between
$200 and $1,000 depending on services rendered.
Fair warning, though. If a wholesaler or manufacturer (not a
directory that collects the two’s products in a single place) is
trying to charge you a membership fee, that’s another red flag.
An e-retailer and dropshipping supplier work together for mutual
benefit. Charging the merchant for the privilege of doing
business is a sign of either a money-gouging partner or a scam.
Some of those dropshipping suppliers will require minimum orders
before working with you, and, although it isn’t a cost, it will
have some financial repercussions. A minimum order is when a
supplier requires the retailer to purchase a certain amount of
product before doing business with them.
Minimum orders come in two flavors. The first requires the
e-retailer to purchase a certain amount of product before
working together. The second is a minimum initial order size
that applies to the very first order a retailer places with the
Minimum orders are usually made to make sure that an e-retailer
means business and has every intention of selling a supplier’s
products. The vendor is sitting on a lot of product and
fulfilling orders gets expensive, so having the e-retailer buy
up some inventory first is like a security deposit. That minimum
initial order size is similar in that it helps filter out any
e-retailers that aren’t serious.
This can irritate some e-retailers, because both instances are
similar to buying inventory, something many dropshipping
merchants are trying to avoid. By purchasing products without
orders at-the-ready, you’re essentially tying up your cash in
inventory until orders arrive. That’s why it’s very important to
pick suppliers that meet your needs as an e-retailer. Your
relationship is everything.
First thing’s first, let’s take a look at how the dropshipping
model flows. It’s relatively straightforward, other than the
fact that you won’t be storing inventory and you’ll have to
route orders to the supplier.
Partner with suppliers
When dropshipping, relationships are everything (I’m
sure the phrase is getting old already). The
dropshipping suppliers you choose will be based on the
products they carry and pricing they offer.
Make some sales
Your job as a dropshipping e-retailer is to effectively
market and sell the supplier’s products. No fulfillment
for you. Just sell it by branding, content and SEO
marketing, and all of the customer-facing functions of
running a business.
Route your orders to your suppliers
The most important part. There are a few ways to route
orders, and they’ll usually depend on the supplier’s
preference; phone call, email, or integration.
Phone call — Straightforward, you’d
call your supplier to place a verbal order. It’s not
exactly efficient, it’s a little archaic, but it’s out
Email — The most common form of routing
is through email. An e-retailer processes an order on
their sales channel or order management system (OMS) and
forwards the order information to their supplier.
Integration — A potentially expensive
and automated way of routing orders is by building an
integration between a sales channel or OMS and the
supplier. It typically costs a sum, but it means every
order made on any sales channel automatically makes its
way to the supplier for fulfillment without the need for
Suppliers fulfill their orders
The supplier receives your orders, whips up the
packages, and ships them out to your customers. Order
tracking info is then relayed back to you via email or
through your integrated sales channel(s) or OMS.