What is dropshipping? How does it work in 2025?
Dropshipping is a fulfillment methododel that allows sellers to outsource product storage and shipmenthandling and shipping products to a third- party supplier. This fulfillment method ecommerce model can appeal to entrepreneurs seeking efficiency and low overhead, but it can also have trade-offs.
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Do you want to sell products online without having to manage physical inventory, pay for warehousing, or ship orders? If so, dropshipping could be for you.
Because you typically don’t need to purchase products or storage space up front, dropshipping can be a great option for entrepreneurs, ecommerce beginners, and those who want to start or scale their operations with little investment. But dropshipping can also have downsides, like limited control over product quality, packaging, shipping timelines, and other important aspects of running an online business.
This guide walks you through how to dropship so you can evaluate whether it’s right for your business, avoid common problems, and learn to dropship successfully. We’ll also cover several dropshipping alternatives to help you save time, lower your overhead, or simplify your business.
Let’s dive in:
Because you typically don’t need to purchase products or storage space up front, dropshipping can be a great option for entrepreneurs, ecommerce beginners, and those who want to start or scale their operations with little investment. But dropshipping can also have downsides, like limited control over product quality, packaging, shipping timelines, and other important aspects of running an online business.
This guide walks you through how to dropship so you can evaluate whether it’s right for your business, avoid common problems, and learn to dropship successfully. We’ll also cover several dropshipping alternatives to help you save time, lower your overhead, or simplify your business.
Let’s dive in:
- What is dropshipping?
- How does dropshipping work?
- Dropshipping pros and cons
- How to start a dropshipping business in 2025
- 5 dropshipping alternatives
What is dropshipping?
Dropshipping is a way of selling products without handling inventory, storage, or shipping. Instead, you work with one or more third-party suppliers who ship products directly to customers on your behalf. The process of getting products to customers who place orders online is referred to as “ecommerce fulfillment,” and there are many ways of fulfilling online orders. Dropshipping is one.
What is a dropshipper?
A dropshipper is a seller who lists products for sale online and coordinates with a third-party supplier to get orders to customers. The dropshipping supplier could be a manufacturer or wholesaler who maintains inventory and ships products directly to customers.
What’s a dropshipping business model?
In a dropshipping business model, an ecommerce business can work with a supplier who ships products in response to orders that customers place online. This frees up the ecommerce business to focus on selecting and promoting the products they want to sell.
How does dropshipping work?
Here’s how dropshipping works in three basic steps:
- When a customer places an order online, the seller forwards the order details to a supplier.
- The supplier packs and ships the order.
- The seller informs customers that the products are on the way, and provides customer service as needed.
Some dropshipping suppliers provide customer service, but others don’t interact directly with customers at all, leaving returns, refunds, and exchanges to the seller.
Let’s take a closer look:
Let’s take a closer look:
- Dropshipping process overview
- Is dropshipping legal?
- Is dropshipping profitable?
Dropshipping process overview
The exact process can vary depending on each dropshipping arrangement, but here’s a general sequence:
- Seller signs agreement with supplier
- Customer orders online
- Seller receives order
- Customer receives order confirmation
- Seller forwards the order to supplier
- Supplier ships order
- Customer receives product
With this model, you can dropship as the seller of record, meaning you technically own the products before customers buy them. The seller of record sells a product by setting the price, recording the purchase as revenue, and assuming responsibility for sales tax.
Did you know?
Dropshipping is allowed in the Amazon store
According to Amazon’s Drop Shipping Policy, you can generally use a dropshipping service to sell products, as long as you’re the seller of record.
Is dropshipping legal?
Yes, dropshipping is a legal method of order fulfillment when you follow applicable laws for the countries and regions where you want to sell. To avoid problems, make sure to also follow the dropshipping policies of any suppliers, retailers, or other third parties you decide to work with.
Is dropshipping profitable?
It can be very profitable, especially with the right dropshipping strategy. Because you don’t need to invest in products that might not sell, you can get started with relatively low costs and overhead compared to other business models. For best results, boost your bottom line through product selection, pricing research, marketing techniques, and more strategies.
Did you know?
Selling online can be profitable
You can make money with dropshipping and other order fulfillment methods. More than 60% of sales in the Amazon store are from independent sellers—most of which are small and midsize businesses. In 2024, independent sellers in Amazon’s US store averaged more than $290,000 in annual sales, and more than 55,000 independent sellers generated over $1 million in sales.
Dropshipping pros and cons
Like other fulfillment methods, dropshipping can have advantages and disadvantages depending on your business goals, logistics, and other factors. Here’s an overview of considerations.
Potential benefits of dropshipping
- Low startup costs: Since you don’t need to procure products or storage space, you can get started with a lower initial investment and lower financial risk.
- Less overhead: Minimize your operational costs without the need to manage inventory, storage, and order fulfillment.
- More variety: Sell a broad range of products by picking and choosing from existing catalogs, without worrying about transport or storage.
- Greater flexibility: Test different products and suppliers to discover what works best without investing in inventory that might not sell. Fulfill orders from anywhere, so you’re not tied to one location.
- Ability to scale: Using suppliers can make it feasible to accept more orders without putting a strain on your resources. You don’t need to procure more inventory in order to grow.
Potential dropshipping drawbacks
- Product differentiation: Dropshipped products might not be unique or distinguishable from similar offerings of other sellers.
- Intense competition: Given the low costs and investment to get started, dropshipping can be competitive.
- Slim margins: Within a crowded market, you might need to lower prices to entice purchases, leading to lower profit margins.
- Lower quality: You might be limited to generic products without the ability to assess, monitor, or guarantee quality.
- Limited control: Product quality, order fulfillment, and shipping timelines are largely out of your hands. Longer delivery timeframes could deter customers and hurt sales. Reliance on suppliers can also leave your business vulnerable to supply chain disruptions.
- Reputational harm: If dropshipping suppliers make mistakes, customers could hold your business accountable for issues like poor packaging or missing items. As the seller, you’re responsible for customer satisfaction.
Be sure to consider complexities like these before deciding whether dropshipping services are right for your business. Depending on how you want to do business, dropshipping could be worth it, or you might want to look at alternatives.
Pro tip
Look into dropshipping automation
Automation can speed up and simplify the way your business uses dropshipping services. Software and automated technology can help integrate dropshipping into your business model and improve performance. For example, in the Amazon store, you can use automation to generate product listing content, adjust prices, optimize shipping times, and more.
How to build a dropshipping business in 2025
Here’s how you can start and scale a dropshipping business step by step:
- Select products and your niche.
- Vet supplier.s
- Request product samples.
- Consider logistics from end to end.
- Calculate your margins.
- Create your online presence.
- Analyze customer service.
1. Select products and your niche
Dropshipping product selection is vital. Here are a few ways you can choose products to dropship:
- Identify ideas for products you might want to sell, then find dropshippers who supply them.
- Research suppliers, explore their catalogs, and pick the products you’d like to sell.
- Conduct competitor research. Are many businesses selling the same product? That could indicate the market is saturated and might be tough to break into. Can you compete with price points for similar products? To turn a profit, perhaps you can charge more if your products are higher quality or have another competitive edge.
One way to potentially sidestep the competition is to specialize in a smaller niche, like energy efficient lighting. Choosing a specialty can allow you to develop expertise and benefit from a more defined audience with fewer sellers vying for sales.
Data tools can help you zero in on profitable product ideas. For example, try using Amazon’s Product Opportunity Explorer to analyze data and discover lucrative niches.
Data tools can help you zero in on profitable product ideas. For example, try using Amazon’s Product Opportunity Explorer to analyze data and discover lucrative niches.
2. Vet suppliers
To find reliable dropshipping suppliers and avoid common issues like late shipments and missing orders, thoroughly research any third parties you’re considering working with. Look at the supplier’s website and check their reviews to see if others have had positive experiences working with them.
Once you find dropshipping suppliers you might want to work with, here’s a list of questions you might want to ask:
Once you find dropshipping suppliers you might want to work with, here’s a list of questions you might want to ask:
- What are your inventory requirements and storage capabilities?
- What processing volumes can you handle?
- What packaging and prep services do you offer?
- What are your order fulfillment timelines?
- What are your policies for handling returns and exchanges?
- Do you supply tracking numbers for shipments?
- Do you offer customer support?
- How much do you charge per sale?
- Are there any other costs?
- Is insurance provided for orders?
Choose reputable dropshippers who can meet your needs. When comparing services, look for a great track record with accurate and on-time deliveries, as well as high-quality products.
3. Order product samples
When vetting suppliers, you can order samples to test product quality. This is also a good chance to evaluate a supplier’s shipping speeds and other aspects of their fulfillment capabilities. For example, is the packaging a good reflection of your business?
If possible, inspect the quality of products when you first start working with a supplier, and get a system in place to monitor product quality on a regular basis. If this isn’t possible, consider looking for other vendors. A change in manufacturing or materials, for example, could make a difference to product quality. This in turn could translate to customer reviews and ultimately impact your reputation.
The cost of ordering samples can add up, so be sure to budget for it. You can also check with the supplier to make sure you’re getting the best price. As the seller, you can sometimes get test products at a discounted rate.
If possible, inspect the quality of products when you first start working with a supplier, and get a system in place to monitor product quality on a regular basis. If this isn’t possible, consider looking for other vendors. A change in manufacturing or materials, for example, could make a difference to product quality. This in turn could translate to customer reviews and ultimately impact your reputation.
The cost of ordering samples can add up, so be sure to budget for it. You can also check with the supplier to make sure you’re getting the best price. As the seller, you can sometimes get test products at a discounted rate.
4. Consider logistics from end to end
Walk through the entire customer journey and analyze each step. Pay close attention to each touchpoint of the shopping experience, including:
- Landing pages, product listings, and other materials where customers can get the information they need to make purchasing decisions
- The mechanisms customers can use to place purchases using various payment methods
- Customer notifications like order confirmation messages and shipment tracking alerts
Analyze how you coordinate with the dropshipper throughout the entire process. Are there ways you can optimize communication to make the process smoother?
Look at it from the customer’s perspective. Would you be satisfied with your experience? Keep an eye out for any flaws or inefficiencies, as these could be areas for improvement.
Look at it from the customer’s perspective. Would you be satisfied with your experience? Keep an eye out for any flaws or inefficiencies, as these could be areas for improvement.
5. Calculate your margins
Your investment in a dropshipping business will typically be lower than other ecommerce models, but you might have other expenses like:
- Website domains and hosting
- Sample orders
- Advertising
Factor in any tools, resources, or services you’ll need to stay in operation, like software or automation. Then estimate your margins to ensure you’ll be able to turn a profit. Try Amazon’s free Revenue Calculator to compare your potential profit margins for various fulfillment strategies.
6. Create your online presence
To help customers connect with dropshipping products, you can build an online store—whether your own website or a storefront on an existing website like Amazon. From there, you can direct customers to products using the marketing channels of your choice, like:
- Social media
- Blog posts
- Emails
- Videos
- Paid ads
Make sure your marketing materials are professional, visually appealing, and optimized for mobile and desktop devices. This can go a long way toward earning the trust of customers and improving product visibility.
7. Analyze customer service
Customer service can be a gray area in dropshipping, with unclear divisions between your responsibilities and the supplier’s. Make sure you have clear agreements in place so you can:
- Address customer questions and concerns
- Accommodate for defects and other issues
- Process refunds, returns, and exchanges
If a supplier offers customer service, test it out. How long does it take to get a response? Do they resolve your problem? Consider seeking other vendors, if not.
Work together with the supplier to provide seamless customer service, earn positive reviews, and build loyalty with your audience.
Work together with the supplier to provide seamless customer service, earn positive reviews, and build loyalty with your audience.
Did you know?
Selling internationally can expand your reach
You can access international logistics capabilities through Amazon Global Selling. Get started selling and shipping worldwide with dedicated resources for expanding your business.
5 dropshipping alternatives
1. Try Fulfillment by Amazon (FBA)
Similar to dropshipping, Fulfillment by Amazon (FBA) lets you outsource the entire fulfillment process. With Amazon FBA, you send inventory into Amazon’s fulfillment network, where we store, pack, and ship products, in addition to providing customer service and returns. You’ll need to invest in inventory at the outset, but with the right products, you could enjoy higher profit margins. The opportunity to expand internationally could also translate to higher growth potential, and Amazon Prime can help entice customers with fast, free shipping.
2. Use print on demand (POD)
Print-on-demand (POD) technology generates products in response to online orders, so you can use it to sell products without holding inventory. Unlike dropshipping, which tends to be limited to generic products, you can use POD to customize products with unique designs. For example, POD is a great solution if you have an idea for a funny T-shirt, or other types of merchandise. You can also work with POD providers who specialize in the types of products you want to sell. For example, if you want to publish and sell books, research POD suppliers who print paperbacks or hardcover books.
3. Start affiliate marketing
Like dropshipping, affiliate marketing doesn’t require you to purchase, store, or process inventory. Instead you create referral links and earn a commission by directing customers to products. This approach allows you to monetize sales channels like websites, social media, a blog, or an email list. For example, with Amazon’s Brand Referral Bonus, you can build audiences and earn credits on sales.
4. Outsource to third-party logistics (3PL)
Dropshippers aren’t your only option if you want to outsource the fulfillment process. You can work with third-party logistics (3PL) providers for basic fulfillment services, as well as more specialized procedures like product bundling, subscription boxes, and more. Unlike dropshipping, you handle product procurement and ship inventory to the third party’s location. This approach can give you more control over product quality, and the right 3PL can handle fulfillment operations according to your specifications. You might have higher initial costs, but your savings potential could be higher over time.
5. Build a brand
If you want to set yourself apart from the competition, building a brand could be a great route. The investment in differentiating your offerings can give you a competitive advantage. Either start out dropshipping and build a brand organically, or establish a brand first, then add dropshipping to your overall strategy. If you get a product idea or find a way to put a unique spin on a product, you might be able to trademark it. It can take time and resources to establish a strong brand, but it can go far to earn customer loyalty.
Is dropshipping worth it?
Dropshipping could be worth it depending on your goals. To help you decide, here are some factors to consider based on your strategy:
- How do you want to build your business?
- How much control do you want over product quality and fulfillment?
- How quickly do you want to ship products?
- What are your target profit margins?
- How will you handle refunds, returns, and replacements?
Along with other fulfillment methods, dropshipping can be a good option to consider, either as the primary fulfillment channel for your ecommerce business or as a supplement to your other strategies.
Check out our step-by-step guide to dropshipping with Amazon for a deeper dive into the details of how to dropship successfully, plus tips to scale.
We hope this guide helps as you explore how to start a dropshipping business. To start dropshipping in the Amazon store, register as a seller.
Check out our step-by-step guide to dropshipping with Amazon for a deeper dive into the details of how to dropship successfully, plus tips to scale.
We hope this guide helps as you explore how to start a dropshipping business. To start dropshipping in the Amazon store, register as a seller.
Helpful resources
Whether you’re looking to start a new brand, expand an existing brick-and-mortar business, or increase ecommerce sales, here are some resources to support your path to success.
Frequently Asked Questions
What is dropshipping?
Dropshipping is a business model that allows you to sell products online without owning inventory or operating the physical location where products are stored and processed. This means you can start an ecommerce business and sell a wide range of products with relatively little investment.
What do you need to start dropshipping?
Before you start listing products for sale, choose what dropshippers you want to work with, and select the products you want to sell. Order samples and test the fulfillment process with your suppliers, then create promotional content to increase visibility and drive sales. You should also have systems in place for tracking sales, calculating your profits, and providing customer support.
Do you need an LLC to start dropshipping?
No, you can start dropshipping without registering an LLC, though business registration could provide benefits as you start and scale your operations. For example, you might want to form an LLC for tax purposes or insurance reasons. Learn more about how to start an ecommerce business.
How do you find dropshipping suppliers?
To find dropshipping suppliers, research providers of dropshipping services, like manufacturers and wholesale companies. You can also seek out trade shows, explore online groups, and join communities. If you know what you want to sell, whether party supplies or phone cases, you can research dropshippers who specialize in that product type.
Does Amazon allow dropshipping?
Yes, you can use dropshipping in the Amazon store if you follow Amazon’s Drop Shipping Policy.
What’s the difference between dropshipping and retail arbitrage?
With dropshipping, you don’t hold inventory, and instead coordinate with a third-party supplier to ship orders directly to customers. Retail arbitrage, or reselling products, is the process of obtaining products and selling them at a higher price to make a profit.
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