What is Dropshipping?

Dropshipping is a retail fulfillment method in which a store does not keep the products it sells in stock. Instead, when a customer places an order, the retailer purchases the item from a third-party supplier—typically a manufacturer, wholesaler, or specialized dropshipping vendor—who then ships the product directly to the customer. The retailer never physically handles the merchandise, acting instead as a storefront and marketing channel while the supplier manages inventory, warehousing, and shipping.

Why It Matters

Dropshipping has democratized e-commerce by dramatically lowering the barriers to entry. Traditional retail requires significant capital investment in inventory, warehouse space, and fulfillment infrastructure before a single sale is made. Dropshipping eliminates these upfront costs, allowing entrepreneurs to launch online stores with minimal financial risk. You only pay for products after customers have already purchased them, which means no dead stock, no carrying costs, and no warehouse lease payments.

This model is particularly valuable for testing new product ideas, entering unfamiliar markets, or expanding a product catalog without proportional increases in operational complexity. Established brands use dropshipping to offer extended assortments—products that complement their core catalog but do not justify the investment in owned inventory. For example, a furniture brand might dropship decorative accessories from specialized suppliers, offering customers a more complete shopping experience without warehousing thousands of low-velocity items.

However, dropshipping is not without trade-offs. Margins are typically thinner than those for owned inventory because the supplier captures the manufacturing and warehousing margin. Quality control is delegated to the supplier, and shipping times can be longer and less predictable, especially when working with overseas suppliers. These factors make operational discipline and supplier vetting especially critical in a dropshipping model.

How It Works

The dropshipping workflow follows a clear sequence that differs significantly from traditional retail fulfillment:

• Product Sourcing: The retailer identifies suppliers willing to dropship and negotiates terms including wholesale pricing, shipping methods, return policies, and minimum order requirements. Supplier catalogs are imported into the retailer’s e-commerce platform with product descriptions, images, and pricing.
• Listing and Sale: Products appear on the retailer’s storefront at a marked-up price. The difference between the retail price and the supplier’s wholesale price is the retailer’s gross margin. Customers browse and purchase without any indication that the product will ship from a third party.
• Order Forwarding: When a customer places an order, the retailer forwards the order details—including the customer’s shipping address and the product SKU—to the supplier. This can happen manually via email, semi-automatically through a supplier portal, or fully automatically via API integration.
• Supplier Fulfillment: The supplier picks, packs, and ships the product directly to the customer. Packaging may be unbranded, or in white-label arrangements, the supplier uses the retailer’s branded packaging materials.
• Tracking and Customer Communication: The supplier provides tracking information to the retailer, who forwards it to the customer. The retailer remains the customer’s primary point of contact for questions, issues, and returns.

Key Considerations for Dropshipping Success

While the operational model is straightforward, success in dropshipping depends on several strategic factors:

• Supplier reliability: Your customer experience is only as good as your supplier’s execution. Vet suppliers rigorously by placing test orders, evaluating packaging quality, measuring shipping times, and checking reviews from other retailers.
• Inventory visibility: Since you do not control the inventory, you need real-time visibility into the supplier’s stock levels. Selling a product that is actually out of stock at the supplier creates a poor customer experience and operational headache.
• Shipping time transparency: Customers expect fast delivery. If your dropship suppliers are located overseas and shipping times are 10–20 days, set clear expectations on your product pages and in confirmation emails to avoid negative reviews and chargebacks.
• Return handling: Define a clear returns process upfront. Determine whether returns go back to the supplier or to you, who bears return shipping costs, and how refunds are processed. Ambiguity here leads to frustrated customers and margin erosion.
• Multi-supplier coordination: If a customer orders products from multiple dropship suppliers in a single transaction, they may receive multiple packages at different times. Communicate this clearly and consider how it affects the customer experience.

Dropshipping vs. Traditional Fulfillment

Dropshipping and owned-inventory fulfillment are not mutually exclusive. Many successful retailers use a hybrid model, holding their best-selling products in their own warehouse for fast, controlled fulfillment while dropshipping long-tail and seasonal products from supplier partners. This approach balances the operational control and margin advantages of owned inventory with the catalog breadth and capital efficiency of dropshipping.

How Nventory Helps

Nventory supports dropshipping workflows alongside traditional fulfillment, giving you a unified platform to manage both models. When an order comes in for a dropshipped product, Nventory automatically routes it to the designated supplier with all necessary order details. Supplier inventory feeds are synced in real time so your storefront always reflects accurate availability. For hybrid operations, Nventory’s order routing engine intelligently splits orders—sending owned-inventory items to your warehouse while forwarding dropshipped items to the appropriate supplier—ensuring each product takes the optimal path to the customer.