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Dropshipping explained

Learn about this e-commerce business model and how it can boost your business or give you the foundation to start one.


What is dropshipping and how does it work?

Discover what dropshipping is and how to start your own dropshipping business. From setting up your business to sourcing suppliers, we cover all the essentials here:

  • What is dropshipping?
  • How does dropshipping work?
  • How do I start a dropshipping business?
  • Dropshipping pros and cons
  • How do I find dropship suppliers?
  • DHL as your logistics partner

Online retail has created a wealth of new opportunities for those looking to start their own business. While entrepreneurs no longer have to bear the expenses associated with a physical store, navigating the startup costs and logistics of a digital storefront can still be daunting. When it comes to the logistics of sourcing, stocking and shipping, there are different models that online retailers can choose from. One popular option is dropshipping, a market that was valued at $225.99 billion in 2022. Below we’ll take a look at what dropshipping is, how it works and how to start a dropshipping business.

What Is Dropshipping?


Dropshipping is an order fulfillment method for retailers. With this fulfillment method, retailers work together with suppliers to carry out sales transactions. Instead of stocking the products they sell, retailers rely on suppliers to stock, pack and ship products to their customers. The shipping costs can be handled in different ways. Retailers can offer free shipping, share shipping costs with customers, or take advantage of discounted shipping rates provided by their suppliers. The method a retailer chooses directly affects their pricing strategy and profit margins.

Dropshipping as an E-commerce Business Model

With some businesses using dropshipping as their sole fulfillment method, dropshipping has also evolved into a business model. In this model, the owner of the dropshipping business selects products, manages customer service and oversees the branding, marketing and maintenance of the store. The dropship supplier, on the other hand, is responsible for stocking products and shipping them to customers.

Dropshipping is a highly popular method of fulfilling orders in e-commerce because it saves costs, offers convenience, and reduces inventory risks. Businesses can save costs by eliminating the need to purchase and store inventory upfront, reducing financial risks associated with inaccurate forecasting. Additionally, dropshipping makes it possible for businesses to offer a wide range of products without having to manage the inventory themselves. A trusted partner like DHL can provide excellent solutions for efficient shipping and order fulfillment, ensuring seamless delivery to customers worldwide. Moreover, we can offer a wide range of options to seamlessly integrate DHL into your business systems as well as sales channels. This empowers you to deliver a great customer experience for your business.

Dropshipping vs 3PLs

Dropshipping suppliers and third-party logistics providers (3PLs) both help fulfill customer orders, but in different ways.

Dropshipping: With dropshipping, the retailer waits for a customer to place an order and then purchases the product from the supplier. The supplier handles the shipping directly to the customer.

3PLs: With 3PLs, the owner of the online store buys products in advance and stores them in one of several 3PL warehouse. When an order is placed, the 3PL handles the shipping on behalf of the retailer.

The key difference is that 3PLs specialize in logistics, while dropship suppliers are usually manufacturers or wholesalers.

Whether you decide to rely exclusively on dropshipping suppliers or are interested in working with a 3PL, DHL offers a range of shipping and logistics services for businesses. From standard and express shipments to customs brokerage, e-commerce solutions, and supply chain management, we can handle all your logistics needs.

Hybrid Dropshipping

Dropshipping services can also be used in conjunction with other fulfillment methods, such as 3PLs and in-house fulfillment. This is known as hybrid dropshipping. With hybrid dropshipping, businesses can use different fulfillment methods for different products, allowing them to fine-tune their order fulfillment based on delivery proximity, cost, demand, and product type.  

Contact Our Shipping Experts

We know costs and service level questions are probably top of mind. Our shipping experts are ready to answer any of your questions. Tell us a little bit more about your shipping needs, so we can connect you with the right expert. 

How Does Dropshipping Work?


In dropshipping, four parties are involved in the sales transaction: the customer, the seller, the supplier, and the logistics partner. A supplier can be the manufacturer of the product, a wholesaler, or even another retailer.

When a customer places an order, the seller forwards the order to a supplier who then packs and sends the product to the customer using a strong logistics partner. If the customer wants to send a product back, they send it to the supplier. Upon receiving the product, the supplier will refund the seller. The seller, however, is responsible for refunding the money to the customer.

How Do I Start a Dropshipping Business?


To start a dropshipping business, you need to consider what you want to sell and where you want to sell it. Here are some basic steps to follow when starting a dropshipping business:

It’s best to narrow in on a niche. If it’s something you are familiar with or are interested in, you’ll have an easier time marketing it to potential customers.

Find out what the current market is like for the products you want to sell. Conducting a quick search online can give you an idea of the competition and insights into which stores are getting top results.

Decide whether you want to create an online store with a popular platform or if you want to use an online marketplace. While it’s easier to add a personal touch to your own site, an online marketplace gives you access to a larger customer base. By 2027 marketplaces will consume around 60% of global online sales according to our Global Online Shopper Survey 2023.

First, you should set up a legal business entity and speak with a lawyer and an accountant. While dropshipping is legal, it’s important to make sure that your business adheres to the law to avoid issues associated with sales tax, intellectual property rights and consumer protection. Depending on the scope of your dropshipping business, you may also need to ensure it complies with international laws as well.

Suppliers are an important part of your dropshipping business. Whether you decide to go with one supplier, or choose to work with multiple, make sure to vet their products. It’s also important to read through their policies and find out what services they provide to sellers.

To make your e-commerce dropshipping business stand out, it’s important to build your brand. Think about what makes your store unique and how you can best communicate with your target audience. Remember: Consistency is key!

Consider partnering with DHL as your logistics partner. DHL offers reliable shipping and fulfillment services that can easily integrate with your dropshipping business. By leveraging DHL's extensive network and expertise in logistics, you can ensure efficient order processing, reliable tracking, best-in-class API integrations and timely delivery to your customers. Working with DHL can help streamline your dropshipping operations and enhance customer satisfaction.

It’s best to narrow in on a niche. If it’s something you are familiar with or are interested in, you’ll have an easier time marketing it to potential customers.

Find out what the current market is like for the products you want to sell. Conducting a quick search online can give you an idea of the competition and insights into which stores are getting top results.

Decide whether you want to create an online store with a popular platform or if you want to use an online marketplace. While it’s easier to add a personal touch to your own site, an online marketplace gives you access to a larger customer base. By 2027 marketplaces will consume around 60% of global online sales according to our Global Online Shopper Survey 2023.

First, you should set up a legal business entity and speak with a lawyer and an accountant. While dropshipping is legal, it’s important to make sure that your business adheres to the law to avoid issues associated with sales tax, intellectual property rights and consumer protection. Depending on the scope of your dropshipping business, you may also need to ensure it complies with international laws as well.

Suppliers are an important part of your dropshipping business. Whether you decide to go with one supplier, or choose to work with multiple, make sure to vet their products. It’s also important to read through their policies and find out what services they provide to sellers.

To make your e-commerce dropshipping business stand out, it’s important to build your brand. Think about what makes your store unique and how you can best communicate with your target audience. Remember: Consistency is key!

Consider partnering with DHL as your logistics partner. DHL offers reliable shipping and fulfillment services that can easily integrate with your dropshipping business. By leveraging DHL's extensive network and expertise in logistics, you can ensure efficient order processing, reliable tracking, best-in-class API integrations and timely delivery to your customers. Working with DHL can help streamline your dropshipping operations and enhance customer satisfaction.

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Dropshipping Pros and Cons


Dropshipping can make it easier to enter the e-commerce space and reduce handling costs but it’s important to weigh the advantages and disadvantages of this model.

Pros:

  • Possibility to offer a diverse range of products and to easily expand
  • Lower startup and running costs
  • Easier to adapt to fluctuations in the market
  • User-friendly integrations and better customer experience

Cons:

  • Highly competitive business model
  • Profit margins are relatively low
  • Legal obligations and liabilities
  • Lack of inventory oversight for sellers

Contact Our Shipping Experts

We know costs and service level questions are probably top of mind. Our shipping experts are ready to answer any of your questions. Tell us a little bit more about your shipping needs, so we can connect you with the right expert. 

How Do I Find Dropship Suppliers?


When it comes to finding a dropship supplier, there are many options to choose from. If you are unsure where to buy dropshipping products, popular platforms are a good place to start.

Use Popular Platforms

Popular platforms make finding dropshipping suppliers and products easy. You can use their comprehensive directories to source products or connect with suppliers.

Go with Local Suppliers

If you plan to sell exclusively to customers in your country, going with domestic suppliers can help to shorten delivery times, reduce shipping costs, and expedite the return process. You can identify potential suppliers by directly contacting manufacturers and wholesalers, attending trade shows, or searching online.

What to Consider When Choosing a Partner

When deciding on a dropship supplier, it’s important to choose a supplier that is reliable, offers quality products, and can ship to your customers quickly.

Make sure to keep the following things in mind when choosing a supplier:

  • Shipping times
  • Return policies
  • Payment policies
  • Customer support
  • Integration with the platform you’re using for your online store
  • Custom packaging/Private labelling
  • Inventory management
  • Quality control measures


Explore DHL's Services and Competencies as a partner

DHL as Your Logistics Partner


In order to be successful in the dropshipping market, it’s important to work with reputable suppliers and reliable shipping providers. With a package delivery company that provides fast shipping and reliable tracking, you can reduce the amount of time you spend answering customers’ questions about delivery status and ensure satisfaction with the turnaround time.

With DHL as your logistics partner, you benefit from reliable shipping and fulfillment services and best-in-class API integrations that you can easily integrate into your dropshipping business. By leveraging DHL’s extensive network and expertise in logistics, you can ensure efficient order processing, reliable tracking, and timely delivery to your customers. With the logistics and fulfillment aspects of your business in the hands of a trusted and experienced partner, you’ll be able to focus on growing your dropshipping business.

Explore DHL’s Services


Unsure if dropshipping is the way you want to go? Start the conversation with one of our DHL experts.

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