What is Dropshipping and How Does it Work? Learn in 2025

What is dropshipping? A popular and effortless way to start a business is dropshipping. No hassles buying, storing, or shipping.

When a store gets its order, it sends the order details to its supplier. Shipping is handled by the supplier. This way, the store owner can focus on advertising and building their brand.

Coming up, find out what is dropshipping business model means, how it functions, and how you can start your own dropshipping business.

What is Dropshipping Business Model?

In a dropshipping model, you market products and run an online store. You send the supplier the order after a customer makes a purchase, and the supplier ships the item straight to the customer. You keep the customer updated on the order’s status, while the supplier handles all storage, packaging, and delivery. This means you focus on sales and customer service, while the supplier manages fulfillment.

How Does Dropshipping Work?

Dropshipping works differently depending on your setup, but here’s a general process:

1. Seller partners with Dropshipper.
2. The customer places an order.
3. The seller gets the order.
4. The customer gets an order confirmation.
5. The seller sends the order to the dropshipper.
6. The dropshipper ships the product.
7. The customer receives the product.

Dropshipping is good for selling generic products, but it makes it hard to stand out or build a brand. This often leads to price wars and small profits.

Who Are the Major Players in Dropshipping?

Let’s break down the key roles, starting with the seller of record—your business.

Seller

Dropshipping starts with you as the seller. You set your price, record the sale, and handle sales tax. Even though a third party stores and ships the product, you’re still considered the owner until it reaches the customer.

Manufacturer

A manufacturer produces products for wholesalers and retailers. You can buy directly from them, but they often require large orders, which can be hard when starting a business. Some manufacturers also propose dropshipping services.

Wholesaler

In a product supply chain, a wholesaler buys from a manufacturer and deals with a retailer with a small markup. They act as middlemen and usually don’t sell directly to consumers, but could offer dropshipping to retailers.

Choose the right dropshipping providers based on your industry needs and how you fulfill orders.

Who Pays for Dropshipping?

A dropshipping business doesn’t ship its products, but its suppliers usually charge shipping fees. To handle these fees, the dropshipping business can use different approaches:

1. Offer Free Shipping
   • Pay the shipping fees from their profits.
   • Raise product prices to cover shipping costs.
2. Charge for Shipping
   • Reduce shipping costs and raise prices slightly.
   • Charge customers a flat shipping fee.
   • Pass the exact shipping cost to the customer.

They can also use different strategies for different products, like charging per item.

Are You a Good Fit for Dropshipping?

It is dependent upon the business you run. Consider these questions if you are considering dropshipping.

1. How do you build your brand?

Your brand is how customers see your business. A strong brand helps build loyalty. Products, delivery, and packaging are less controlled with dropshipping. If these don’t meet expectations, customers may not return. The limited customization limits dropshipping suppliers’ ability to stand out.

2. What level of control over product quality are you looking for?

Good product quality is key for your business. It affects customer trust, loyalty, and returns. However, with dropshipping, you can’t always control quality long-term. If products disappoint customers, expect bad reviews.

3. How quickly can you ship products?

Online shoppers want fast delivery—84% say it’s crucial. Slow shipping can hurt your business, so check your supplier’s delivery times and costs.

4. What is the amount of capital that you can access?

Dropshipping lets you sell products without buying them first—only after a customer orders. It’s great for starting a business with little money. Third-party fulfillment is another way to avoid storing or shipping products yourself.

5. What should your target profit margin be?

Dropshipping is easier to start than running a store or managing a warehouse, but it also means more competition. Many dropshippers sell at low prices since their costs are low, so profits can be small. You must find a unique niche, avoid overcrowded markets, and stand out.

6. How do you manage supply inventory?

With dropshipping, you don’t control the supply chain, so delays or out-of-stock items can happen. Using multiple suppliers helps avoid inventory issues, but it makes managing orders more complicated.

7. How will you handle returns and exchanges?

Online stores deal with returns. Sometimes, it’s simple: a customer asks to return something, they send it back, you give them a refund, and the supplier reimburses you. But it’s not always that easy. Before setting up your return policy, learn how your dropshipping supplier handles returns.

Ask questions like:

• Who fixes or replaces defective items?
• Who pays for return shipping?
• Are there restocking fees?
• What is the return policy?

8. How do you manage customer fulfillment concerns?

Even though you don’t handle products directly, you still need to answer customer questions about shipping, delivery of a product, or quality. Miscommunication with the supplier can lead to bad reviews and unhappy customers. To prevent this, think about the buying process from the customer’s view.

Focus on:

• Do they get a shipping update?
• Do packages reach on time?
• Are products in good condition?
• Does the packaging represent your brand well?

What Is the Minimum Investment for Dropshipping?

Unlike other eCommerce models, dropshipping doesn’t require upfront inventory investments. However, there are some costs to consider:

• Website domain: $5 to $25 per year.
• Website hosting: $5 to $80+ per month.
• Advertising: You set your budget, but it depends on the competition.
• Sample orders: Costs less than full-price products, but varies by item.
• Tools: Software for product sourcing and keyword research can cost $10 to $200/month.

The profit in dropshipping can be huge, but it depends on demand and competition. To make more money, focus on great marketing for a niche with high demand and low competition. Some businesses make a lot, while others make less, so earnings vary. Profit margins can also help you see potential earnings.

Do You Need a License to Start Dropshipping?

A business license isn’t just paperwork; it’s a legal way to make sure your business follows the rules in dropshipping. Let’s explain why business licenses are important in dropshipping, covering the rules for state, federal, and local licenses in the US and different countries, as requested.

✅ Following License Rules: Most places require dropshipping businesses to have their business license. Licences allow businesses to operate in certain areas. It covers details like where the business is located, the types of products being sold, and how much is being sold.

✅ Tax and Resale Permits: If your state has a sales tax, you’ll need a seller’s permit (or sales tax permit). You’ll also need a resale certificate so you can buy products to resell without paying sales tax right away. Most suppliers require this.

✅ Setting Up a Business and Tax ID:

• Getting an EIN: Employer Identification Numbers (EINs) are like business IDs. It’s needed for paying taxes and working with suppliers or wholesalers.

• Forming an LLC: Many online sellers in the US create a Limited Liability Company (LLC). This helps protect their personal money and makes taxes easier to handle. It also allows them to set up business accounts on websites like Shopify using the LLC name and EIN.

• Rules in the UK: If you’re running a dropshipping store in the UK, you need to register with HMRC (the tax office) within 3 months of starting, even though you don’t need a special business license.

How to Choose a Supplier in Dropshipping?

To choose a supplier in dropshipping, look for:

1. Product Quality

Before selling someone else’s product, make sure it meets your standards. Order a sample from the supplier to check it out. While suppliers charge for samples, the cost is low.

Here’s how to check the quality:

• Make sure it matches the website description
• Test if it works as promised
• Look for any damage or flaws
• Check if it’s packed well

Once you get the item, decide if it’s good enough for your customers. If not, find a different supplier.

2. Shipping Time

The time it takes from when a customer orders an item to when they receive it shows how efficient a dropship supplier is. Consider these points:

1. Time from order to packaging.
2. Shipping cost.
3. Shipping speed.

Big companies like Blinkstore AI set high standards, with Blinkstore cutting its shipping time from 10 days to 5 days in a few years. While you can’t beat them, choose a supplier with reasonable shipping times and costs. Suppliers should ideally pack and ship items within 24 hours, not take three days or more.

3. Warehouse Location

Choose a dropshipping supplier with warehouses in your target countries. For instance, if your customers are in the U.S., don’t store products in France. It might work, but customers won’t want to wait a long time. Local warehouses ship faster, while international orders can take over 30 days.

Some suppliers, like Shein, have storehouses in multiple countries, such as the U.S. and Europe, so they can ship faster based on where the customer is.

4. Price vs. Competitors

Different brands sell the same product today. As a dropshipper, you’ll compete on price. For example, the same gloves might sell for $29.99 from one seller but only $20.40 from another.

Find a dropship supplier for your product by doing a Google Reverse Search with its picture. Check sites selling it and contact your supplier with the best price.

5. Technology

Technology lets you use apps to handle orders easily. Good suppliers offer software where you can:

• Place orders in one spot
• Track order status
• Make payments
• Chat and solve issues

This replaces emails, calls, papers, and spreadsheets with one simple tool.

6. Return Rules

When we flew from the US to South Asia, the airline lost our luggage, and it took 30 days to get our luggage back. This can also happen with shipments, and suppliers could create mistakes too.

Some problems you might face:

• The supplier sends a wrong or broken item.
• The item gets lost during shipping.
• The item is sent to the false address.

Your customer will blame you, not the supplier, so you need a reliable supplier.

Make sure your supplier:

1. Offers refunds or replacements if something goes wrong.
2. Covers shipping costs for problems they caused.

If the supplier doesn’t have a good policy, you’ll lose money when customers complain.

How to Start Dropshipping in 2025?

This strategy is simple, proven, and works because hardly anyone does it. Here’s the secret: sell everyday products that people need, but aren’t “special.”

For example, in Germany, paperwork is a big deal, and everything relies on the postal system. So, there’s a high demand for envelopes. That’s why some shop only sells envelopes and different types of them. It might sound too simple, but that’s the genius of it. High-demand products don’t need complicated marketing—they sell themselves to the right audience.

Here’s how to start dropshipping in 2025:

1. Find a demanded product in your region (something people already buy often).
2. Set up a basic website to showcase and sell that product.
3. Run Facebook ads to reach more buyers.

Because you’re selling an in-demand product, you won’t need to convince people to buy. They already want it.

What about competition? Yes, big companies (corporations or “COORP”) sell these products, but they’re not in the dropshipping game. That’s your edge. You’re small, flexible, and can target customers better.

It’s not millions of dollars, but it’s steady money—thousands each month. Once you master it in one region, you can expand to others by researching what’s in demand there.

How to Start Dropshipping for Free?

To start a dropshipping business with Blinkstore AI:

1. Sign up and open your dashboard on Blinkstore AI.
2. Click CREATE+, select New Store, name it, and tap CREATE STORE.
3. Add your store logo, colors, banner, and products. Tap “CREATE NEW DESIGN” to include products. Customize with designs (300 pixels/inch, e.g., 3000×3000 for 10×10 inches).
4. Customize, click “CONTINUE,” add details (title, description, profit, tags), and hit “PUBLISH PRODUCT.”
5. Click “ADD PRODUCTS” to use a similar design on more items. Save them under “ALL PRODUCTS.”
6. Tap “SEE LIVE STORE” to view your shop for customers.
7. Post your store online to get buyers.

Possible Benefits and Drawbacks of Dropshipping

In ecommerce, every fulfillment method has its pros and cons. Whether dropshipping is a good choice counts on your business needs. Here are some potentials to think about before deciding if dropshipping is suitable for you.

Benefits

• Overhead expenses: Dropshipping lowers overhead costs by not storing or shipping products, such as storage and shipping costs.

• Starting costs: Dropshipping is a popular option for entrepreneurs who want to launch a business with little capital because it eliminates the need to purchase machinery or premises to process orders.

• Lowered risk: Since you don’t have to pay for inventory, there’s less risk of losing money due to lost merchandise or over-ordering products.

• Multi-channel selling: You can sell your products on your website, Amazon, social media, or all at once.

• Operating location: A dropshipping business can be operated from any place.

• Wide variety of products: You can sell many products without buying them first, which helps you make more money.

Drawbacks

• Lots of competition: Dropshipping is cheap to start, but many people do it, making it very competitive.

• Product quality issues: You can’t control how good the products are because you’re not involved in the shipping process.

• Hard to build a brand: It’s hard to stand out because the products might be the same as what other sellers offer.

• Low-profit margins: Since you can’t make your products different, you’ll likely have to lower prices, which reduces your profit.

• Slow shipping times: You don’t control shipping, so delivery times may be slower and less predictable.

• Hard to manage stock: Stock updates might not be instant, so if a customer orders a product that’s out of stock, it could hurt your brand.

• Limited product choices: Without control over shipping, you can’t always offer deals like bundles or free shipping.

• Supplier mistakes: Bad suppliers might mess up orders, causing wrong or poorly packed items.

• Tough customer service: If something goes wrong, you still have to handle customer complaints and keep them happy.

How to be Successful at Dropshipping?

1. Take responsibility for supplier mistakes
2. Keep track of stock levels
3. Ship orders smartly
4. Secure your online store
5. Fix payment disputes fast
6. Make clear return rules
7. Use easy shipping options
8. Offer excellent customer service
9. Add phone support if possible
10. Market your products well

Conclusion

To conclude, we have discussed what is dropshipping, how dropshipping works, and some key points about it.

The decision to dropship is ultimately yours.

It might sound good because you don’t have to deal with products, settle for storehouse space, ship your orders, or manage the stock, but there are also some downsides. Think about your goals and options to choose the best way to sell and fulfill orders for your online business.

FAQs on What is Dropshipping Business

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