What is Dropshipping and How Does It Work?

What is Dropshipping and How Does It Work?

What is Dropshipping and How Does It Work?


Making money online has never been easier. Once upon a time, you would have had to spend a vast fortune on setting up a website, domain names, hosting, buying in and storing vast amounts of stock, and all the hassle of filling and shipping the orders.


The advent of dropshipping takes care of all that by taking the hassle and the hard work out of your hands and sending the money rolling into your bank account overnight.

Dropshipping is a fulfillment model that enables you to purchase products individually from a manufacturer, wholesaler, or other supplier and ship them directly to your customer.


This means that instead of selling goods to your customer in a traditional way, where you would purchase the stock and ship it to your customer from your warehouse, you can expedite the process and have it shipped directly to your customer from the supplier’s warehouse.

In a nutshell, dropshipping provides you with a way to become a “middleman”, away from selling to the public without actually holding on to any stock whatsoever. The risks are much lower; all you need to do is find the suppliers, advertise the goods, and send your orders to the supplier.

They send you the difference between the charge for their product and the price you sell for, allowing you to make money easily with the minimum amount of risk and work.


Dropshipping is by no means a new scheme; it was in use in one way or another long before the internet was born. The internet just makes it much easier, faster and opens up the market to more people.

If you want to learn all about dropshipping and how you can earn money easily, you’ve come to the right place. I hope you find the article useful.


What is Dropshipping and How Does It Work?

Dropshipping is a method by which you, as a retailer, sell products to the public without actually holding on to any stock or product.

When you sell a product, you send the order directly to your chosen supplier; they ship the product, process the payment, and then send you the difference between the charge they make for the product and the price you charge.


You never see the product, you never handle it and you don’t need to handle or process any payments. While you don’t need to handle the payments, there are some suppliers that will allow you to process your own payments and even some that will allow you to contact your own shipping company.

Utilizing these choices, however, defeats the purpose of choosing to run your business using dropshipping.

What Are The Different Between Dropshipping and Normal Day to Day Business?

There are many differences between a normal e-commerce business and a business using the dropshipping model.

Some of those differences include the operating margins, operational logistics, operational costs, profit velocity, and barriers to entry. Below we are going to cover each of the differences individually.

Operating Margins

The operating margin is the ratio that is used to measure a company’s pricing strategy and operating efficiency. It is the measurement of the proportion of the company’s revenue that is left over after paying for variable costs of production. GET A COPY OF THIS BOOK.

Dropshipping: Six-Figure Dropshipping Blueprint
Dropshipping: Six-Figure Dropshipping Blueprint

The operating margin for a company that uses dropshipping is always going to be lower than that of a typical eCommerce company because you don’t have the burden of carrying inventory or shipping products.

Operational Logistics

If you are running a business using dropshipping, you don’t need to carry any inventory or ship any products, which gives you the freedom to run your store from virtually anywhere in the world.

When you are running a typical eCommerce store, you need to consider the logistics of running a warehouse and replenishing your stock, as well as coordinating shipping.

Operational Costs

If you are running a traditional eCommerce business you must consider the cost of paying for your warehouse, paying for the staff to run your warehouse, paying for the stock, shipping, and handling customer service.

In comparison, the cost of running a business using the dropshipping method is limited to just customer service to take orders and send them on to the wholesaler or manufacturer.

Profit Velocity

While the hands-off nature of dropshipping is incredibly attractive from an operational standpoint, carrying inventory is a much faster way to ramp up profitability.

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Photo by RODNAE Productions on Pexels.com

This is because the profit margins are much higher when you have the option of purchasing products in bulk from overseas suppliers and selling them at a higher cost.

Barriers to Entry

Barriers to entry include the existence of high start-up costs and the other obstacles that prevent a new competitor from entering an industry.

A company that is using dropshipping is a lot easier to copy and start-up than a company that carries and ships its own stock.

A Real World Example

Let’s assume that you choose to sell guitars. With a traditional store, you would need to buy in physical stock so you buy 25 guitars and store them. Then you would need to find customers who want to purchase the guitars.

Let’s say that you sell 3 guitars and then sales drop off. You go out of business and end up
with a room full of guitars that you can’t sell and no money in your bank account. With dropshipping, life is much easier:

● You set up a website with an online store to sell guitars.
● You sell a “Silver Shadow” guitar for $350
● You receive an order for one Silver Shadow through your online store
● That order is sent to your supplier – the manufacturer or wholesaler that you have chosen
● They charge you $200 for the Silver Shadow plus $10 for them to send it directly to your customer
● The supplier will pack the order and ship the Silver Shadow to your customer
● You make $90 on the sale
● Repeat as much as you can and watch the profits grow.


What is Dropshipping and How Does It Work?

In some cases, the payments will be processed by the supplier and they will send you the difference between your price and theirs, less any shipping costs.

While there are many advantages to choosing to build and run a traditional E-commerce business instead of creating a business that uses dropshipping, there are significantly fewer risks associated with using dropshipping.

Not only are there fewer risks, but the start-up expenses are also significantly lower which means you will begin making money from your business faster than you would from a traditionally run eCommerce store.

A business that uses dropshipping is also less stressful and requires less of a time commitment than running a warehouse and carrying stock, at least until it grows to take over your full-time job (and
becomes your sole source of income).

If for some reason you are not making any sales, or make significantly more sales than you anticipated there are also no issues with holding the stock you can’t sell, or running out of a popular product; these problems lie and are the responsibility of your supplier.

If your supplier runs out of a product, you always have the option of relying on a backup supplier. Hope you find this useful.



JEROME UDOH is an award-winning information entrepreneur with strong 7-figure online businesses. He has a passion for helping people who are searching for relevant information from the web to solve their day to day problems. Remember; knowledge is power. He also likes to write about things in general in his country and all over the world. From money making ideas such as affiliate marketing program, blogging for cash, website design to Latest news and technology. His passion for blogging is strictly inspired by things that he loves to talk about.

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