What is dropshipping? And how it works
This post was last updated on September 7, 2023.
Whether you’re already active in the world of eCommerce or looking to dive in and start an eCommerce website, you’ve probably heard the term dropshipping. It’s certainly maintained its lead as one of the hottest trending topics in the industry over the past couple of years.
In this dropshipping 101 guide, we’ll explain the ins and outs of dropshipping and everything you need to know before you start a dropshipping business. It includes:
What is dropshipping?
Dropshipping allows you to sell products online without having to worry about storage, fulfillment or shipping. Instead, your supplier or manufacturer ships the product directly to your customer once an order is received. Meaning, you don’t ever have to touch the product or worry about managing a warehouse.
What is a dropshipper?
A dropshipper is a person or business that sells products without ever holding them in inventory. Instead, when a customer places an order, the dropshipper purchases the product from a third-party supplier and has it shipped directly to the customer. As a result, the dropshipper never sees or handles the product.
How does dropshipping work?
Dropshipping can be a great way to start an eCommerce business with little upfront investment. You don't need to invest in inventory or warehousing, and you can start selling products immediately. However, there are a few steps involved. Here's a breakdown of how dropshipping works:
1. Choose a niche: The first step is to choose a niche for your dropshipping business. This could be anything from clothing to electronics to home goods. It's important to choose a niche that you are passionate about and that has a lot of potential customers. Be inspired: Dropshipping business ideas, Dropshipping business name ideas.
2. Find a dropshipping supplier: Once you have chosen a niche, you need to find a dropshipping supplier. There are many dropshipping suppliers available online, so it's important to do your research and find suppliers who can provide high-quality products and good customer service.
3. Set up an online store: You can use Wix eCommerce to set up an online store. Wix makes it easy to create a professional-looking store and start selling products.
4. List products on your store: Once you've set up your store, you need to list products from your suppliers on your store. You can do this by importing products from your supplier's catalog or by manually adding products to your store.
5. Market your store: Once you've listed products on your store, you need to market your store. You can do this through social media, search engine optimization (SEO) and paid advertising.
6. Receive an order: When a customer places an order, you will need to place an order with your supplier. This is done through the dropshipping platform that you're using.
7. Ship the order: Your supplier will ship the order directly to the customer. You won't need to handle any of the shipping process.
8. Provide customer service: If there are any problems with the order, you will need to provide customer service to the customer. This could involve refunding the customer or replacing the product.
How to find good dropshipping suppliers?
Here are some tips on how to find good dropshipping suppliers:
Do your research: There are many dropshipping suppliers available online, so it's important to do your research and find one that's a good fit for your business. Consider factors such as the product selection, pricing, shipping terms and customer service.
Read reviews: Once you've narrowed down your options, read reviews from other dropshippers who have used the supplier. This will give you a good idea of what to expect in terms of product quality, shipping times and customer service.
Contact the supplier: Once you've found a few suppliers that you're interested in, contact them directly to ask questions and get more information. This will help you get a better sense of whether or not they're a good fit for your business.
Start small: When you're first starting out, it's a good idea to start small and work with a few suppliers. This will help you minimize your risks and get a better understanding of the dropshipping process.
Be patient: It takes time to find the best dropshipping suppliers. Don't be discouraged if you don't find the perfect one right away. Keep searching and eventually you'll find a supplier that meets your needs.
Low startup costs - Since you can launch an eCommerce store without pre-purchasing inventory, you have more flexibility with cash flow. Your suppliers absorb the cost of storing and managing your products, while you take care of marketing the products.
Less space needed - Since suppliers take care of warehousing for you, there’s no need to fill your garage with stock or rent out storage space.
Expansive product selection - Since you're not limited by physical storage space or geography, you can sell as many products as you want. You also have access to a virtually unlimited product pool, which gives you the freedom to test products without investing large sums of capital into inventory.
Operate from anywhere - When it comes to learning how to start a business, you normally need to commit to one location. Without a physical tie to your products, you can manage your dropshipping business from wherever you are—all you need is internet access.
Automated workflows - Once your store is up and running, much of the day-to-day work is automated. For example, Wix’s dropshipping solution automates inventory management, order routing, order tracking and more.
Scale efficiently - The combination of automation and supplier outsourcing means you can grow your business quickly with fewer staff members and logistical headaches.
Dropshipping limitations and risks
High competition - Your dropshipping suppliers could be servicing many merchants at once, making your product selection less unique. This makes it especially important to differentiate your type of business and establish a strong eCommerce marketing strategy.
Low margins - Because of the low barrier to entry and the high level of competition, the dropshipping space is often marred by low prices and low profit margins. You’ll have to find a way to differentiate your business, whether through your branding or customer service. (For tips on how to maximize your profits, view our guide on how to price your products for dropshipping).
Lack of quality control - Since you're not physically handling the products yourself, it can be difficult to ensure that every unit meets your quality standards. You’ll need to establish strong relationships with your suppliers and vet them properly (or find a database that has a reliable vetting process).
Supplier terms - Since you're relying on suppliers to handle inventory, packaging, and shipping, your business is subject to suppliers’ terms and conditions. You’ll have limited control over things like order minimums, return/exchange policies, and other requirements that can impact customer satisfaction.
Limited customization - Choosing products from a third-party supplier means that you have less control over what the product looks like, how it’s made, and how it’s branded (unless your supplier offers white-labeling or print-on-demand services). Without customization, it can be hard to set your product offering apart in a saturated market.
Customer service - If a customer has a problem with a product they've received, it's up to you to resolve the issue. This can be a frustrating process if your supplier is unresponsive or uncooperative.
Shipping considerations - Because you're working with suppliers from all over the world, shipping times and costs will vary greatly. This can impact your ability to offer fast and free shipping to customers, which is often a key factor in eCommerce conversion rates.
Is dropshipping right for you?
Whether or not dropshipping is right for you depends on a number of factors, including your skills, experience and resources. Here are some things to consider:
Your skills and experience: Do you have experience in eCommerce or marketing? If not, dropshipping can be a steep learning curve.
Your resources: Do you have the time and money to invest in a dropshipping business? Dropshipping can be a profitable business model, but it takes time and effort to build a successful business.
Your niche: What products or services do you want to sell? Dropshipping is a good option for businesses that sell low-cost, high-margin products.
Your competition: How much competition is there in the dropshipping market for the products you want to sell? If there's a lot of competition, you'll need to find a way to differentiate your business.
Your risk tolerance: Dropshipping is a low-cost business model, but there are still risks involved, such as shipping delays and customer service issues.
If you're considering dropshipping, it's important to do your research and understand the risks involved. If you're willing to put in the work, dropshipping can be a profitable business model.
Dropshipping in three ways
Ultimately, there are many ways in which you can use dropshipping to build or enhance your eCommerce business (see our guide on what is eCommerce). Below are three examples of how Wix stores that leveraged dropshipping.
01. Sell dropship-only items
Top selling merchant BWSS Fit uses a direct-to-consumer (D2C) model to sell high quality fitness equipment to shoppers looking to keep fit and recreate a gym-style workout from the comfort of their homes.
While other websites stock similar products, BWSS differentiates themselves by maintaining an easy-to-navigate website with strong imagery, helpful fitness content, and honest customer reviews. Additionally, their transparency regarding their D2C business model, international suppliers, and shipping estimates appeals to shoppers who are willing to trade faster shipping times for better value.
02. Enhance your store’s existing inventory with dropshipping
This path is ideal for merchants who recognize that their businesses could benefit from adding more items to their inventory, but don't have the time or budget to source them directly.
For example, Sweet Mana is a skincare and lifestyle company with a wide range of products. The company's ethos is centered on relaxation, mindfulness, and healing the spirit. While their main draw is their handcrafted botanical skincare, they use dropshipping to bolster their offering with related products, such as travel photography prints.
03. Boost existing revenue by selling print-on-demand merchandise
Even if your eCommerce website isn’t primarily an online store—e.g., perhaps you specialize in providing a service—you can still consider diversifying your offering.
Little Tail Farms is an animal farm that uses dropshipping as an additional revenue stream. Site visitors who might be looking to book a farmstay or a farm tour can’t miss the “Gifts” menu, which brings them to the farm's online store where they can purchase branded merchandise as a memento of their stay.
How to be successful at dropshipping: 7 quick tips
So, ready to get started with dropshipping? Keep these tips in mind.
Do your research - Take the time to understand what dropshipping product trends and what other businesses in your niche are doing.
Find a niche - Focus on a niche or specialty product to reduce competition and position your store as a leader in a given category. The best dropshipping products (e.g., the most popular products) won’t necessarily work for you if the market is saturated or the margins are very low.
Boost existing inventory - Add items to your existing product line and test new categories. This helps diversify product offerings while giving you valuable insight into what customers want.
Sell print-on-demand merch - Design and sell custom branded merchandise like t-shirts, mugs, and phone cases without having to hold any inventory (a great option for service-focused businesses).
Prioritize customer satisfaction - Do what you can to ensure that customers are happy with their purchase. Offer great customer service, flexible return/exchange policies, and clear shipping timelines.
Choose the right platform - With so many eCommerce platforms on the market, it's important to choose one that offers the features and support you need to grow your business. Look for a platform like Wix eCommerce with built-in dropshipping features, including automatic inventory updates and order management tools.
Invest in marketing - Get the word out about your business by testing different marketing tactics. Try social media ads, Google Ads, influencer marketing, and other creative strategies to get your business in front of potential customers.
We think so. U.S. eCommerce sales alone are expected to hit an all time high and exceed $1 trillion in 2022. The fastest growing consumer categories this year include apparel, books, music, and video, according to Insider Intelligence. Computers and consumer electronics are also top performers.
In addition to these burgeoning consumer goods categories, there's a big opportunity for B2B eCommerce sellers to leverage dropshipping, with B2B eCommerce sales predicted to exceed $1.7 trillion in 2022.
Dropshipping, in a nutshell, requires minimal risk and allows you to test out new markets.
How to start dropshipping with Wix eCommerce
Getting started is relatively simple. If you use a platform like Wix eCommerce, you can easily access an array of dropshipping suppliers like Modalyst, Printful and Printify. From there, simply choose from the products made available to you.
For instance, if you use Wix’s dropshipping solution powered by Modalyst, you can pick from millions of items, ranging from apparel to beauty products. Modalyst in particular can connect you with thousands of high-end brands, plus print on demand items.
Once you’ve selected which items you want to sell, you can automatically add them to your Wix online store. Your core responsibility is to generate interest and sales around your products. Once you’ve made a sale, orders are forwarded directly to your suppliers for fulfillment.
Summary of how the dropshipping process works:
List the products you want to sell on your online store
Customize the right pricing, descriptions, and marketing strategy behind your products to generate sales
Once a sale comes in, it’ll be automatically routed to your supplier
Your supplier will then package and ship the product directly to your customer
Now that you know everything there is to know about dropshipping, it's time to get started on your own eCommerce journey. With Wix eCommerce, you can get started right away. Source from millions of high-quality products from reliable suppliers and manage everything from one place. Learn about getting started with Wix dropshipping today.
Watch our free video courses to learn more about eCommerce today!
What is dropshipping FAQ
Is dropshipping legal?
Yes, dropshipping is completely legal. To be clear, you’re selling products with the suppliers’ permission. Make sure to run honest marketing campaigns and comply with online sales tax laws.
Is dropshipping good for beginners?
Yes, dropshipping is a good option for beginners because it’s relatively easy to set up and it's low-risk. Inventory storage and management is outsourced to the supplier, which means you can start small. It's also easy to research products and competitors, so you have a well-informed starting point. After launch, you can test different products, categories, and strategies (all with limited investment) to find a formula that works for you.
How do dropshippers make a profit?
As a dropshipping business, you’ll need to balance cost with revenue. Consider the wholesale prices of your products and your marketing budget. Then, price your products to ensure that you’re earning more than you’re spending. At the same time, make sure to research your competitors’ prices to get a reasonable range, and strike the right balance between competitiveness and margin.
How much does dropshipping cost?
There are three main costs to consider when starting a dropshipping business online: Your eCommerce platform plan: $27-$59 per month when you opt for a Wix eCommerce plan Your website domain: $5-$20 per year, depending on your domain name. When you purchase a Wix eCommerce plan, your domain is free for the first year. Your marketing: This depends on your strategy. Each Wix Business and eCommerce plan comes with built-in professional marketing tools. However, you’ll have to set aside a separate budget for any ad campaigns or paid marketing efforts (price varies).
How big is the dropshipping market?
The global dropshipping market is estimated to be worth USD 225.99 billion in 2022 and is expected to grow at a CAGR of 23.4% from 2023 to 2030.
The dropshipping market is growing rapidly due to a number of factors, including:
The rise of eCommerce: The number of people shopping online is increasing, which is creating new opportunities for dropshippers.
The increasing availability of dropshipping platforms: There are now a number of dropshipping platforms available that make it easy for businesses to get started.
The low start-up costs of dropshipping: Dropshipping businesses can be started with little upfront investment, which makes them attractive to entrepreneurs.
Is dropshipping easy money?
No, dropshipping isn't easy money. There are a number of challenges that dropshippers need to overcome, such as:
Finding reliable suppliers: It's important to find reliable suppliers who can ship products on time and in good condition.
Managing inventory: Dropshippers need to carefully manage their inventory to avoid stockouts and overstocks.
Providing good customer service: Dropshippers need to provide good customer service to their customers, even if they're not the ones who are shipping the products.
If you're considering starting a dropshipping business, it's important to do your research and understand the risks involved. However, if you're willing to put in the work, dropshipping can be a profitable business model.
Allison Lee Editor, Wix eCommerce
Allison is the editor for the Wix eCommerce blog, with several years of experience reporting on eCommerce news, strategies, and founder stories.
Marketing Writer, Wix eCommerce
Geraldine is a marketing writer for Wix eCommerce. She uses her broad experience in journalism, publishing, public relations and marketing to create compelling content and loves hearing user success stories.