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Dropshipping

| Article: 2 min read | Catalog and marketplaces

Dropshipping is a retail model in which the store takes orders but doesn't keep the goods in its own warehouse: after payment it passes the order to a supplier, who ships the product directly to the buyer.

How it works

Wikipedia describes it like this: the seller promotes a product, receives an order, forwards the order and delivery details to a manufacturer, wholesaler or fulfillment warehouse, which ships the goods to the customer, often without the seller's name on the parcel. The seller keeps the difference between the retail and wholesale price, minus fees and shipping (Wikipedia).

A Ukrainian example: you sell a kettle on your site or on a marketplace for 1,800 UAH, the supplier sells it to you for 1,400 UAH and ships it by Nova Poshta to your customer. Your markup is 400 UAH, from which advertising, commission and returns still have to be paid (an illustrative example).

Advantages

  • Low startup investment: no warehouse, stock or warehouse staff needed.
  • You can work from anywhere.
  • You can offer a wide range without buying it up front (Wikipedia).

Disadvantages and risks

Wikipedia lists:

  • thin margin: markup minus fees, shipping and marketing;
  • less control over quality, storage, stock and delivery;
  • the product is "in stock" on your site, but the supplier has run out or is delayed;
  • returns and reshipments can cause losses;
  • dropshipping is often promoted in "work from home" schemes, and according to the sources the article cites, few dropshippers actually make a profit (Wikipedia).

Responsibility to the buyer stays with you. This shows in US rules: the FTC's business guidance says the seller is responsible for delays caused by a supplier or dropshipper, because the seller takes the order. Its recommendations: monitor the supplier with test orders, document the timelines, and don't promise deadlines the supplier can't meet (FTC). Ukrainian rules differ, but the logic is the same: the buyer comes to you.

How to check whether it pays (unit economics)

Calculate per order: sale price minus the supplier's price, delivery, fees, advertising, returns and cash-on-delivery refusals. For the method, see the unit economics article. It often turns out that little is left after advertising, and you need a decent average order value.

Common mistakes

  • Not checking the supplier's stock in real time: selling a product that doesn't exist.
  • Having no contract or agreements on returns.
  • Identical products at all competitors, and competing on price alone.
  • Not counting advertising and refusals.
  • Promising timelines the supplier doesn't guarantee.

FAQ

What is dropshipping in plain words? You sell, and the supplier stores and ships the product to the buyer.

Does dropshipping need investment? Less than a regular store, but you need a site or platform, advertising and working capital for returns and mistakes.

How is dropshipping different from FBS? In dropshipping the supplier stores and ships the goods, while in FBS the seller ships from their own warehouse.

Is it legal? The model itself is ordinary trade. The terms are set by the contract with the supplier and by consumer protection law.

Sources

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