Glossary · Operations
What is Dropshipping?
Definition
Dropshipping is a retail model in which you sell products online but a third-party supplier stores and ships them directly to your customer, so you never hold inventory.
Why it matters
You list items in your store, collect payment, then pay the supplier a lower wholesale price and they ship the order. The upside is low startup cost; the downside is thin margins and little control over quality and delivery times.
If you sell a yoga mat for $38 that the supplier charges $24 for including shipping, you earn $14 before payment fees of about $1.40 and advertising. Spending $12 in ads per sale leaves around $0.60, which shows how tight margins can get. Selling 300 mats a month produces little profit unless acquisition cost is low.
Vet suppliers carefully, order samples, and be clear about shipping times. Check each state's sales tax obligations, which vary.
Common mistakes
- !Competing on price against dozens of stores selling the same product.
- !Not testing supplier quality and shipping times before promoting items.
Frequently asked questions
What is Dropshipping?
Dropshipping is a retail model in which you sell products online but a third-party supplier stores and ships them directly to your customer, so you never hold inventory.
What mistakes do beginners make with Dropshipping?
Competing on price against dozens of stores selling the same product. Not testing supplier quality and shipping times before promoting items.
Related terms