What Is Dropshipping and How Does It Work? (2026)

Dropshipping is a retail fulfillment method that involves selling products without buying inventory. When a store using dropshipping makes a sale, it forwards the order to a supplier, who ships directly to the customer.

Dropshipping has grown into a $167 billion industry in 2026, making it a popular way to start a business. It’s a low-cost ecommerce business model where sellers rely on suppliers to handle fulfillment. Store owners can avoid inventory management, focusing instead on tasks like marketing and branding.

Ahead, learn more about what dropshipping is, how it works, and how to start dropshipping today.

What is dropshipping?

Dropshipping is an ecommerce business model where online stores partner with reliable suppliers who ship the product to the customer.

Dropshipping is an efficient and accessible order fulfillment model because it removes costs like warehouse storage and unsold inventory. But it also comes with trade-offs, such as limited control over the customer experience.

It’s estimated that dropshipping will generate more than $562 million in ecommerce sales by 2033, growing at a compound annual growth rate (CAGR) of 18.9%.

What are dropshipping suppliers?

Dropshipping suppliers fulfill orders made by retailers on behalf of customers. They produce or source products, store them, package them for shipping, and organize delivery to the customer’s address.

You might work with an individual supplier or a platform that hosts a directory of reputable suppliers, such as Shopify Collective or DropCommerce. Some manufacturers, wholesalers, and independent makers also offer their own dropshipping services.

What is a seller of record?

A seller of record is the person or business that sells a product to the customer. As a seller of record, you’re responsible for setting prices, collecting payment including taxes, and complying with local laws.

In dropshipping, the seller of record is the point of contact for customers. It’s the seller’s information, not the supplier’s, that appears on packaging slips and invoices. The seller also handles any support requests such as returns and refunds.

Let’s say you use dropshipping, and a customer buys a cat collar from your online pet store. As the seller of record, you forward the order to your dropshipping supplier, who keeps the product in stock. The dropshipping supplier receives the order, packages the cat collar with a slip containing your information, and ships it to the customer.

Suppliers may add their own branding and promotional materials to products. Confirm this before partnering, as it may impact your ability to sell on specific sales channels, including Amazon, where supplier-branded packaging is prohibited.

How does dropshipping work?

Here’s a step-by-step breakdown of how the dropshipping fulfillment process works:

1. Partner with a dropshipping supplier

Find a dropshipping supplier that offers products you want to sell. You could do this directly by reaching out to a supplier through a marketplace, or through a dropshipping app that sources products from multiple suppliers.

Things to consider when evaluating reliable dropshipping suppliers include:

• Sample availability and product quality
• Stock levels
• Return policies
• Shipping fees and time frames
• Reviews from other retailers
• Automation tool availability

Pay attention to red flags that signal scam suppliers. Pricing that sounds too good to be true is a warning sign, as is a new supplier with no reviews.

“I wanted to work with a supplier that was at least five years active,” says entrepreneur Corey Ferreira in a Shopify Masters interview. “Any business that was around one year seemed like a risk to me. There are of course always exceptions to this but I wanted to be safe.”

2. Set up an online store

An online store lists products from your supplier for a price that you decide.

Add one of these dropshipping app to your store to keep product listings updated and automatically forward orders to suppliers:

• Shopify Collective connects you with vetted Shopify brands offering high-quality products.
• DropCommerce connects you with US and Canadian suppliers offering two- to seven-day shipping within North America.
• Syncee provides access to more than 12,000 global brands in the US, UK, and EU.
• AI Dropship has US and EU suppliers, with delivery in less than seven days for many locations.
• DSers connects Shopify stores to AliExpress suppliers with enhanced comparison tools.

3. Receive a customer order

When a customer places an order through your ecommerce website, the checkout process happens as normal. The customer pays, receives order confirmation, and awaits delivery.

4. Forward the order to the supplier

Once your customer pays for the order, send the order details to your dropshipping supplier. This is when you’ll pay the supplier for the product and fulfillment service they’re offering.

Automated dropshipping fulfillment handles this, though the level of automation depends on the individual app. Shopify Collective, for example, automatically routes order details to the supplier. You can also automatically pay suppliers using your Shopify Payments balance.

5. Supplier prepares and ships the product directly to customers

The dropshipping supplier prepares the order and ships it directly to the customer.

Some suppliers offer branded invoices and custom packaging to enhance the unboxing experience, though this may depend on your plan, order volume, and potential fees. Spocket, for example, only has branded invoices for dropshippers on their Pro plan.

6. Customer receives the product

The customer receives their product from the supplier while the store handles any customer service needs.

Should you start dropshipping?

Trying to decide whether dropshipping is worth it for you? If you’re exploring ways to start a business with minimal upfront investment, dropshipping could be an ideal fit.

Here are some signs that a dropshipping model is right for your business:

You’re all about marketing

The primary goal of dropshippers is to drive traffic to an online store, often using organic and paid ads on platforms such as Google, YouTube, TikTok, and Instagram. The challenge: Marketing and finding customers top the list of Year 1 challenges, according to a 2025 Shopify survey of store owners—37% and 36%, respectively.*

If you’re skilled in search engine optimization or social media marketing, dropshipping could be a great fit. Shopify integrates with social sales channels including Meta, TikTok, Google, and YouTube, so inventory syncs in real time and orders flow back to your Shopify admin for dropshipping suppliers to fulfill.

“Content is king and data is queen,” says AC Hampton, founder of dropshipping education company Supreme Ecom, in a Shopify Masters interview. “People spend so much time over-strategizing the perfect Shopify store or trying to find the perfect product. But they don’t understand that step one of getting traffic to your website is the ads you’re running and the content you’re putting out.”

You’re sales-driven, not brand-focused

Dropshipping has fewer branding opportunities. Packaging and delivery leave little room for personalization, and dropshipping products are rarely exclusive to a single retailer. This makes it more suited to entrepreneurs who are less brand-focused and more sales-oriented.

If you’re looking to sell branded products using dropshipping, explore options for private label dropshipping or print-on-demand products. Raven Gibson, founder of Legendary Rootz, uses the Printful app for this.

“I really appreciate the ability to connect everything together,” Raven tells Shopify Masters. “I have an idea. I’m able to go in, see if they have a product that serves me or serves that idea that I have, get that sample created. And once it’s approved through me, cause I’m the approver, obviously I’m able to go in and it’s all connected to Shopify. I love it.”

You prioritize product variety

Dropshipping gives merchants the ability to sell a wide array of products from a global network of third-party suppliers without worrying about inventory.

Tom Hassel, president at Life is Good, says a large product catalog helped their business grow. “Artwork is so personal; it can take a hundred graphics in one particular niche topic to make sure that you have something for everyone,” Tom says in a Shopify Masters interview. “The more art we create, the more business we’re going to do.”

However, this comes with a trade-off: less control over product quality and consistency. And while dropshipping removes the need to buy/store inventory, sellers still need to monitor supplier stock levels using an ecommerce platform like Shopify.

You’re comfortable with longer shipping times

In an era of super-fast delivery, AlixPartner’s 2026 study found customers expect free shipping and their orders to arrive in under three days. This presents a challenge for sellers who partner with overseas dropshipping suppliers.

Products sent from international locations can take significantly longer to arrive. Orders sent by Chinese suppliers using ePacket, for example, take between 7 and 15 business days to arrive to your customers.

If you can source domestic suppliers or manage customer expectations around delivery times, dropshipping could be a viable option.

You’re prepared for customer support

While dropshipping businesses don’t deal with product fulfillment, they are the point of contact for customers. Often, entrepreneurs themselves address customer service issues that are beyond their direct control, such as shipment delays, delivery problems, and supplier product defects.

If you’re ready to handle these challenges and manage customer support tickets effectively, dropshipping could be a well-suited business model.

Shopify Inbox lets you create customer support AI agents to handle tickets as your dropshipping business grows. Customers get instant answers to FAQs with agents that pull real-time product data mid-conversation, leaving you more time to focus on other tasks.

“I have an AI operator running on my laptop 24 hours a day,” says AC Hampton. “It’s cutting my ads, replying to customer emails, and sending me a text like, ‘Hey, this customer complained about this. Do you want me to forward it to your supplier?’”

You’re ready to grow

Dropshipping isn’t just for new stores. It’s also a tool for established retailers looking to expand.

By partnering with a supplier or another store that can handle dropshipping fulfillment, retailers can add complementary products to their inventory without sourcing, purchasing, or stocking them. A larger selection of products may also increase your average order value and draw in new customers.

Sweet Water Decor does this with Shopify Collective. They import products from 35 other Shopify retailers who dropship orders directly to Sweet Water Decor’s customers.

“We always market it as: ‘Complement your Sweet Water Decor products with these curated finds,’’” says Associate Merchant Mackenzie Allshouse. “We’re really giving our customers the whole home décor variety that they need—you can grab a candle, you can grab a cute little tray to put it on, you can grab a vase to put next to it, you can grab flowers to put in that vase.”

Pros and cons of dropshipping

Low startup costs, flexibility, and low barriers to entry are advantages of dropshipping, but there are disadvantages to consider before you commit to this online business model.

7 benefits of dropshipping

Here are seven reasons why dropshipping has become a popular way to start a business:

1. Low costs

Because you don’t buy inventory, dropshipping requires minimal upfront investment. Many dropshipping stores are run from home with little more than a laptop, making it an attractive small business idea.

That’s not to say you can start this business with no capital. You’ll still have expenses such as an ecommerce platform, product samples, and marketing.

Dropshipping seller and creator Tan Choudhury advises picking a product under $100 to test dropshipping if you’re just starting out. “Trying to merchandise 20 products as a beginner can be pretty overwhelming,” Tan says in a Shopify Masters interview. “You are going to lose sight of focusing your attention on what really matters, which is your conversion rate, your copy, your product photos, and really spending ample time to differentiate your store from other brands out there.”

2. Wide selection of products to sell

Use dropshipping to offer a wide array of trending products to your customers. With no unsold inventory to worry about, you can change your product catalog at will. If suppliers stock a new item, you can immediately list it for sale.

3. No product development costs

Dropshippers don’t need to invest (and risk) capital in research and development to create a new product. Instead, dropshippers can source existing products that are ready to ship.

“You can go out there and try to start a brand right now—buy inventory upfront, get pallets of products, spend all this money on R&D to understand who your customer is,” says AC Hampton. “You’re looking at $20,000 to $30,000 upfront for a brand you don’t even know can sell. Or you can start dropshipping, do it with low risk, build it up, and then understand how to transfer that into a brand.”

4. Flexible location

A dropshipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and provide timely customer support, there are few restrictions on where you live and work.

That said, your dropshipping business’s location can affect payment providers, apps, taxes, and registration requirements. Check with a legal professional to clarify which legal and tax obligations you’ll need to follow.

5. Easier to start

Running an ecommerce business becomes easier when you don’t have to:

• Manage or pay for a warehouse
• Monitor inventory
• Pack and ship orders
• Track physical inventory for accounting

Some suppliers also handle inbound return shipments. If they do, customize your self-serve return settings inside Shopify to match your supplier’s return policy. This lets online shoppers request their own refund, return, or exchanges without contacting you for support.

6. Easier to test

Dropshipping is a useful fulfillment model for testing customer interest in a new product category. Stores can trial sales of a dropshipped product before committing to buying inventory.

“Collective’s discovery feature makes it incredibly easy to find specific item types we want to test or products we don’t want to stock but still want to offer our customers,” says Mackenzie Allshouse of Sweet Water Decor.

7. Easier to scale

Scaling a traditional retail business takes forward planning. If a large number of orders arrive unexpectedly, it can be challenging to accommodate them with limited storage space. You may also quickly sell out of your inventory or not have enough—problems that cost retailers $1.7 trillion each year.

Dropshipping businesses don’t have this limitation on physical inventory. Scaling still depends on supplier stock and processing capacity, but suppliers are responsible for manufacturing and managing inventory. Your own physical infrastructure remains the same as you grow.

Popular marketplaces like Amazon, eBay, Walmart, and Etsy also allow dropshipping to open up new sales channels for your business. The Shopify Marketplace Connect app integrates each site with your store, so dropshipping orders on each marketplace sync with your Shopify admin.

Dropshipping drawbacks

Like all business models, dropshipping also has its downsides. Here are four drawbacks to consider:

1. Lower profit margins

The accessibility of dropshipping can lead to intense competition, resulting in lower profit margins as businesses undercut each other.

Trueprofit’s 2026 analysis shows dropshipping brands have between 15% and 25% net margin, on average, while Shopify Collective retailers typically set theirs between 20% and 50%. Mitigate this problem by choosing profitable products in a dropshipping niche that’s not over-saturated.

Kamil Sattar, an entrepreneur known as The Ecom King, says that certain channels have better margins than others. “I do believe the best opportunity right now in dropshipping is the TikTok organic method,” he says in a Shopify Masters interview. “The profit margins are between 40% to 60%, and you just can’t argue with those numbers.”

2. Inventory volatility

Dropshipping exposes retailers to sudden changes in product availability. With suppliers fulfilling orders for multiple retailers, inventory levels can fluctuate unexpectedly—something that’s less of an issue when you stock your own products.

Dropshipping apps give merchants options when a supplier’s stock hits zero. You could also use Shopify Flow to automatically hide a sold-out product from your dropshipping website.

3. Shipping complexities

Working with multiple dropshipping suppliers can complicate order fulfillment. If a customer orders three items from three different suppliers, they might have three separate shipping charges, packages with tracking details, and delivery times.

For dropshippers sourcing products from international suppliers, cross-border shipping can add complexity, including tariffs and import duties. One option is to pass shipping costs and import taxes on to customers. However, this may make your pricing less competitive.

Add Harmonized System (HS) codes for each product you’re sourcing from international suppliers. These codes determine which import duties apply to your products. Misclassified products can lead to unexpected fees and customs delays.

To complicate things further, some suppliers leave retailers to handle their own returns. “Most suppliers are not going to take it back directly,” says Shopify Community moderator Jacqui McLellan. “They might not refund you at all, depending on what the issue is, so you might end up losing money."

4. Less control over quality and fulfillment

Suppliers manufacture their own products and ship them to your customers. This model means you don’t have to physically touch or inspect the items you’re selling.

"I don’t see a lot of people that are very successful with dropshipping without product samples," says Jacqui. “Ideally, you want to know what you’re selling to other people.”

Samples come at a cost; Alibaba says that most range between $50 and $100 including shipping. You could negotiate this sample fee to be deducted from future orders if you plan to sell more of that product.

Also consider whether the supplier has brand packaging options. Displaying your brand on the packing slip or custom shipping box helps with consistency in brand recognition and customer experience.

Dropshipping trends in 2027

As we head into 2027, dropshipping remains a popular choice for online store owners, side hustlers, and established retailers.

Dropshipping trends we’re expecting to see over the coming year include:

• More product and supplier choice. The Shopify App Store alone lists more than 500 dropshipping apps. Many integrations are free to source products from thousands of retailers, leaving plenty of opportunities to find products in your own dropshipping niche.
• Rise of AI dropshipping. Three quarters of business owners now use AI tools, Shopify’s 2025 survey of store owners found.* The AI assistant Sidekick is built into Shopify by default. Ask it to rewrite product descriptions, optimize images, and create custom reporting dashboards for your dropshipping store.
• Impact of the US de minimis changes. Low-value imports under $800 are no longer exempt from extra customs duties and taxes. This matters if you’re sourcing from China, where US import tariffs sit at 35.2% compared to 16.3% for goods imported from other countries.

*Based on a November 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with two or more years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.