What Is Dropshipping and How Does It Work? (2026)

What Is Dropshipping and How Does It Work?

Dropshipping is a business model where items bought from an online store are shipped directly to customers by the supplier or manufacturer.

ON THIS PAGE

  1. What is dropshipping?
  2. How does dropshipping work?
  3. Should you start dropshipping?
  4. Pros and cons of dropshipping
  5. Dropshipping FAQ

What is dropshipping?

Dropshipping is a retail fulfillment method where online stores sell products without keeping them in stock. When a customer places an order, the store forwards it to a dropshipping supplier who ships the product to the customer.

Dropshipping is an efficient and accessible order fulfillment model but it comes with trade-offs, such as reduced control over the customer experience. Many businesses prefer dropshipping because it removes costs like warehouse storage and unsold inventory.

It's estimated that dropshipping generates more than $370 billion in ecommerce sales every year.

What are dropshipping suppliers?

Dropshipping suppliers fulfill orders made by retailers on behalf of customers. They produce or source products, store them, package them for shipping, and organize delivery to the customer address.

You might work with an individual supplier or a platform that hosts a directory of suppliers, such as AliExpress. Some manufacturers, wholesalers, and independent makers also offer dropshipping services.

What is a seller of record?

A seller of record is the person or business that sells a product to the customer. As a seller of record, you're responsible for setting prices, collecting payment including taxes, and complying with local laws.

In dropshipping, the seller of record is the point of contact for customers. It's the seller's information, not the supplier's, that appears on packaging slips and invoices. The seller also handles any support requests such as returns and refunds.

How does dropshipping work?

Here's a step-by-step breakdown of the standard dropshipping process:

  1. Partner with a dropshipping supplier
    Find a dropshipping supplier that offers products you want to sell. After signing an agreement, they'll handle storage, packaging, and shipping of customer purchases. You could partner with an individual business in your niche or use a dropshipping app to sell products from multiple suppliers.

  2. Set up an online store
    Create your online store and list products from your supplier at prices you decide. Use apps to keep listings updated and automatically forward orders to suppliers.

  3. Receive a customer order
    Customers place orders, pay, and receive order confirmation.

  4. Forward the order to the supplier
    Send order details to the dropshipping supplier, or automate this step via your app.

  5. Supplier prepares and ships the product
    The supplier handles packing and shipping directly to the customer.

  6. Customer receives the product
    Customers get their items while your store manages any support needs.

Should you start dropshipping?

Signs that dropshipping could fit your business:

Pros and cons of dropshipping

Benefits

  1. Low costs – minimal upfront investment since you don’t stock inventory.
  2. Wide selection – offer a broad product catalog easily.
  3. No product development costs – source proven products.
  4. Flexible location – run your business from anywhere.
  5. Easier to start – skip warehouse and inventory hurdles.
  6. Easier to test – test new products without buying inventory.
  7. Easier to scale – scale faster than traditional retail.

Drawbacks

  1. Lower profit margins – high competition reduces margins.
  2. Inventory volatility – suppliers’ stock can fluctuate.
  3. Shipping complexities – multiple suppliers can complicate fulfillment and delivery times.

Dropshipping FAQ

Reference: Shopify