Drop shipping

What is drop shipping?

Drop shipping (also written as dropshipping or drop ship) is a retail business model where the seller does not keep products in stock. Instead, when a customer places an order, the store forwards it to a third-party supplier who ships the item directly to the customer. In other words, drop shipping is a type of order fulfillment where the supplier, not the seller, picks, packs, and ships every order. This eliminates the need for inventory management, warehousing, or handling shipments, which is why it is often the lowest-barrier path for a new ecommerce merchant to launch a store with very little upfront capital.

The drop shipping model lets brands focus on building their online store, managing customer relationships, and marketing products, while suppliers take care of storage, packaging, and delivery. It is a flexible and scalable approach that supports a wide product range without the risk of unsold inventory.

What is the drop shipping business model?

The drop shipping business model involves three parties: the customer, the retailer (the seller of record on the storefront), and the supplier (a manufacturer, wholesaler, or specialist drop shipping partner). Here is how it works:

• A customer places an order on your online store.
• You forward the order to your supplier or manufacturer, usually automatically through your ecommerce platform.
• The supplier picks, packs, and ships the product directly to the customer, often in plain or branded packaging.
• You earn the difference between your retail price and the supplier’s wholesale cost, your profit margin, minus any per-order or platform fees.

Benefits of drop shipping:

• No need to purchase inventory upfront, which keeps working capital free for marketing and growth.
• Low startup costs and no warehouse, lease, or fulfillment staff to hire.
• Easy to test new products, niches, or seasonal SKUs without committing to large minimum orders.
• Location-independent business model, since the operation can run from anywhere with reliable internet.

Challenges of drop shipping:

• Lower margins due to supplier markups, per-order fees, and competitive price pressure in saturated niches.
• Less control over product quality, packaging, and shipping speed, which can dilute brand perception.
• High competition in popular categories means rising customer acquisition costs and tighter unit economics.
• Returns and customer complaints land with the seller of record even though the supplier handled the order.

Example of drop shipping

Imagine someone launches an online store selling stylish water bottles. Instead of stocking the items, they partner with a supplier. When a customer places an order, the supplier packs and ships the bottle directly to the buyer, and the store owner never handles the product. That is how drop shipping works in practice: the seller owns the storefront, brand, and customer relationship, while the supplier owns the physical fulfillment.

Driftcharge Tip

Choose reliable suppliers and over-invest in customer support. In a drop shipping business, your brand reputation lives or dies on third-party fulfillment performance, so vet shipping times, defect rates, and return policies before you commit, and keep a backup supplier ready for your top SKUs.

Ganesh Pawar

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Ganesh Pawar is the founder of Driftcharge, a subscription management app designed to help Shopify merchants streamline and scale their subscription businesses. With a deep focus on solving real-world pain points—like legacy account page support, flexible subscription options, and advanced analytics—Ganesh is passionate about building tools that drive growth and retention.