What Is Dropshipping?

Dropshipping is a retail method in which the seller does not keep products in stock. Instead, when a customer buys, the seller passes the order to a supplier, who ships the item straight to the customer. The seller never handles the product.

How it works

The seller lists a supplier's product in an online store at a higher price than the supplier charges. When an order arrives, the seller pays the supplier, and the supplier packs and ships it. The seller handles customer messages, refunds and the shop itself.

Responsibility stays with the seller

In the customer's eyes, and often in law, the store is the seller. If the item is late, damaged or not as described, the customer contacts the seller, who may owe a refund even if the supplier made the mistake. The seller is also responsible for accurate listings, tax, consumer rules and product safety where it sells.

Why margins are thin

Many stores sell the same products, so prices stay low. After supplier cost, shipping, payment fees, advertising, returns and chargebacks, little may be left. Platforms and payment processors also restrict some dropshipping models.

An example

A store lists a desk lamp at one price. A customer orders it. The store pays the supplier a lower price, the supplier ships the lamp from another country and the customer later asks where it is. The store answers and refunds if it never arrives.

Related terms

See print on demand, chargeback and payment processor. For the details, read dropshipping explained for beginners.