Dropshipping: How It Works & How to Become a Dropshipper or Dropshipping Supplier
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Dropshipping has become a popular fulfillment strategy for businesses looking to expand their product offerings, reduce overhead, and operate more efficiently. Whether you’re a retailer that wants to sell products without storing inventory or a distributor exploring ways to supply goods to other sellers, dropshipping offers flexibility that traditional fulfillment models often can’t match.
In this guide, we’ll break down how dropshipping works, explain the difference between dropshippers and dropshipping suppliers, and help you determine which role makes sense for your business. You’ll also learn the pros and cons of dropshipping, key considerations before getting started, and step-by-step guidance on how to become a dropshipper—or take the next step toward becoming a dropshipping supplier.
What is Dropshipping?
Dropshipping is a fulfillment model that allows a business to sell products without keeping those items in stock. Instead of storing inventory in its own warehouse, the seller partners with a third-party supplier that holds the inventory and ships orders directly to the end customer once a purchase is made.
In a dropshipping arrangement, the seller remains the primary point of contact for the customer, handling sales, marketing, and customer service. The dropshipping supplier is responsible for storing products, packing orders, and managing shipping. This setup reduces upfront costs, minimizes inventory risk, and allows businesses to expand their product offerings without investing in additional warehouse space.
Because of its flexibility, dropshipping is commonly used by ecommerce retailers, multi-channel distributors, and growing businesses that want to test new products, enter new markets, or sell seasonal and slow-moving inventory more efficiently.
What Are Dropshipping Suppliers?
Dropshipping suppliers are third-party vendors or distributors that store inventory and fulfill orders on behalf of sellers. Rather than selling directly to end customers, these suppliers ship products to customers only after a seller receives an order, allowing the seller to operate without maintaining physical inventory.
In this model, dropshipping suppliers handle product storage, picking and packing, and shipping, often offering services such as white labeling, branded packing slips, and blind shipping. Reliable suppliers play a critical role in the success of a dropshipping operation, as order accuracy, fulfillment speed, and product quality directly impact the seller’s customer experience.
How Does Dropshipping Work?
Step 1: The Seller Lists Products for Sale
The seller selects products and lists them across sales channels such as an ecommerce website, online marketplace, catalog, or sales system. These items appear as part of the seller’s available inventory, even though they are stored by a third party.
Step 2: A Customer Places an Order
A customer purchases a product through one of the seller’s sales channels. The seller processes the order and payment just as they would for stocked inventory, remaining the primary point of contact for the customer.
Step 3: The Order Is Sent to the Dropshipping Supplier
Once the order is confirmed, the seller forwards the order details to the dropshipping supplier. This step is often automated through inventory or order management software, ensuring accuracy and reducing manual work.
Step 4: The Supplier Picks, Packs, & Ships the Order
The dropshipping supplier fulfills the order by picking the product from their warehouse, packaging it, and shipping it directly to the customer. In many cases, the shipment is white-labeled so it appears to come from the seller.
Step 5: The Customer Receives the Order
The customer receives the product without ever interacting with the supplier. From the customer’s perspective, the entire transaction appears to have been handled by the seller.
Step 6: The Seller Manages Customer Service & Support
After delivery, the seller handles customer communication, returns, and support. The dropshipping supplier may assist behind the scenes with replacements or returns, depending on the agreement.
Should You Start Dropshipping?
Whether or not you should start dropshipping depends on your business goals, resources, and growth strategy. Dropshipping is not a one-size-fits-all solution, but it can be a strong fit for businesses looking to expand offerings while keeping costs and operational complexity under control.
Many businesses turn to dropshipping to reduce inventory risk and free up warehouse space, especially when dealing with slow-moving, seasonal, or specialty products. It also allows sellers to test new items, enter new markets, or serve new customer segments without committing to large upfront inventory purchases. For multi-channel distributors, dropshipping can support growth without requiring additional storage, labor, or fulfillment infrastructure.
That said, dropshipping works best when paired with reliable suppliers, clear expectations, and the right systems to manage orders and inventory. If your goal is to offer more products, operate more efficiently, and scale without significantly increasing overhead, dropshipping may be a smart next step for your business.
Pros & Cons of Dropshipping
Dropshipping offers flexibility and efficiency, but it also comes with trade-offs. Understanding both the benefits and drawbacks can help you decide whether this fulfillment model aligns with your business goals and operational needs.
Benefits of Dropshipping
Lower Upfront Costs
Because inventory is purchased only after a sale is made, dropshipping reduces the need for large upfront investments in stock. This approach lowers financial risk, making it easier for new entrepreneurs to start a business with minimal capital. It also allows you to test different products and niches without committing to bulk orders that may not sell.
Reduced Warehousing & Overhead
Without the need to store products on-site, businesses can save on warehouse space, labor costs, and utilities. Day-to-day operations are simplified since inventory management, packing, and shipping are handled by suppliers. This allows small teams to operate efficiently without the logistical burden of traditional fulfillment.
Expanded Product Selection
Dropshipping enables sellers to offer a wide variety of products without holding them in stock. You can diversify your catalog, adapt quickly to market trends, and meet customer demand across multiple niches. This flexibility can make your store more appealing to shoppers looking for variety and convenience.
Greater Flexibility & Scalability
As order volume increases, fulfillment remains with the supplier, allowing businesses to scale sales without expanding warehouse operations or hiring additional staff. This makes it easier to grow quickly, handle seasonal spikes, and enter new markets without significant infrastructure investment.
Drawbacks of Dropshipping
Lower Profit Margins
Because dropshipped products often come at a higher per-unit cost than bulk inventory, profit margins can be slimmer. Competing on price alone can be difficult, and businesses may need to focus on differentiating through marketing, customer service, or niche specialization to maintain profitability.
Less Control Over Fulfillment
Sellers rely on suppliers for packing, shipping, and delivery timelines. If the supplier experiences delays, makes errors, or provides inconsistent service, it can negatively affect the customer experience. Managing expectations and maintaining strong communication with suppliers is critical.
Supplier Reliability Is Critical
The success of a dropshipping business hinges on supplier performance. Order accuracy, shipping speed, and product quality depend entirely on your chosen partners. A single unreliable supplier can lead to returns, complaints, and damage to your brand reputation, making careful vetting essential.
Limited Branding Opportunities
Unless white labeling or custom packaging is available, dropshipping often offers fewer opportunities to build a branded experience. Customers may receive products with generic packaging, limiting your ability to differentiate your business and create a memorable unboxing experience.
How to Become a Dropshipper in 5 Easy Steps
Becoming a dropshipper allows your business to expand its product offerings and reach new customers without the need to manage or store inventory. By partnering with reliable suppliers, you can sell a wider range of items, reduce overhead costs, and focus on sales, marketing, and customer service. While dropshipping can be an efficient way to grow your business, success requires careful planning, selecting the right suppliers, and implementing systems to manage orders and fulfillment.
Step 1: Determine Your Dropshipping Goals
If you are an established multi-channel distributor, your reasons for dropshipping are likely very different from a product-selling startup operating on a pure dropship model. Dropshipping can be very profitable and helpful for reducing overhead costs, but typically only if properly employed for reasons beneficial to your existing business.
The first step to becoming a dropshipper is defining your reasoning and determining your goals for dropshipping certain items. What are the items? Are they very specific to an equally specific subset of customers? Are they popular items during certain seasons but barely move off of shelves during others? Is there a market, perhaps overseas, you are trying to reach but the cost of storing and fulfilling the items cancel out the profit? Is your warehouse becoming increasingly cluttered due to limited space? Or do you just want to offer more variety to your customers without taking on the overhead?
Whatever your reasons, determining your goals for dropshipping certain inventory is key to starting off on the right foot.
Step 2: Find & Evaluate Potential Dropshippers
So, now that you know what inventory you want to dropship and why, you can begin to search for the dropshippers you want to work with. First, they will need to offer the products you are looking for via dropshipping, and second, you will want to ensure their ability to do so in a timely, accurate, cost-effective manner.
When reviewing the capabilities of potential dropshippers, consider many of the same qualities you would look for in a vendor. Do they offer the product needed at the right price? Is it a quality product? Can they meet the required demand? Are they known for fulfilling orders accurately and on-time? Are they reliable? Is the deal too good to be true?
Step 3: Ensure They Meet White Label Requirements
White labeling in terms of dropshipping means that your dropship partner removes their own branding on packages and places your company’s branding instead. Instead of a shipment arriving with a random company’s labeling, the shipment and packing documents look as if they came straight from your own warehouse. This removes any confusion for the end customer.
For certain business models, white labeling may not be a priority, but for established operations, maintaining consistency across all active channels is critical. Before you seal the deal with your desired dropshipper, make sure they will white-label documents and packaging correctly.
Step 4: Leverage Dropshipping Software
Not all inventory management software is created equal. Some require third-party integrations or a separate software altogether to handle dropship inventory.
Acctivate inventory management software provides powerful dropshipping tools for multi-channel distributors, providing you with a seamless experience from start to finish. Online orders for dropship items are processed the same as any other inventory orders, but with an automated notice from Acctivate alerting your dropship partner of the purchase.
For other channels, the only difference is that the dropship order is placed manually. Regardless of online or offline, once your dropship partner receives notice of the purchase, they will kick off fulfillment on their end. Your customers should receive their orders in a timely, accurate fashion.
Regardless of the software or integration you choose, make sure it is a good fit for your operations and will do the job you set out to do.
Step 5: Start Selling
This is the most straightforward step in how to become a dropshipper.
You’ve determined the items you want to dropship, evaluated your suppliers, ensured white labeling requirements will be met, and equipped yourself with the proper software— now it’s time to sell. Whether you have a web store, sell through ecommerce marketplaces, provide physical catalogs of your products, and/or set out displays in a brick-and-mortar location, once you set the terms with your dropshipper, it is time to include the items in your general sales inventory.
One of the neatest parts of dropshipping is that not much has to change on your end to present the dropshipped inventory. As far as your customers are concerned, you are still the prime ordering point. No matter if they purchase online or over the phone, the dropshipped inventory is just as available to sell as the rest of your stock.
How to Become a Dropship Supplier in 5 Easy Steps
Becoming a dropship supplier allows your business to grow by partnering with retailers and sellers who want to offer products without maintaining inventory themselves. By acting as the fulfillment partner, you can increase sales volume, reach new markets, and create long-term business relationships. However, providing reliable dropshipping services requires planning, operational readiness, and clear communication with sellers.
Step 1: Assess Your Product Line & Fulfillment Capacity
The first step is to evaluate which products are suitable for dropshipping. Not every item in your inventory will make sense to offer through third-party fulfillment. Consider factors such as product size, packaging requirements, fragility, and demand frequency. Fast-moving and standardized products are usually easier to dropship, while seasonal or highly customized items may require additional planning.
Next, assess your fulfillment capacity. Can your warehouse or team handle increased order volume without slowing down operations? Do you have the storage space, staff, and equipment to pick, pack, and ship efficiently? It’s critical to ensure that offering dropshipping will not compromise the quality or speed of your fulfillment for existing customers. Taking the time to evaluate your capacity now will prevent delays, errors, and unhappy seller partners later.
Step 2: Define Clear Dropshipping Policies
Establishing well-defined policies is key to building trust with sellers. Outline pricing structures, shipping fees, order minimums, and return processes. Be transparent about delivery times, product availability, and any restrictions on shipping destinations. Clearly communicated policies reduce confusion and minimize disputes with your retail partners.
Additionally, create detailed documentation of your dropshipping terms. Include step-by-step instructions for placing orders, handling replacements or damaged products, and resolving customer service issues. By providing clear guidelines upfront, you make it easier for sellers to integrate your products into their operations and create a smooth experience for the end customer.
Step 3: Establish White Labeling & Branding Option
Many retailers prefer dropshipped products to arrive under their own brand to maintain a consistent customer experience. Offering white labeling or custom packaging can make your service far more appealing and competitive. Decide what level of customization you can provide, such as branded packing slips, labels, or inserts.
While some businesses may opt out of white labeling, for established distributors, providing branding options can be a major differentiator. Ensuring your fulfillment system supports these customizations is essential. Consistency across all orders will not only satisfy sellers but also enhance their end-customer experience, helping them—and your business—build credibility and trust.
Step 4: Implement Reliable Inventory & Order Management
Successful dropshipping relies heavily on accurate inventory and order management. Selling products you don’t physically hold requires up-to-date visibility into stock levels and real-time updates to avoid overselling. Invest in inventory management software or integrate with a dropshipping platform that automates notifications for new orders and tracks fulfillment progress.
Automation reduces manual errors and ensures orders are processed promptly. By streamlining these workflows, you improve seller confidence in your service and minimize the risk of delays or order mistakes. A reliable system also allows you to scale your dropshipping operations without needing to constantly supervise every order manually.
Step 5: Promote Your Dropshipping Services to Retailers
Once your systems, policies, and operations are in place, it’s time to find retail partners. Promote your dropshipping capabilities through your website, trade shows, online marketplaces, or industry networks. Highlight key selling points such as product quality, order accuracy, shipping speed, and white-labeling options.
Building relationships with sellers is crucial. Take the time to understand their needs and provide support during the onboarding process. By positioning yourself as a reliable and flexible partner, you can establish long-term collaborations that drive consistent order volume and expand your business reach.
Dropshipping FAQs
What is a dropship?
A dropship is a product sold by a retailer without being kept in their own inventory. The retailer forwards the order to a supplier, who ships the product directly to the customer.
How does dropshipping work?
In dropshipping, a seller lists products from a supplier on their sales channels, receives an order, and sends it to the supplier for fulfillment. The supplier handles packing and shipping while the seller focuses on marketing and customer service.
How do I become a dropshipper?
To become a dropshipper, choose a product niche, find reliable suppliers, set up sales channels, implement order management tools, and start selling while your supplier fulfills orders.
Do I need a supplier for dropshipping?
Yes. A supplier is essential because they store inventory and ship products directly to customers on your behalf. Without a supplier, dropshipping isn’t possible.
What is a dropshipping supplier?
A dropshipping supplier is a third-party company or distributor that fulfills orders for sellers. They store inventory and ship items only after receiving an order from a retailer.
How do I find a dropshipping supplier?
Search industry directories, trade shows, online marketplaces, or dropshipping platforms. Evaluate suppliers based on product quality, shipping speed, reliability, and pricing.
How do I get a supplier for dropshipping?
Contact manufacturers or distributors that offer dropshipping, confirm they can handle your order volume, discuss pricing and branding options, and set up systems for seamless order processing.
How do I start a dropshipping business?
Define your niche, research products, partner with suppliers, set up an online store or marketplace listings, implement order management systems, and launch marketing campaigns to attract customers.
Can anyone start dropshipping?
Yes, dropshipping has low startup costs and is accessible to most entrepreneurs. Success depends on careful product selection, strong supplier relationships, and effective marketing.
What are the benefits of dropshipping?
Dropshipping offers low upfront costs, minimal warehousing needs, expanded product selection, and the ability to scale quickly without increasing staff or storage.
What are the drawbacks of dropshipping?
Drawbacks include lower profit margins, less control over fulfillment, dependency on supplier reliability, and limited branding opportunities unless white labeling is available.
How much money can you make dropshipping?
Earnings vary based on product selection, pricing strategy, sales volume, and marketing effectiveness. While some sellers earn a few hundred dollars monthly, others scale to thousands or more with the right products and audience.
What is white labeling in dropshipping?
White labeling allows you to sell products under your brand name. The supplier removes their branding and includes your logo or packaging, creating a consistent experience for your customers.
How do I avoid dropshipping mistakes?
Focus on selecting reliable suppliers, choosing the right products, offering competitive pricing, providing excellent customer service, and using automated order management tools to reduce errors.
How do I manage returns in dropshipping?
Establish a clear return policy with your supplier. Decide if returns go directly to your warehouse or the supplier, and communicate the process clearly to customers to maintain trust.
Can I dropship internationally?
Yes, but consider shipping times, customs regulations, taxes, and duties. Partnering with suppliers experienced in international shipping can help reduce delays and customer complaints.
Is dropship legal?
Yes, dropshipping is legal as long as products comply with local laws and regulations. Always ensure your supplier sells authentic products and follows safety standards.
Acctivate: Tools to Simplify Dropshipping Operations
With the right systems in place, businesses can manage dropshipping more efficiently, improve order accuracy, and maintain strong supplier relationships while scaling product offerings. The key is choosing tools that fit current operations while supporting future growth.
Acctivate Inventory Software provides powerful dropshipping features for multi-channel distributors, enabling automated order notifications, real-time inventory visibility, and streamlined fulfillment workflows. Whether you want to reduce errors, speed up order processing, or better track supplier performance, the right software can make a measurable difference in your dropshipping success.
Learn more about how Acctivate can support your dropshipping business or contact CAI Software today!
Call us at 817-870-1311
