Dropshipping is a retail fulfillment method where the seller does not hold or ship inventory. Instead, when a customer places an order, the seller purchases the item from a third-party supplier — usually a wholesaler or manufacturer — who ships directly to the customer.
The seller never sees or handles the product. The margin is the difference between what the seller charges the customer and what the seller pays the supplier.
How Dropshipping Works
- Seller lists a product for $49.99 on their Shopify store or Amazon listing
- Customer orders and pays $49.99
- Seller purchases from supplier at $22.00, providing the customer's shipping address
- Supplier ships with seller's branding (or generic packaging)
- Seller nets $27.99 minus platform fees and transaction costs
Dropshipping on Amazon
Amazon allows dropshipping under specific conditions set out in its Dropshipping Policy:
- The seller must be identified as the seller of record
- All packing slips, invoices, and packaging must show the seller's name — not the supplier's
- The seller is responsible for accepting and processing customer returns
- Purchasing from another Amazon seller to dropship to Amazon customers is prohibited
Violating the policy — particularly sending packages branded by another retailer — results in account suspension.
Dropshipping Advantages
- No inventory capital required — start selling without stocking product
- Low overhead — no warehouse, no packing staff
- Easy to test new products — list first, validate demand, then consider stocking
Dropshipping Disadvantages
- Thin margins — suppliers price for wholesale; you also pay platform fees
- No quality control — you cannot inspect products before they reach customers
- Slower shipping — supplier lead times are often longer than FBA or 3PL
- Inventory sync problems — if the supplier sells out, your listing stays active; overselling causes cancellations and negative feedback
- No competitive moat — anyone can list the same products at the same prices from the same suppliers
Dropshipping vs. FBA
FBA is not dropshipping — with FBA you own the inventory and pay Amazon to warehouse and fulfill it. Dropshipping means a third party owns the inventory until the point of sale. The tax and cost structures are fundamentally different.