What Is Dropshipping and How Does It Work? (2024) – Shopify Canada

Dropshipping is a simple, popular way to start a business. It removes common retail challenges such as buying, storing, and shipping inventory.

When a dropshipping store makes a sale, it forwards the order to a supplier, who handles delivery to the customer. This lets store owners focus on other tasks, like marketing and branding.

Ahead, learn what dropshipping is, how it works, and how to get started as a dropshipper.

What is dropshipping?

Dropshipping is a retail method where a store doesn’t keep its products in stock. Instead, when a customer makes an order, the store forwards it with payment to a dropshipping supplier. The supplier then ships the product to the customer.

Many business owners prefer dropshipping because it passes the task of order fulfillment to suppliers. This means stores don’t need to invest in warehouse space or risk getting stuck with unsold inventory. As a result, businesses can allocate more resources to other retail activities such as marketing.

It’s estimated that dropshipping generates more than $300 billion in ecommerce sales every year.

What is a dropshipper?

A dropshipper is the person or business that accepts customer orders and passes them to a supplier for fulfillment.

Dropshippers often run online stores to market and sell products. When a customer buys a product, the dropshipper places a corresponding order with the supplier.

Let’s say a customer buys a cat collar from your online pet store. As a dropshipper, you forward the order to your cat collar supplier, who keeps the product in stock.

What are dropshipping suppliers?

Dropshipping suppliers fulfill orders made by retailers on behalf of customers. They store products, 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 operate as dropshipping suppliers.

In the pet store example, the company that receives the order, packages the cat collar, and ships it to the customer is the dropshipping supplier.

How does dropshipping work?

Here’s a step-by-step breakdown of how the standard dropshipping process works:

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. You can also use a dropshipping app to sell products from multiple suppliers.

2. Set up an online store

Next, create your online store. Your store lists products from your supplier for the price that you decide.

Add a dropshipping app to your store to keep product listings updated and automatically forward orders to suppliers:

• DSers connects Shopify stores to AliExpress.
• Zendrop has a catalog with more than a million products.
• Spocket includes dropshipping suppliers in the US, Europe, Brazil, and India.

3. Receive a customer order

When a customer visits your store and places an order, the checkout process happens as normal. The customer pays, receives order confirmation, and awaits delivery.

4. Forward the order to the supplier

Once your customer pays for the order, send the order details to your dropshipping supplier. If you’re using a dropshipping app, this step is automated.

5. Supplier prepares and ships the product

The dropshipping supplier prepares the order and ships it directly to the customer. Many suppliers offer branded invoices and custom packaging to enhance the shopping experience.

6. Customer receives the product

The customer receives their product from the supplier while the store handles any customer service needs.

Should you start dropshipping?

Trying to decide whether dropshipping is worth it for you? Here are some signs that a dropshipping business model could fit your business:

You’re all about marketing

If you’re skilled in search engine optimization or social media marketing, dropshipping could be a great fit.

The primary goal of dropshippers is to drive traffic to an online store using platforms such as Google, YouTube, TikTok, and Instagram. Dropshippers leverage content marketing and an understanding of ranking algorithms to connect potential customers with products.

You’re sales-driven, not brand-focused

If your business strategy is more focused on generating a high volume of sales than on building a distinctive brand, dropshipping could be suitable for you.

In other retail models, sellers add branding to their products, packaging, and communications to create a consistent brand experience, building customer loyalty.

Dropshipping offers fewer branding opportunities. Packaging and delivery leave little room for personalization, and dropshipping products are rarely exclusive to a single retailer. This makes it harder to provide a unique experience that keeps customers coming back.

If you’re looking to sell branded products using dropshipping, explore options for private label dropshipping or print-on-demand products.

You prioritize product variety

Dropshipping gives merchants the ability to sell a wide array of products from a global network of suppliers without worrying about inventory.

However, this comes with a trade-off: less control over product quality and consistency. Beyond ordering samples, you may have little influence over the manufacturing process.

You’re comfortable with longer shipping times

In an era of super-fast delivery, most customers expect their purchases to arrive quickly. This presents a challenge for dropshippers who partner with overseas suppliers.

Products sent from international locations, such as China with ePacket, can take significantly longer to arrive, risking customer dissatisfaction.

If you can source domestic suppliers or manage customer expectations around delivery times, dropshipping could be a viable option.

You’re prepared for customer support

While dropshippers don’t deal with product fulfillment, they are the primary point of contact for customers. This means they often find themselves addressing customer service issues that are beyond their direct control, such as shipment delays, delivery problems, product defects, and return requests.

If you’re ready to navigate these challenges and manage customer inquiries effectively, dropshipping could be a well-suited business model.

You’re ready to grow

Dropshipping isn’t just for new stores. It’s also a tool for established retailers looking to expand.

By partnering with a supplier or another store that can handle fulfillment, retailers can add complementary products to their inventory without sourcing, purchasing, or stocking them.

Offering customers a larger selection of products may increase your average order value. Using dropshipping to list additional products can also draw in new customers.

7 benefits of dropshipping

Here are seven reasons why dropshipping has become a popular ecommerce model for businesses:

1. Low costs
2. Wide selection of products to sell
3. No product development costs
4. Flexible location
5. Easier to start
6. Easier to test
7. Easier to scale

1. Low costs

Because you don’t buy inventory, dropshipping requires minimal upfront investment. Many dropshipping stores are run from home with little more than a laptop, making it an attractive small business idea.

With this benefit, however, comes competition from other dropshipping entrepreneurs. You’ll need to invest your time rather than capital, applying tips from dropshipping experts to make your business work.

2. Wide selection of products to sell

Use dropshipping to offer a wide array of trending products to your customers. With no unsold inventory to worry about, you can change your product catalog at will. If suppliers stock a new item, you can immediately list it for sale.

3. No product development costs

Dropshippers also don’t need to invest (and risk) capital in research and development to create a new product. Instead, they can source proven sellers that are ready to ship.

4. Flexible location

A dropshipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and provide timely customer support, there are few restrictions on where you live and work.

5. Easier to start

Dropshipping removes many retail hurdles. Running an ecommerce business becomes easier when you don’t have to:

• Manage or pay for a warehouse
• Monitor inventory
• Pack and ship orders
• Track inventory for accounting
• Handle inbound return shipments

That said, successful dropshippers carefully oversee the fulfillment process and are committed to providing a satisfying customer experience.

6. Easier to test

Dropshipping is a useful fulfillment model for testing customer interest in a new product category. Stores can trial sales of a dropshipped product before committing to buying inventory.

7. Easier to scale

Scaling a traditional retail business takes forward planning. If a large number of orders arrive unexpectedly, it can be challenging to accommodate them, and you may quickly sell out.

Dropshipping businesses tend to scale more efficiently. Plus, you can expand your reach by dropshipping on popular marketplaces like Amazon, eBay, and Etsy.

Dropshipping drawbacks

Like all retail models, dropshipping also has its downsides. Here are three drawbacks to consider:

1. Lower profit margins
2. Inventory volatility
3. Shipping complexities

1. Lower profit margins

The accessibility of dropshipping can lead to intense competition, resulting in lower profit margins as businesses undercut each other.

The more you reduce prices, the harder it becomes to calculate profit margins that work for your store.

Mitigate this problem by choosing the right products and selecting a dropshipping niche that’s not over-saturated.

2. Inventory volatility

For all its inventory management benefits, dropshipping exposes retailers to sudden changes in product availability.

With suppliers fulfilling orders for multiple retailers, inventory levels can fluctuate unexpectedly—something that’s less of an issue when you stock your own products.

Fortunately, dropshipping apps like DSers give merchants options when a supplier’s stock hits zero. For example, you can automatically unpublish a sold-out product or set a “Sold Out” label.

3. Shipping complexities

Working with multiple suppliers can complicate order fulfillment. If a customer orders three items from three different suppliers, you’ll need to cover separate shipping costs for each. The items may also arrive at different times.

For dropshippers sourcing products from international suppliers, cross-border shipping can introduce additional complexity, making issues harder to resolve when things go wrong.

One possible solution is to pass shipping costs on to customers. However, this may make your pricing less competitive.

Dropshipping in 2024

In 2024, dropshipping remains a popular choice for online store owners, side hustlers, and established retailers.

Dropshipping with Shopify is easy. Integrate a dropshipping app or use Shopify Collective to dropship products from US-based Shopify brands.

Here’s how:

1. Sign up for a free trial with some basic information about your business.
2. Personalize your store with a logo, helpful content, and a free theme that fits your brand.
3. Add a dropshipping app to connect with your Shopify store with dropshipping suppliers.
4. Import products to your store and set prices that include a profit margin.
5. Start selling and marketing your products.