Dropshipping

Dropshipping is a fulfillment model where the retailer does not hold physical inventory of the products they sell. Instead, when a customer places an order, the retailer forwards the order details to a supplier or manufacturer, who then ships the product directly to the customer. This arrangement eliminates the need for the retailer to invest in inventory storage, warehouse management, or handle physical product fulfillment.

Why it matters for e-commerce brands

Dropshipping allows Shopify merchants and DTC brands to launch and scale their businesses with minimal upfront capital investment, since they don't need to purchase inventory before making sales. This model significantly reduces financial risk and operational complexity, making it particularly attractive for entrepreneurs testing new products or markets. However, it also means less control over product quality, shipping times, and customer experience, which can impact brand reputation and customer satisfaction.

Example

A Shopify store selling phone accessories partners with a dropshipping supplier in China. When a customer orders a phone case for $29.99, the store owner immediately forwards the order to their supplier and pays the wholesale price of $8. The supplier packages the phone case in plain packaging and ships it directly to the customer's address, while the Shopify merchant keeps the $21.99 margin without ever touching the physical product. The merchant focuses on marketing, customer service, and managing their online store while the supplier handles all inventory and fulfillment logistics.

Related terms

• Third-party logistics (3PL)
• Print on demand (POD)
• Inventory management
• Order fulfillment
• Wholesale