Dropshipping is an order fulfillment option that allows ecommerce businesses to outsource procuring, storing, and shipping products to a third party—typically a supplier.
The dropshipping model commonly appeals to entrepreneurs seeking efficiency and low overhead, but it can come at a cost. This guide will cover what dropshipping is and explore how this fulfillment method can work. We’ll also look at a few alternative fulfillment models.
What is a dropshipping business model?
In a dropshipping business model, you promote products and provide an online storefront. When a customer places an order, you send the order to the dropshipper and inform customers the products are on the way. The rest of the physical fulfillment process is out of your hands. In some dropshipping agreements, you may also handle customer service, while the dropshipping service manages the physical goods and fulfillment.
How does dropshipping work?
The exact logistics of dropshipping depend on your arrangement, but typically the dropshipping process follows this general sequence:
- Seller signs agreement with dropshipper.
- Customer orders online.
- Seller receives order.
- Customer receives an order confirmation.
- Seller forwards the order to dropshipper.
- Dropshipper ships the order.
- Customer receives
Key players in the dropshipping model
Let’s unpack some of the key players and their roles in detail, starting with the seller of record—in other words, your ecommerce business.
Seller of record
The dropshipping process starts with you. As the seller of record (SoR), you’re the individual identified as selling the product to the end consumer. You set the price, record the purchase as revenue, and assume responsibility for the sales tax on a particular sale. Even when a third party stocks and ships the items, you’re the seller of record because you own the products before they ship to the customer.
For Amazon sellers, using a dropshipping service is generally allowed by Amazon dropshipping policy, as long as you’re the seller of record and identify yourself as such.
Manufacturers
Manufacturers make products to sell to wholesalers and retailers. You can purchase goods from manufacturers, but the bulk purchase amounts they may require can potentially be a barrier to starting or scaling your business. Some manufacturers may offer dropshipping services.
Wholesalers
In a typical product supply chain, wholesalers buy from manufacturers and sell to retailers at a slight markup. They function as middlemen; generally, they do not sell to the end consumers but may provide dropshipping services to retailers.
Determine which dropshipping providers could be right for you based on your business model and fulfillment requirements, among other factors.