Dropshipping lets you sell physical goods without buying inventory in advance or packing parcels yourself. A customer buys from your online store, you pass the order details to a third-party supplier, and the supplier ships the package straight to the buyer’s door.
You make the difference between what the customer pays you and what the supplier, payment processor, and storefront cost you. Because you do not hold stock, starting costs are low. But because you never handle the product, you take on customer service, shipping delays, damaged goods, and refund losses without controlling the warehouse.
General information, not legal or tax advice.
How dropshipping works from payment to doorstep
The retail dropshipping cycle follows four sequential steps:
- A customer buys from your storefront. The buyer pays your retail price plus any shipping fee at checkout through your payment gateway (such as Shopify Payments or Stripe at 2.9% + 30¢ for standard cards).
- You forward the order to your supplier. Your store transfers the customer’s shipping address and purchased item details to your chosen manufacturer or distributor.
- The supplier fulfills the parcel. The third-party supplier picks the product, packs the box, and ships it directly to your customer.
- You provide all customer support. Even though the supplier packs the parcel, you remain responsible for customer service, order tracking, damaged items, and refund processing.
This division of labor explains both the appeal and the friction of the model. You avoid spending thousands of dollars on bulk stock before opening your doors. But when a supplier runs out of inventory, sends the wrong color, or takes three weeks to ship, the customer demands answers from your store, not from an unseen warehouse.
Worked example: real profit on a $40 order
These two stores are hypothetical, but the rates come from official schedules. Both sell a home accessory for $40.00 with free customer shipping. Both run on Shopify Basic ($29 a month on yearly billing) using Shopify Payments at the standard domestic card rate of 2.9% + 30¢.
Card processing on a $40 order is 2.9% of $40 ($1.16) plus 30¢ = $1.46.
Store A: A single clean dropship order
The supplier charges $22.00 for the item and $5.00 for delivery ($27.00 total).
| Cost component | Calculation | Total per order |
|---|---|---|
| Customer retail payment | Selling price | $40.00 |
| Supplier product & shipping | Paid to supplier | -$27.00 |
| Card fee (Shopify Payments) | 2.9% + 30¢ | -$1.46 |
| Gross order profit | $40.00 - $27.00 - $1.46 | $11.54 |
Store A keeps $11.54 before ads. If ads cost $8.00 per order, operating profit is $3.54.
Store B: 100 orders with real-world refunds
Store B takes 100 orders at $40 ($4,000 gross sales):
- Total customer payments: $4,000.00.
- Card fees (100 × $1.46): $146.00.
- 95 orders deliver smoothly (95 × $27 = $2,565.00 supplier cost).
- 4 orders are refunded due to delivery delays ($160.00 refunded). Original card fees are not returned, and the $27 supplier fulfillment cost is lost on each unit (4 × $27 = $108.00).
- 1 customer files a card dispute and wins: the $40 payment is reversed, the $27 supplier cost is already spent, and a dispute fee applies (Stripe lists $15.00; your processor may differ).
- Store platform: Shopify Basic costs $29.00 a month on yearly billing.
| Monthly line item (100 orders) | Arithmetic | Total |
|---|---|---|
| Gross customer revenue | 100 orders × $40.00 | $4,000.00 |
| Supplier fulfillment cost (100 units) | 100 × $27.00 | -$2,700.00 |
| Card fees (100 orders) | 100 × $1.46 | -$146.00 |
| Customer refunds (4 orders) | 4 × $40.00 retail refunded | -$160.00 |
| Disputed payment reversed (1 order) | 1 × $40.00 | -$40.00 |
| Dispute fee (1 dispute) | $15.00 (Stripe’s listed fee) | -$15.00 |
| Platform plan | Shopify Basic (yearly) | -$29.00 |
| Net profit before ads | $4,000 - $2,700 - $146 - $160 - $40 - $15 - $29 | $910.00 |
Net profit before ads is $910.00 ($9.10 per order). If advertising costs $7.00 per sale ($700 total), final profit is $210.00 ($2.10 per order). The 4 refunds and 1 dispute cost $215.00 ($200 in lost sales plus the $15 fee), more than the whole month’s profit after ads.
Run it with your own numbers: Retail price - supplier product cost - supplier shipping - (retail price × card % + fixed card fee) - refund reserve. The profit per order calculator calculates unit margins. For store overhead, see our monthly store cost guide.
The full fee stack you must budget
Before pricing your catalog, add up every layer of the fee stack:
- Wholesale product and shipping: What the supplier charges for the unit and delivery.
- Store platform: Shopify Basic costs $29 per month on yearly billing ($39 monthly). If you use an outside gateway rather than Shopify Payments, Shopify adds a 2% fee on Basic.
- Card processing fees: Standard domestic card transactions cost 2.9% + 30¢ on Shopify Payments and Stripe. PayPal Checkout charges 3.49% + $0.49. Premium cards cost 3.5% + 30¢ on Basic.
- Customer acquisition cost: Marketing ads on search or social networks.
- Dispute and refund reserves: When issuing refunds on Stripe or PayPal, original processing fees are not returned. If a buyer files a dispute, Stripe charges a $15.00 fee and PayPal charges $20.00.
How to vet suppliers before you list a product
Shopify recommends avoiding suppliers that charge monthly membership fees, preferring suppliers that do not sell directly to the public, and checking order processing efficiency.
Evaluate candidate suppliers against these points:
- Order test samples: Check product quality, packaging, and the packing slip.
- Confirm warehouse locations: Suppliers shipping from centralized domestic warehouses deliver faster and avoid customs delays.
- Verify payment security: Legitimate suppliers accept traceable methods (credit cards, escrow, Net terms). Untraceable wire transfers signal fraud risk.
- Review defect terms: Check if the supplier credits you for broken items or demands buyers ship goods overseas.
- Bundle from a single supplier: Bundling from one supplier avoids split shipments where orders arrive in separate boxes.
- Test support speed: Send product questions and track reply times.
For broader sourcing models, see how to source products for an online store.
Shipping rules you cannot afford to ignore
Federal trade law holds your store accountable for delivery promises even if you never pack the box.
Under the FTC Mail Order Rule, if you state no delivery timeframe, you must have a reasonable basis to ship within 30 days. If shipping will be late:
- You must send a delay notice with a revised shipping date.
- You must give the customer the choice to consent to the delay or cancel for a full refund.
- If the customer cancels, issue a prompt refund within 7 working days (or within one billing cycle for credit cards).
Track shipping with delivery confirmation and publish honest delivery windows.
Returns, refunds, and chargebacks
- State who pays return postage: If return shipping costs $6.00 on a $20.00 item, issuing a refund or replacement is often cheaper than return shipping.
- Display policies at checkout: Stripe advises displaying your full refund policy at checkout, because card issuers can reject link-only checkboxes in disputes.
- Handle issues quickly: Stripe notes that responding quickly makes buyers less likely to dispute payments. Fully refunded charges cannot be disputed.
- Use clear statement descriptors: Use a 5 to 22 character descriptor so customers recognize your store name on card statements.
See our returns and refunds process guide and online payments, fees and chargebacks.
Legal rules, product safety, and customs
- Product safety: The CPSC Online Sellers’ Safety Guide applies to drop shippers and small importers. For children’s products, manufacturers and importers must issue a Children’s Product Certificate (CPC) certifying compliance. The legal duty stays with you even if a third party helped draft the certificate. If a supplier cannot provide safety documentation, do not sell the item.
- Cross-border customs: Royal Mail delivers in the UK, Canada Post in Canada, and Australia Post in Australia. Shopify notes that sellers shipping internationally must follow tax rules, like the EU Import One-Stop Shop (IOSS) and VAT when shipping from outside the EU.
- Store policies: Learn more in our legal pages and policies guide and business basics for a US store.
Dropshipping vs print on demand vs wholesale
| Sourcing model | Upfront inventory cost | Typical gross margin | Who packs and ships |
|---|---|---|---|
| Dropshipping | None (pay per order) | Moderate to thin | Third-party supplier |
| Print on demand | None (pay after sale) | Moderate | Print provider network |
| Wholesale buying | High (bulk inventory) | High (often 50%+) | You or your warehouse |
Print on demand: Custom designs without inventory
Print on demand (POD) works like dropshipping, but items are produced after each sale using your original designs. Printify states: “No inventory, no warehouses, no upfront costs. Products are made only after customers order, so there’s nothing to buy in advance.”
POD eliminates generic supplier competition because you control the graphics. Base costs are higher than wholesale, and you still handle support. Compare tools in our Print on Demand guide, Printify pricing review, and Printful vs Printify comparison.
Wholesale sourcing: Higher margins and direct control
Wholesale buying involves purchasing bulk goods from a manufacturer or distributor at discounts. The SBA notes that wholesale offers the highest margin potential (often 50% or higher).
The tradeoff is inventory risk: you pay upfront and risk unsold stock. In exchange, you inspect items, package them with free software like Pirate Ship (no monthly fees for UPS and USPS labels), and ship orders quickly. Compare options in Pirate Ship vs ShipStation vs Shopify Shipping.
When dropshipping is not for you
Skip dropshipping if:
- You want to build a brand around premium product craftsmanship: If packaging presentation and unboxing matter to your brand identity, handing fulfillment to an anonymous supplier creates constant friction.
- You cannot absorb return losses: If your profit margin per order is $3.00, one refund or $15.00 chargeback wipes out the profit from five or ten clean sales.
- You sell regulated goods or toys without lab certification: Never dropship baby products, cosmetics, or electronics without verified safety certificates.
- You need guaranteed rapid delivery: If your buyers expect guaranteed 2-day delivery, dropshipping from remote or overseas warehouses will lead to missed deadlines and FTC compliance violations.
- You want high gross profit margins: If you want margins of 50% or higher, wholesale buying or making your own products is a better fit.
Common mistakes to avoid
- Selling before ordering samples: Listing a product sight unseen almost always leads to disappointed customers and high return rates.
- Ignoring card fees when setting retail prices: A 2.9% + 30¢ card fee takes a large bite out of low-ticket items. On a $10 order, a 59¢ card fee represents nearly 6% of the transaction.
- Using third-party payment gateways on Shopify Basic without accounting for fees: Shopify charges a 2% third-party payment fee on Basic if you do not use Shopify Payments.
- Promising unrealistic delivery times: Claiming “3-day delivery” when your supplier takes 48 hours just to process orders creates angry buyers and chargeback disputes.
- Ignoring FTC delay notice rules: Failing to offer refunds when shipments are delayed violates federal trade regulations.
How to decide what to do this week
- Calculate your floor price: Find the supplier’s true unit cost including packaging and shipping. Add card fees (2.9% + 30¢), your platform subscription overhead, and a 5% refund buffer. Use our pricing guide to set a viable retail price.
- Order physical samples today: Place retail test orders with two candidate suppliers. Time how long delivery takes, evaluate packaging cleanliness, and verify build quality.
- Draft your shipping and refund policy: Write explicit delivery windows and return rules. Learn what to include in our store policies guide.
- Choose your store platform: Launch your store on Shopify Basic ($29/month yearly) or review other builders in our best ecommerce platforms guide. Set up Shopify Payments to eliminate extra transaction fees.
- Set up customer support channels: Configure an order confirmation and tracking email flow before launching marketing campaigns.
Sources (checked 2026-10-03)
- Shopify Help Center: Dropshipping, definition, order flow, supplier advice, customer service responsibility, split shipments, cross-border obligations
- Shopify: pricing, Basic plan price, card processing rates, and third-party payment provider fee
- Stripe: pricing, card processing rate, refund fee policies, and dispute fees
- PayPal: business fees, US checkout rates, standard card rates, chargeback fees, and refund fee policies
- Stripe: dispute prevention best practices, checkout refund policy display, statement descriptors, and dispute risks for small stores
- FTC: Mail, Internet, or Telephone Order Merchandise Rule, 30-day shipping default rule, reasonable basis, delay notices, and refund timelines
- CPSC: Online Sellers’ Safety Guide, safety obligations for online drop shippers and small importers
- CPSC: Children’s Product Certificate FAQ, CPC certification requirements and legal responsibility
- SBA: Calculate your startup costs, wholesale mechanics and 50%+ margin potential
- Printify: pricing, print-on-demand mechanics and inventory terms
- Pirate Ship, free shipping software features for USPS and UPS
General information, not legal or tax advice.
