Dropshipping: How to Succeed in Retail With No Inventory

Millions in profits. Thousands of products. Zero inventory. 

Believe it or not, this is the reality of many successful e-commerce brands. Instead of burdening the high expenses of manufacturing, stocking, and shipping their own products, more and more retailers turn to dropshippers to do the heavy lifting.

Dropshipping is ideal for brands that don’t want to manage a warehouse or invest in a large inventory. It allows retailers to grow their businesses quickly using dropshipping software to list products and process orders without purchasing inventory in advance. 

What is dropshipping?

Dropshipping is a fulfillment practice where retailers don’t have to keep products in stock. The merchant instead buys their products from a third-party supplier, usually a wholesaler or manufacturer, to be shipped directly to the customer. 

The difference between dropshipping and a traditional retail business model is that the selling merchant doesn’t stock or own inventory. With dropshipping, a manufacturer creates a product and sells it in bulk to wholesalers and suppliers, who then sell the products to retailers. Therefore, the retailer doesn’t directly handle any product when fulfilling customer orders. 

A dropshipper, on the other hand, is the supplier who manages inventory for retail merchants and acts as the middleman between the manufacturer and the consumer. The retailer acquires customers and receives orders, acting as a middleman between the dropshipper and the consumer.

Retailers can also purchase products directly from the manufacturer. However, manufacturers often have minimum purchase requirements, forcing the retailer to stock, store, and ship the products. This is why merchants generally prefer to buy from dropshipping suppliers or wholesalers. 

How does dropshipping work?

Although there are multiple parties involved, the dropshipping process is actually quite simple. First, retailers market and sell the products to consumers through an e-commerce storefront. Next, the orders are sent to the dropshipper for order fulfillment. This means that wholesalers and suppliers never sell directly to the consumer. 

Let’s say you run an e-commerce business called Rings & Things. A company called Metal Makers manufactures the jewelry, but you purchase your product from a supplier named Jewelry International, not Metal Makers. 

In this case, here is how the supply chain would operate: 

• The manufacturer, Metal Makers, makes the jewelry 
• The supplier, Jewelry International, purchases products from the manufacturer 
• The retailer, Rings & Things, advertises the products on their sites and processes customer orders   
• When an order is placed, Rings & Things forwards it to Jewelry International 
• Jewelry International packs and ships the order on behalf of Rings & Things
• The customer receives the order in Rings & Things packaging 

Pros and cons of dropshipping

Although dropshipping has many advantages, it also has its drawbacks. Before deciding if it’s right for you, you must weigh the pros and cons of running a dropshipping business.

Benefits of dropshipping

Dropshipping appeals to merchants looking for a low-risk way to expand their product catalog. It’s also a great option for retailers who want to cut costs by eliminating the need to store inventory and fulfilling orders themselves. 

Other benefits of running a dropshipping business include: 

• Less capital and low overhead. Retailers don’t need to purchase products until a sale is made, meaning merchants don’t have to invest in a lot of inventory upfront. This eliminates the need for a warehouse and packing and shipping materials. 
• Flexibility. For dropshipping businesses, most recurring expenses are digital, so retailers only need to set up an e-commerce storefront. Retailers can manage and operate their entire business from anywhere with an internet connection. 
• Wide product catalog. Because dropshipping eliminates manufacturing and inventory stock costs, retailers can easily change their product catalogs. Retailers don’t have to pre-purchase items, meaning they can experiment with trendy new products without having to manufacture or keep them in stock. 
• Easy to scale business. In a traditional e-commerce model, retailers who double their business require twice as many resources to handle that growth. But with dropshipping, suppliers manage the product stock and handling, making business growth a lot more manageable for merchants. 

Disadvantages of dropshipping

Dropshipping is a simpler and more cost-effective way for retailers to expand and scale their business – but it comes at a price. The more you outsource processes like manufacturing and order fulfillment, the less control you have over product quality and customer experience. 

So is dropshipping worth the effort? Below are the most common challenges of dropshipping: 

• Lower profit margins. Retailers purchase from wholesalers or suppliers who mark up the manufacturer’s product prices. 
• Inventory management. Inventory can change quickly because retailers source products from dropshipping suppliers instead of managing their own stock. To rectify this, one check out the top inventory control software present in the market today.
• No supply chain control. Once orders are sent to suppliers, retailers have little to no control over order fulfillment. This makes it difficult to ensure product quality and handle returns. 
• Lack of control over experience and branding. Customer service and support can be difficult to manage when dealing with multiple suppliers and wholesalers. 

Examples of dropshipping websites

Since consumers don’t interact directly with suppliers, the average customer is often unaware they’re purchasing from a dropshipper. In fact, some of the world’s largest e-commerce companies are in the dropshipping business. 

The supplier: AliExpress

AliExpress, a China-based online retail service, is a global leader in dropshipping. The company’s business model allows people all over the world to purchase products from overseas manufacturers and suppliers at a discounted price. 

Retailers can import product descriptions from AliExpress to their e-commerce site and set their own prices. After a product is purchased from the retailer, the supplier on AliExpress ships it directly from their warehouse to the customer. Suppliers on the site are also retailers, however, most AliExpress users resell the products via their online dropshipping stores. 

Sellers on AliExpress can be individuals, small businesses, trading companies, or even factories. And because AliExpress is based in China, where labor costs are significantly lower, products can be sold cheaper than other sites.

Bluetooth speakers for sale on dropshipping sites AliExpress and Amazon

Imagine your online store sells waterproof Bluetooth speakers, and you’re looking for a dropshipper. Bluetooth speakers on AliExpress cost $1.69 with free shipping to the United States, while a similar product on Amazon costs $14.99. 

Using AliExpress as a dropshipper allows you to purchase the product at a low price and mark it up to normal U.S. market prices on your storefront. This allows for a much larger net profit than you would get if you purchased the product from a marketplace like Amazon. 

AliExpress boasts more than 100 million products that can be dropshipped to any location worldwide. The company effectively changed the dropshipping industry by breaking down language barriers and making the process easy and cost-effective. 

The merchant: Meowingtons

The e-commerce site, Meowingtons, is a prime example of a retailer who found success with dropshipping. Meowingtons built its massive pet brand by specializing in products for cat lovers.

In 2014, Meowingtons launched its Shopify store exclusively using a dropshipping business model. Although the brand now manufactures some of its items, you can still find many Meowingtons products on AliExpress.

Cat beds for sale via dropshipper AliExpress and merchant Meowingtons

As a merchant, Meowingtons can focus on crafting a product catalog that attracts and appeals to customers. Meowingtons’ strong branding has helped it build and maintain a loyal social media community, with 675K Instagram followers and nearly one million Facebook page likes. 

8 FAQs about dropshipping

Although dropshipping simplifies inventory management and order fulfillment, other aspects of the process can be difficult to navigate. Below are eight frequently asked questions about dropshipping to help you better understand how the process works.

1. How profitable is dropshipping?

Many retailers find success with dropshipping, but this is not always the case. Although the lower overhead costs are lower, the retailer often doesn’t make as much profit on each sale.

A merchant’s profit is impacted by three main factors: product margins, website traffic, and conversion rates. You can predict your dropshipping income based on the following industry averages, but keep in mind that they’re subject to change:

• 20% product margin
• 2% conversion rate 

Using the averages above, you can use the following formula to calculate a working estimate.

2. How can I start a dropshipping business?

Since dropshipping businesses require less capital and resources, it’s relatively easy to get one going. Retailers generally only need to do the following:

1. Create an online e-commerce store
2. Find a product supplier or wholesaler to work with 
3. Promote the product to consumers and acquire customers

3. What is bulk dropshipping?

Bulk dropshipping is a process where retailers order products in large quantities then store them for shipping to customers.

Some believe that this process defeats the purpose of dropshipping because it requires the retailer to store and manage inventory. However, bulk dropshipping gives retailers more control over shipping, packaging, branding, and enhancing the customer experience.

4. What are common dropshipping products?

Essentially anything can be dropshipped, but some products are more popular than others. Below are some of the most popular dropship items:

• Shirts, tote bags, and other clothing 
• Jewelry 
• Pet products 
• Phone cases and accessories 
• Fitness equipment 
• Mugs and cups 
• Home decor

5. Do dropshippers ship products internationally?

Whether or not a dropshipping business can ship internationally depends entirely on the supplier or wholesaler. This can be a complex process because retailers have to consider international shipping costs, customs and duties, and paperwork.

International shipping is more expensive and often results in higher prices for customers and lower net profit margins for retailers.

6. How do you select a dropshipping supplier?

Not every dropshipper will fulfill your brand’s needs. Consider the following before committing to a supplier:

• How much do they charge? Keep costs as low as possible so your company can get a good profit margin on each order. 
• Do they charge handling fees? Remember, the more you have to pay your supplier, the smaller is your net profit margin.
• How do they handle and ship products? Make sure your supplier ships items quickly and handles them carefully to help promote a positive customer experience.

7. Who is dropshipping for?

Dropshipping is great for beginner e-commerce retailers and entrepreneurs who don’t have many resources or capital to produce, manage, and ship their inventory. It’s also beneficial for business owners looking to experiment with other products or a new industry, as well as established retailers looking to expand their product offerings.

8. Is dropshipping legal?

Yes, dropshipping is a legal practice. But as we discussed, there are risks involved with dropshipping, such as:

• Long shipping times: Shipping can take weeks or even months depending on the supplier 
• Lack of control: Retailers cannot control the quality of the product or the customer experience
• Price changes: Wholesaler and supplier prices are subject to change, meaning the retailer’s net profit can also change

Best dropshipping software

Dropshipping software enables online merchants to sell products to consumers without purchasing and stocking inventory. Most dropshipping systems easily integrate with e-commerce platforms to create a cohesive shopping experience for consumers and an easy-to-manage back-end experience for companies. 

To be included in the dropshipping software category, a product must: 

• Connect retailers with dropshippers 
• Integrate with various e-commerce platforms
• Show order tracking for customers and businesses 
• Give businesses the ability to adjust pricing

*Below are the five leading dropshipping systems from G2's Fall 2021 Grid® Report. Some reviews may have been edited for clarity.

1. Oberlo

Oberlo’s platform allows users to find products from dropshipping suppliers, add them to their Shopify store, and ship directly to customers.

What users like:

“Oberlo provides us the capability to easily import products from AliExpress. It has a clean interface to manage a large number of products and allows us to automate the whole dropshipping process – from importing products to delivering orders. It has Chrome extensions that are easy to install and use. We can also edit multiple products at the same time, which reduces our effort.”

- Oberlo Review, Farhan A.

What users didn't like:

“Right now, you can only import products from AliExpress. There are a lot of products to choose from there, so I would want more variety. I wish Oberlo integrated with more websites and platforms that are similar to AliExpress, preferably in the United States where we don't have to deal with those awkward shipping times.”

- Oberlo Review, Shayne H. 

2. Spocket

Retailers count on Spocket to vet suppliers, ensuring fast shipping, product quality, and branded invoicing for their dropshipping businesses. 

What users like:

“I like that Spocket simplifies everything and uses properly vetted suppliers that are located in the U.S. or EU for faster shipping times and higher quality products. They also offer free samples so you can see for yourself just how good the products are and how fast shipping is. This is a crucial app to do well in dropshipping, and I will be using it from now on.”

- Spocket Review, Eric F.

What users didn't like:

“Spocket offers only 25 products for its basic plan, which might not be enough for most starters to showcase on their website. If Spocket has a free plan to start and then slowly upscale, it will be more beneficial for newcomers.”

- Spocket Review, Krishnamoorthy K.

3. Printful

Printful is an on-demand print and embroidery fulfillment and warehousing service. The platform allows merchants to integrate with top e-commerce platforms and online marketplaces to automatically print and ship orders to customers.  

What users like:

“Printful has been fantastic. We sell posters of my grandmother's photographic artwork, and the paper quality is as good as photographers use for high-quality prints but at a fraction of the cost. In terms of customer service, Printful always replies quickly and helps resolve issues. The customer back-end portal is also very easy to use, and you can get started selling products quickly and easily.”

- Printful Review, Michael A.

What users didn't like:

“I had a few sync issues with my online store when I first got set up. There are also times where I felt the products did not get communicated or linked properly. Out-of-stocks have occurred, and I wish the communication of these events was more clear. I also wish some of the product costs were not as high, as they are more expensive than someone who could print locally.”

- Printful Review, Brian S.

4. Easyship

Easyship enables retailers to manage all ordering and shipping activity in a single dashboard. Merchants turn to Easyship as an all-in-one dropshipping platform powered by API shipping automation.

What users like:

“Easyship is super easy and syncs orders with many e-commerce websites. It allows us to offer customers different options for their deliveries and show the taxes and duties for international shipments. The pickups are easily booked, which makes managing hundreds of orders easy.” 

- Easyship Review, Lachlan M.

What users didn't like:

“I had an issue with one of my packages and have not gotten a response back from Easyship. I have insurance on the package, yet it seems as if this is not an issue for them. My customer is not pleased, and neither am I. It’s making my small business look bad to my new customer when it comes to shipping.”

- Easyship Review, Alexis G.

5. ShipRocket

ShipRocket is an e-commerce logistics and shipping software system. The platform offers negotiated freight rates with top-rated shipping partners and integrations with top e-commerce sites.

What users like:

“The fact that I can choose the delivery service courier and mode of delivery makes it super convenient. The pickup happens immediately, sometimes even on the same day, which is amazing. The tracking details are automatically shared with the customer. They also have coverage of a wide range of PIN codes, which makes it easy to ship anywhere.”

- ShipRocket Review, Mohammad A.

What users didn't like:

“I have used ShipRocket for a long time, and they haven't improved their customer support service. It takes a long time to resolve your issues. Apart from that, a big issue is weight discrepancy. There's no timeline for weight discrepancies, so it’s not possible to keep shipment details for a long time, and they take advantage of this.” 

- ShipRocket Review, Rakesh A.

Dropship it like it's hot

You don’t need to spend a fortune on inventory just to expand your product catalog or get your business off the ground. With dropshipping, you can process customer orders, then sit back, relax, and let your supplier take care of the rest. 

Whether you work with dropshippers or manufacture items yourself, it’s important to maintain accurate product data across sales channels. Learn how to manage your product data with product information management (PIM) systems.