Dropshipping: What You Need to Know Before You Start (2023 FAQ)
In this post, I’m going to answer the most frequently asked questions about dropshipping, including the ones that the gurus don’t want to.
So, here's the untold truth about dropshipping that they don't want you to know.
What Is Dropshipping?
Dropshipping is often seen as a way to get rich quick because it sounds incredibly easy.
But, what exactly is Dropshipping?
Dropshipping is an e-commerce business model where you don’t have to keep any inventory, nor do you have to handle or ship products yourself.
Instead, when a customer places an order, you buy the products from a supplier, who then directly ships the order to the customer.
The best part for beginners is that there are no upfront costs for inventory because products are purchased only when a customer orders them.
Is Dropshipping a Scam?
There are two ways in which dropshipping is thought of as a scam.
You sell a product at a higher price than you bought it for.
Dropshipping is like the gold rush and the people who sell the tools are making more money than the people digging for gold.
To the first point, it is in your interest to make sure your customer gets exactly what was advertised to them, and that they are completely satisfied with their purchase. If you don’t then your business will not last long.
To the second point, some people make more money from selling courses than physical products. That’s the unfortunate truth, but it doesn’t mean that you can’t succeed in e-commerce yourself or that the entire thing is a scam.
What Is Branded Dropshipping?
Branded dropshipping is almost the same as standard dropshipping, but you brand your products and packaging, both physically and on your online store.
The advantage of this model is that your customers get a better unpacking experience than if they were to receive a boring package with no branding whatsoever. Additionally, a branded online store usually has a better conversion rate than an unbranded one.
The disadvantage to this is that you have to order product and packaging in advance to avoid long delays to customer orders. If you brand your store really nicely, but don’t follow through with branded packaging, then your customers may be disappointed.
Is Dropshipping Legal?
Dropshipping is completely legal as long as you don’t sell copyrighted or patented products, without the authorization of the owner.
If the product itself is sold on AliExpress or other Chinese platforms, and has no distinguishable copyright owner, then in most cases you are safe to sell it.
Is Dropshipping Legit?
Standard dropshipping, which is usually ordering a product from AliExpress or another marketplace to be sent to your customer, is not a legitimate long term business model in my opinion.
It’s great to get started and test if there is demand for your product, but it’s not sustainable at higher order volumes.
On the other hand, if you are running a branded dropshipping store, or are authorized to dropship products from high quality brands, then dropshipping is a completely legitimate business model for the long run.
How Profitable Is Dropshipping?
Typically you hear that dropshipping profit margins range from 10% to 30% if you’re selling physical products.
Ultimately it depends on the cost:price ratio of your product, as well as if you are using paid ads or organic traffic.
Organic traffic through TikTok for example will yield higher profit margins than paid traffic, but you may see much higher revenue from paid ads which could lead to higher total profits.
Some people focus on high-ticket dropshipping, where they sell higher-priced items that generate more revenue per sale, because the profit margins tend to be higher also.
Is Dropshipping Worth It?
Dropshipping is a fantastic way to get started selling online without risking much money up front, and to learn how business works in general.
However, it takes time and dedication, and nobody is guaranteed success.
So, whether you think it’s worth it or not will probably come down to whether you succeed at it or not.
How Does Dropshipping Work?
On Your Own Website
Here’s how dropshipping works if you have your own website.
A customer places an order on your store
The order is electronically transmitted to your supplier or fulfillment agent
Your supplier charges you the wholesale price for the product, fulfillment & shipping of that order
The supplier then ships the package directly to the customer
The profit you make is the difference between the wholesale cost and the price paid by customers.
If you paid for advertising to get that sale, you should also add the cost of acquisition onto your costs to get the true profit.
How Does Amazon Dropshipping Work?
There are two kinds of dropshipping models related to Amazon.
Some people use Amazon the same way they use AliExpress, and sell the products on their own website, then have the Amazon seller directly send the product to the customer.
The second approach is done by opening an Amazon “Fulfilled by Merchant” or FBM account, and connecting your account to fulfillment software for your supplier or third party logistics company to fulfill.
Here's how the latter version of Amazon dropshipping looks like:
You list your products for sale on Amazon as a seller who handles fulfillment.
You connect your account to the fulfillment integration software
When a customer orders on Amazon, the order details are sent to your dropshipping supplier or agent.
The supplier or agent takes care of shipping the products to the customers.
However, it's important to note that dropshipping on Amazon is riskier compared to dropshipping from your own website. You have to strictly follow Amazon's terms of service, which include:
NOT Dropshipping from other marketplaces like AliExpress, eBay, or Walmart.
Strict requirements for shipping and fulfillment, which must be met. Consistently late shipments or inventory issues can lead to your account being banned.
How to Dropship on eBay
A similar process to Amazon applies to dropshipping on eBay.
You list your products for sale on eBay through an auction or a store listing.
When a customer places an order, the order information is passed on electronically to your supplier or fulfillment partner, who fulfills the order.
Similar rules apply when dropshipping on eBay too:
Listing an item on eBay and then purchasing the item from another retailer or marketplace that ships directly to your customer is not allowed on eBay.
How to Start Dropshipping?
Your to-do list to get started dropshipping will vary from platform to platform.
For any platform you choose to sell on, at the very least you will need to have:
An account with the platform you’re selling on
A means to receive payments from customers
A product to sell
A supplier that can fulfill your orders
Shopify Dropshipping
For Shopify dropshipping specifically, this is a brief overview of what to do:
Find the product you want to sell and contact the supplier
Setup an account with Shopify
Add all the basic policy pages & contact page
Buy a domain for your website & setup a support email address
Add a payments processor such as Shopify payments, Stripe, or PayPal
Add a dropshipping app to your store such as DSers to connect to suppliers on AliExpress
Import or Add Products to your Store
Design Your Site Logo, Homepage and Product Pages and add professional photos
Add a Reviews app for social proof such as Loox
Add apps for in-cart up-sells and post-purchase-up-sells to increase your AOV (Average Order Value), such as One Click Upsell by Zipify
Add an app for email marketing such as Klaviyo to increase your customer LTV (Lifetime Value)
Finally, choose one customer acquisition method you’re going to focus on to begin with. You could:
start creating video content around your products if you’re going the organic route on TikTok
or create product ads if you’re going down the paid advertising route on Facebook & Instagram, or TikTok
or create relevant blog content if you’re going down the organic SEO route
or create paid product listings if you’re going down the Google ads route
Basically choose one method based on your current knowledge and budget, then stick with it until you get good at it.
Some require more money up front but you’ll get instant feedback, such as Facebook ads. Whereas other methods such as blogging are much cheaper, but take a much longer time to see feedback, so it’s harder to know in real-time if your skills are progressing or not.
How to Find Dropshipping Products?
Before you start selling anything however, you need to find a product. Your approach to finding dropshipping products depends on a few factors.
If you want to find trending products for dropshipping then you can check Amazon to see the best sellers ranks, or AliExpress Dropshipping Center to see top rated products by sales performance.
If you want to see what is currently being advertised on Facebook or TikTok you can prime your account to receive advertising from dropshipping stores by engaging with each ad you see. That means just liking them, commenting on them, or entering their websites and even adding their products to cart.
You can also search keywords like “FREE SHIPPING” on Facebook to find product videos, or scroll through Facebook ads library, and you can search “TikTok made me buy it” on TikTok.You can also find potential winners with product research tools such as ViralVault or EcomHunt, that show products which have been researched by professionals.
If you want to find products that haven’t hit western markets yet but are new to China or are doing well in China then you can check out 1688.com and taobao.com.
A quick tip: if you want to find dropshipping products with high profit margins then it’s easiest to go for small, light products with high perceived value.
How to Find Dropshipping Suppliers?
Once you have a product you’re interested in selling, you need a supplier for that product. Even if you don’t have a product yet, you might just want to see what suppliers have to offer.
The dropshipping suppliers you look for will depend on the stage your business is at, and how much money you’re willing to spend upfront, as well as the types of products you’re looking for.
If you want to dropship with almost no upfront costs, then platforms such as AliExpress or CJ Dropshipping are good options.
However, many “suppliers” on AliExpress are Chinese dropshippers themselves and are not the original manufacturers of the product, so you may not get the best value for money.
Another option is a private dropshipping agent, who acts as a middleman between you and suppliers in China. An agent can find any supplier or product you want and ship it directly to your customers faster than AliExpress.
If you’re specifically interested in dropshipping custom clothing or accessories, then a Print on Demand company like Printful has zero upfront costs and they can send each order directly to your customers. The price per item can be expensive though.
A good way to find pre-vetted dropshipping suppliers is using supplier directories such as Worldwide Brands or SaleHoo. For some you pay a one-off fee for a lifetime membership and for others a yearly or monthly fee.
For more advanced dropshippers who prefer private label manufacturing, and are willing to buy in bulk to ship to a third party fulfillment company, Alibaba is a great option.
And finally, if you’re looking to meet suppliers face to face then you can attend trade shows such as the Canton Fair in China or you can Google if there are any local to you.
How to Find Wholesalers Who Dropship?
The easiest way to find dropshipping wholesalers is by again, using a directory like Worldwide Brands, or attending wholesale trade shows.
Many wholesalers may be hesitant to enter a dropshipping agreement with you though, unless they know you’re actually capable of selling large quantities of their product.
What Are the Best Dropshipping Companies?
To answer that, let’s break down the different kinds of dropshipping companies first.
Dropshipping Platforms & Marketplaces
Dropshipping Suppliers
Dropshipping Agents
The most popular dropshipping marketplace is AliExpress, but you can connect to it via DSers which is its official ecommerce solution that allows users to place bulk dropshipping orders and payments.
On AliExpress you are technically connecting to a bunch of dropshipping suppliers via their marketplace.
CJ Dropshipping and Zendrop on the other hand are dropshipping platforms. You can buy dropshipping products while they manage everything including sourcing, fulfillment and shipping.
However if you want the best dropshipping experience then I suggest a private dropshipping agent, who does everything the platforms above do, only that they focus more on a few businesses as opposed to thousands.
How to Get Faster Shipping When Dropshipping?
If you’re currently using AliExpress to dropship you might have noticed the shipping times are a little slow.
To get faster shipping times you can either work with a dropshipping platform like CJ Dropshipping or a private dropshipping agent.
CJ Dropshipping uses their own shipping lines and has their own warehouses around the world to improve delivery times.
Dropshipping agents are based in China and use the fastest, most cost-efficient shipping lines to send orders to your customers.
Another option is to order the product in bulk from Alibaba and use a local 3PL to fulfill local orders.
Who Pays for Shipping in Dropshipping?
Ultimately, you or your customers pay for the shipping when dropshipping.
Your supplier will pass on the shipping cost to you, and then it’s up to you whether or not you pass that onto the customer.
If you want to pass it onto your customer, you can either charge extra for shipping at checkout, or you can add it into the product price. In the former case the customers see there is a shipping charge, in the latter case they don’t.
Just be aware, extra shipping costs at checkout can affect your conversion rate negatively.
Sometimes it’s worth offering both free shipping and paid expedited shipping options. Customers who can afford it will pay more for faster shipping, while you still retain those that can’t.
On another note, free shipping offered only to customers who spend over a certain amount, say $50 for example, is a good way to incentivize customers to spend more & increase your average order value.
How Does International Dropshipping Work?
International dropshipping is just dropshipping to different countries around the world, instead of focusing on one specific country.
The best way to dropship internationally is from China. The problem with dropshipping from a country like the US, is that shipping fees are going to be way more expensive for international orders.
Dropshipping from China gives you the best of both worlds, with relatively fast shipping at affordable rates.
How to Run an Automated Dropshipping Store?
Your dropshipping store can be automated by linking your store or account to fulfillment software. That way, when customer orders come in, your dropshipping supplier or third party fulfillment partner will ship those orders directly to your customers.
On top of that your orders can be electronically fulfilled as well, so that your customers receive their tracking information without you having to lift a finger.
To fully automate your business however, you’ll also need to employ several staff members to run different parts of your business, starting with customer service (in most cases).
How Do Returns Work with Dropshipping?
While a dropshipping supplier or fulfillment company is responsible for order fulfillment, you will need to handle dropshipping returns.
I don’t mean that you will need to literally handle the product yourself, but you will have to setup a process for your customers to return orders.
If you’re using Shopify then you can set up Self-Serve Returns, or Create a Return yourself, and either use Shopify Shipping to email the return shipping label to your customer if you’re in the US, or you can upload your own label if you don’t have access to Shopify Shipping.
What If You Have Different Dropshipping Suppliers?
If you are using a platform such as AliExpress, and your orders are fulfilled and shipped by three different suppliers then your customer will receive three different packages.
This isn’t ideal because apart from the negative effect on the customer’s experience, you have to pay for each product’s shipping separately.
Whereas, if you use a dropshipping agent or fulfillment center they pack all the products into one package so your shipping costs are reduced.
Why Dropshipping Is Bad
Traditional dropshipping has lots of downsides.
The profit margins are generally low, and if you’re not careful you might just end up being an unofficial Facebook employee, who spends lots of money on advertising but doesn’t actually make much profit.
As your business grows, so will the amount of customers who aren’t happy with slow shipping times and unbranded packaging. At scale, this results in your accounts being closed.
On top of that, there is no barrier to entry or brand recognition with the pure dropshipping model. Anyone can start selling the same product, and nobody remembers who they bought it from.
That means if you see any success, it will be short-lived.
Is Dropshipping Good?
So then, how can dropshipping be good?
We already know it’s a low risk business which you can operate from anywhere in the world.
The real question is, how can you make it a long-term success? You don’t want to spend all your time working on a business, only for it to die after a few months.
The answer is simple. As soon as you find a winning product, you move onto branded dropshipping, which is a longer term business model.
I’m not saying it’s easy, but that’s what makes dropshipping a “good” business model in my experience.
Is Dropshipping a Good Side Hustle?
Yes, as far as side-hustles go dropshipping is one of the more popular ones. It doesn’t take that much time or money to get started, and the better you get at it the more money you make.
However, its low barrier to entry is a double edged sword. If you get lucky enough to find a “winning product” early on, then it won’t be long before you find yourself competing against other businesses.
The harsh reality is that lots of people probably fail for this reason, or because they never find a winning product to begin with.
Will Dropshipping Still Be Profitable in the Future?
Dropshipping can still be profitable, but it's becoming more challenging due to lower profit margins and increasing competition.
To maximize profits, it's best to start your own brand, and take control of your entire supply chain. This allows you to future-proof your business and achieve higher profits.
There are two ways I’d suggest doing this:
Invest in a bulk order via Alibaba where you can brand the product and potentially tweak the design, then have a local 3PL or Chinese fulfillment center store the product and fulfill new customer orders.
Or instead, you could use a private dropshipping agent to source your product with branding, store it in their warehouse, and ship it directly to your customers.
Read more about our: Dropshipping Agent Service here
