What is Dropshipping, and How Does It Work in 2025?
By Sonaksh Singh Rawat on
If you’ve been exploring ways to start your own online business, you’ve probably come across the term “dropshipping” more than once. So, what is dropshipping, and how does it work in 2025? In simple words, it is an order fulfillment method that is highly cost-effective. In this business model, businesses do not have to keep products in stock. Instead, businesses partner with third-party manufacturers and order fulfillment centers to manufacture and deliver products.
This is one of the main reasons why startups and budding businesses choose this model. Because without the need to keep products in stock, businesses save warehouse and inventory management costs. The dropshipping business model offers businesses a streamlined way of selling products online.
With this model, there is no need to rent out a warehouse; hence, there is no need to spend for a management crew. The third-party manufacturer and order fulfillment center will handle all the facets of running an online business. In this blog, we’ll break down everything you need to know about what dropshipping is, how it works, and how you can get started.
What is Dropshipping?
Dropshipping is a retail or order fulfillment method where an online store doesn't keep the products it sells in stock. Instead, it purchases the products from a third party and has them shipped directly to the customer via order fulfillment centers.
Typically, under this model, the online store acts as the middleman by relaying the customer's order to the manufacturing company to manufacture and deliver the product. However, the packaging and branding will bear the band of the online store and not the manufacturer.
This is a business model that is preferred by businesses that prefer lower overhead or investment costs and a streamlined way to run an online store. In 2020, the estimated value for dropshipping forecast was 476.1 billion US dollars from 2021 to 2026.
In brief, with dropshipping, online stores can:
- Save inventory and warehouse management costs
- Save on warehouse space and rent
- Eliminate investment costs
- Eliminate the need for supply chain management
Who is a Dropshipper?
A dropshipper refers to an individual or a business that uses the dropshipping method to run an online business. Dropshippers partner with third-party manufacturers and logistics centers to manufacture and deliver the product.
Unlike other business models, an individual or an entire team can manage a dropshipping business due to its efficiency.
Check out this Shopify Dropshipping Tutorial to learn more about dropshipping.
How Does Dropshipping Work in 2025? A Step-by-Step Guide
The dropshipping process begins with finding a supplier, either through a supplier database or an e-commerce platform. Once the deal between the supplier and business is done, customers can place their orders. Although the exact logistics will differ from one business to another, this is how dropshipping works:
- Partner with a Dropshipping Supplier
The first step is to find a supplier who provides the products you want to sell. Once you sign an agreement, the supplier takes on the responsibility for storing, packaging, and shipping the products directly to your customers.You can choose to work with a single supplier within your niche or use a dropshipping platform that allows you to source products from multiple suppliers.
- Create Your Online Store
The next step is to set up your online store, where you'll showcase the products available from your supplier. You’ll list these items at a price you choose.To keep your inventory updated and automate the order process, you can integrate a dropshipping app with your store. Examples of such apps include:
- DSers, which connects Shopify stores to AliExpress.
- Zendrop, offering a catalog with over a million products.
- Spocket, providing suppliers from the US, Europe, Brazil, and India.
- AutoDS, using AI to help you identify and import popular products into your store.
- Receive an Order from a Customer
When a customer visits your store and places an order, they follow the normal checkout procedure. They pay for the items, receive an order confirmation, and await delivery.
- Forward the Order to Your Supplier
After the customer completes their purchase, you send the order details to your dropshipping supplier. If you’re using a dropshipping app, this step is automated, so the process is seamless.
- Supplier Prepares and Ships the Product
The supplier handles the fulfillment process by preparing and shipping the product directly to the customer. Many suppliers offer the option to include branded invoices and custom packaging, helping to enhance the customer's shopping experience.
- The Customer Receives the Product
The product is delivered directly to your customer by the supplier while you manage any customer service inquiries or concerns related to the order.
This is how efficient a dropshipping business is!
Top 5 Benefits of Dropshipping in 2025 You Need to Know
It is quite evident that online stores can reap a lot of benefits from the dropshipping business model. Here are a few of them:
Low Startup Cost
A dropshipping business does not require businesses or individuals to shell out any kind of investment or upfront costs. Dropshipping eliminates almost every cost involved in the starting of an online store. This also means that there is less risk involved in starting an online business.
Businesses don't have to worry about:
- Product Investment costs
- Inventory and inventory management costs
- Warehouse cost
After receiving an order, the retailer will relay the order details to the dropshipping supplier. Then, the dropshipping supplier manufactures and delivers the product to the customer.
Easy To Get Started
It is quite clear that dropshipping makes starting and running an online store easy by removing the burden of storing products, managing inventory, and managing order fulfillment. With all of these processes streamlined, it becomes easy to start an online store.
Here are a few ways in which dropshipping makes starting a business easy:
- Eliminate the need for managing warehouse duties as well as eliminate warehouse expenses.
- There is no need for the online store to pack and ship the orders; the third-party order fulfillment center will handle delivery.
- Businesses do not have to worry about tracking inventory.
- There is no need to keep products in stock.
Flexibility
Dropshipping offers flexibility and can be run from any corner of the world as long as there is a stable internet connection. It is essential to:
- Maintain clear communication with suppliers to ensure timely order fulfillment
- Offer customer support and promptly address any customer concerns
Wide Range of Products
With dropshipping, businesses can have an extensive product catalog. Since businesses do not need to stock up on products, they can have an extensive catalog of products listed on the website. It lets you:
- Avoid the hassle of warehousing
- Be free from inventory management tasks.
Easier to Test and Scale
Dropshipping makes it simple to test customer interest in a new product category without committing to inventory upfront. You can experiment with selling new products and assess demand before making larger investments.
Scaling a dropshipping business is more flexible compared to traditional retail as:
- There is no need to manage inventory, making it simpler to handle order surges
- You can expand the business by selling through platforms like Amazon, eBay, and Etsy, avoiding logistical challenges.
Challenges of Dropshipping
Every coin has two sides to it. Similarly, dropshipping comes with its own set of challenges.
- Low-Profit Margins
This is one of the biggest drawbacks of dropshipping. Given the fact that it offers minimal starting costs, it drives up competition. There are plenty of online dropshipping stores that will offer products at dirt-cheap rates to get ahead.
More often than not, such dropshipping sellers will have poor-quality websites and extremely bad customer support. These are aspects where you can differentiate yourself as a brand with quality.
- Inventory Issues
When a business handles its own inventory, it is quite simple to keep track of it. But when inventory and inventory management are outsourced, it could be a bit of a hassle. Although dropshipping businesses do not take care of inventory, they still have to keep track of things, especially when sourcing products from multiple warehouses.
But of course, there are a number of e-commerce applications that can help online stores keep track of everything with the utmost ease. This further helps avoid delivery delays and keeps the stock numbers accurate on the seller's site.
- Shipping Complexities
Dropshippers typically work with several suppliers, meaning they source products from different suppliers. This also means that the online store will not have any control over the supply chain.
Here's an example: If there is an order for multiple products, and all of those products are available only through different suppliers, it becomes a burdensome task to manage the orders. It can have different shipping costs and shipping times, making it even more tedious.
Key Players in Dropshipping
Here are the people involved in making a dropshipping business successful.
- Retailer
The retailer starts a dropshipping business; he acts as a middleman between the manufacturers and the customers. The retailer also decides which products to sell and sets their prices. This also means the online store will be responsible for all the taxes incurred.
- Supplier
The supplier is the manufacturer and order fulfillment center. They are responsible for manufacturing and delivering the products on time. The supplier will also manage the warehouse and inventory.
- Customers
The customer is a pivotal player in the dropshipping business, as customers start the process by placing an order and purchasing products.
How to Choose the Best Dropshipping Suppliers for 2025?
When starting a dropshipping business, it is essential to choose the right suppliers. The main reason for emphasizing finding the right suppliers is because the supplier represents your brand or business.
If the supplier isn't reliable, the business could face repercussions from customers. This is why choosing the right supplier is imperative. Here are a few things you should consider while looking for a supplier:
- Good product quality and consistency
- Reasonable shipping times
- Shipping costs
- Reliability of supplier
- Customer support service
- A supplier with multiple warehouses
- Return Policies
These are some of the most important things to consider when looking for a supplier.
Tips for a Successful Dropshipping Business 2025
Remember these tips to start a successful dropshipping business:
- Choose the right niche to stand out. Look at the market trends and identify market gaps; this can help you choose the best products to sell.
- Make sure you find suppliers who are reliable and offer their shipping prices along with fast delivery times.
- Offering excellent customer service is essential to running an online business.
- Advertising and marketing your store as well as your products, is significant. You can do it through several methods, the best being social media. Plenty of e-commerce platforms allow online dropshipping businesses to integrate social media platforms into their online store to help them market their products.
How to Check if Dropshipping is Right for Your Business
If you're looking to start an online dropshipping business, you should first check if it works for your business. To understand if drop shipping will work for your business or not, you should conduct market research and look at the type of products you are trying to sell. If you are trying to sell high-end products, then the dropshipping business model might not exactly work for you.
On the other hand, if you're selling everyday products and daily essentials, then it can be profitable. This is because high-end products cannot be sold in large numbers, whereas everyday essentials can be sold in large quantities. Since profit margins for dropshipping businesses are low, it makes sense to sell everyday products rather than high-end products.
- Assess Your Financial Situation
Dropshipping is known for its low startup costs, making it accessible to many entrepreneurs. You won’t need to invest heavily in inventory or storage space, which reduces financial risk. However, it's important to consider:
- Are you comfortable with a business model that may have lower profit margins due to competition?
- Can you manage marketing and operational costs effectively without relying on inventory investment?
- Evaluate Your Market Knowledge
Understanding your target market is crucial in dropshipping. Ask yourself:
- Do you have a clear idea of the products or niches you want to focus on?
- Are you aware of current trends and customer preferences in your chosen market?
- Consider Your Willingness for Customer Support
As a dropshipper, you will be the primary point of contact for customer inquiries and issues, even though you don’t handle fulfillment directly. Reflect on:
- Are you prepared to manage customer service challenges such as shipment delays or product defects?
- Do you have the skills or resources to address customer concerns promptly?
- Analyze Your Time Commitment
While dropshipping can be easier than traditional retail, it still requires time and effort:
- Are you willing to invest time in marketing, managing suppliers, and optimizing your online store?
- Can you dedicate time to consistently monitoring sales, customer feedback, and inventory management?
- Review Your Business Goals
Consider how dropshipping aligns with your long-term business objectives:
- Are you looking for a flexible business model that allows for location independence and scalability?
- Do your goals include testing new product ideas or entering niche markets without significant upfront investment?
- Understand the Competition
The dropshipping market is competitive. Assess:
- Are you prepared to differentiate your brand in a crowded marketplace?
- Do you have strategies to compete on price, quality, or unique offerings?
By carefully considering these factors, you'll be better equipped to decide if this model aligns with your business aspirations.
Dropshipping Alternatives
There are, of course, alternatives to dropshipping; here are a few:
- Print on Demand
POD, or print-on-demand, is a business model similar to dropshipping. The main difference is that the drop shipping supplier may stalk upon products. Meanwhile, POD suppliers only manufacture a product when a customer places an order for it.
- Dropshipping Agents
This is similar to the dropshipping model itself. However, in this case, an online store may use the services of a private dropshipping agent to find the best suppliers and deals.
- Whitelabel
In this model, suppliers manufacture generic products but add different banding labels depending on the online stores they're partnering with. This is one of the most common dropshipping alternatives.
- In-House Fulfillment
Here, the online store manufactures as well as delivers the product without the help of any third-party manufacturer or supplier.
It goes without saying that dropshipping is one of the most beneficial business models out there. It does not require an online store to have products in stock or take care of inventory management. The online store has to just relay the order details to the supplier, and he will take care of the rest.
Using this business model eliminates the need for inventory management, warehouse management, warehouse locations, investments, and upfront costs.
If you're looking at starting an online dropshipping business, then make sure to keep these in mind:
- Find the right products
- Find the right supplier
- Find the right website provider
- Market your products
It will help you start in a rather hassle-free manner.
Dropshipping Automation
Automated dropshipping utilizes technology to streamline various aspects of the dropshipping business model, enhancing efficiency and scalability. By integrating specialized software and tools, merchants can automate tasks such as product importation, inventory management, order fulfillment, and customer communication. This automation reduces manual effort, minimizes errors, and allows business owners to focus on strategic activities like marketing and customer service.
Key Benefits of Automated Dropshipping:
- Improved Efficiency: Automation accelerates processes like order processing and inventory updates, enabling businesses to handle a higher volume of transactions without additional manual labor.
- Enhanced Accuracy: By minimizing human intervention, automation reduces the likelihood of errors in order fulfillment and inventory tracking, leading to more reliable operations.
- Cost Savings: Automating routine tasks decreases the need for extensive staff involvement, resulting in lower operational costs and allowing resources to be allocated more effectively.
- Scalability: Automated systems can easily adapt to increases in demands, leading to business growth without a proportional increase in workload.
FAQs on Dropshipping
1. How do I start dropshipping?
To start a dropshipping business, one must first find the right products to sell and then find the right suppliers. After this, these products can be listed on the retailers' websites.
2. What is dropshipping with example?
Dropshipping is a business model where the online store does not need to keep products in stock but partners with suppliers and order fulfillment centers to source and deliver products. For example, if a customer places an order for a vase in an online store. The store owner will forward the order details to the supplier. Now, the supplier will manufacture or source the product and then deliver the same to the customer.
3. How does dropshipping work?
- A customer places an order on a website
- The online store owner sends the order details to suppliers
- The supplier will manufacture or source the product
- The manufacturer will also deliver the product to the customer
4. Is dropshipping legal?
Yes, dropshipping is legal. It is a legitimate business model used by many online retailers worldwide. However, it is essential to comply with local business regulations, such as taxes, permits, and consumer protection laws, depending on the country or region you're operating in.
5. Is Amazon a dropshipper?
Yes, you can dropship products with Amazon. While you can use their platform to sell dropshipped products, you must be the seller of record for the product and handle customer service and returns. Amazon prohibits using other marketplaces as the supplier’s return address, so it's important to follow their guidelines carefully.
6. Who pays first in dropshipping?
The customer pays first in dropshipping. When a customer places an order on your website, they pay for the product upfront. You then pass on the order details to your supplier, who fulfills the order and ships it directly to the customer. This arrangement eliminates the need for you to invest in inventory upfront.
7. Can I start dropshipping for free?
Yes, you can start dropshipping for free, though there are often minimal costs involved. Platforms like Shopify and WooCommerce offer free trials, and many dropshipping suppliers don't require any upfront fees. However, to build a professional store, you may eventually need to invest in a domain name, website hosting, or premium apps for better functionality.
8. Is drop shipping easy?
Yes, if done the right way, dropshipping is very easy. It simplifies the process of running an online business since you don’t need to manage inventory or handle shipping. But success in dropshipping requires strategic planning, marketing, customer service, and choosing the right products and suppliers.
9. What is e-commerce dropshipping?
E-commerce dropshipping is an online business model where online stores don't store products. Instead, the store partners with third-party suppliers who handle the storage, packaging, and shipping of products directly to customers. This model allows entrepreneurs to sell a wide range of products without worrying about inventory management or upfront investments.
10. What is Shopify dropshipping?
Shopify dropshipping refers to Shopify stores that use the dropshipping business model. Shopify provides a user-friendly interface and integrations with popular dropshipping apps like Oberlo and DSers, making it easy to source and sell products from third-party suppliers. It’s a popular choice for entrepreneurs due to its simplicity, scalability, and various e-commerce tools designed for dropshipping success.
