How Shopify Dropshipping Works

how shopify dropshipping works

The basics of how Shopify dropshipping works is quite easy to understand. Implementing it is another ballgame. Implementing it well and creating a successful Shopify dropshipping store is tough.

Dropshipping has lowered the barrier to entry for starting an online shop. You can get started for about $250 and still have some spare change.

Because of this, anyone from anywhere in the world can jump on to this bandwagon. And that is exactly what happened. It has become very competitive. Getting a foothold in the highly lucrative ecommerce world is not that easy.

Fortunately, e commerce is still booming and the demand for online shopping is still growing. Now is as good a time as any to get started with dropshipping.

Below I’ve outlined the “business model” of dropshipping. Let me add this bit of advice right from the start: dropshipping is not a long term business model UNLESS you can find reliable and quality suppliers in the USA, UK or Canada.

Dropshipping is still a great way to get your feet wet and to start a business with very little risk and with very little money down..

How Dropshipping Works On Shopify

In short, Shopify dropshipping is a fulfillment option where you would sell products on your Shopify store without handling the products yourself or buying any stock upfront.

A more traditional eCommerce approach looks like this:

how online shopping works with shopify

You will have a manufacturer that creates the products and you will order products in bulk. You will then ship the bulk order to your own warehouse/fulfillment center.

Once you have stock in your warehouse it will get tagged and connected to your Shopify store so you can keep track of stock as you start making sales.

When a sale comes in, you will pick it, pack it and ship it out to your customer. A very linear and very efficient system.

A variation on this is if you sell branded products then you will source your products in bulk from a supplier but you will still ship it to your own warehouse.

Dropshipping is different and the main difference is in the supply chain.

how dropshipping works on shopify
  • You will find a supplier (most of the times in China – Aliexpress or Alibaba) that stocks the products you want to sell. You will then list their products on your Shopify store.
  • You then start selling these products based on the listing WITHOUT actually holding or buying any stock or even having your own warehouse.
  • As soon as a customer buys from your store, you will then go back to your supplier and place the order directly with your supplier.
  • Your supplier will then pack and ship the order to YOUR customer without any labels on the parcel (blind shipping).
  • As soon as the supplier ships the parcel, they will send you the tracking details.
  • You then forward the tracking details on to YOUR customer.
  • Your customer will have no knowledge of the supplier and they act as a silent middleman between you and your customer.

In a nutshell, that is how Shopify dropshipping works. There are a lot more intermediary steps but for the most part its self explanatory.

Using an app like Oberlo will help you manage the entire process flawlessly. It manages and automates the process of ordering from your supplier, posting out tracking numbers and even listing the products on your store.

There are a number of alternatives to Oberlo but they all do more or less the same thing. Trying to do this without an app can get very cumbersome very quickly.

The Advantages of Dropshipping

The main advantage of dropshipping is the fact that you do not have to spend a cent on inventory before you can start selling. In theory you only buy stock once someone has already paid you for the product.

This translates to instant profit. If you sell a product for $50 and it costs you $20 to buy it and get it shipped from your supplier then you instantly make $30 profit.

dropshipping advantages

If you have your Shopify dropshipping store set up properly with Oberlo then fulfilling orders is easy. It is semi automated – which means you still have to click a few buttons but you can easily fulfill 100 orders in an hour.

The process of fulfilling dropshipping orders with Oberlo is just a process of placing the orders (individually) with your supplier and providing them YOUR customer’s details so that they can ship the order correctly.

After each order is placed on Aliexpress, Oberlo will collect the order number from Aliexpress and use that to manage the order and receive the tracking details once the supplier ships the order.

The Disadvantages of Dropshipping

The biggest disadvantage of dropshipping is shipping times. If you drop ship from China then you can expect it to take 15 to 30 days before your customer receives their order in the USA, UK and Canada. Sometimes it can take even longer.

These slow shipping times often lead to a lot of impatient and pissed off customers. You will have to deal with a lot of angry emails; a lot of refunds and a lot of chargebacks.

dropshipping disadvantages

On top of this, because you never see or handle the products yourself, you have no idea what the quality of the product is really like.

A lot of products from Aliexpress is pure garbage and nothing like the pictures they show on their Aliexpress listings.

A Smarter Way To Dropship

Is there a way to eliminate the disadvantages of dropshipping from China? After all, the benefits are immense and it is such a lucrative business model.

The first and obvious way to overcome all the issues is to find a USA supplier and dropship from the USA (or to your local country). Finding these suppliers is not easy. You can use an app like Spocket – they list only USA based suppliers who dropship and they handle the integration as well.

If China is your only option then there are ways to make it work better. Overcoming slow shipping times and poor quality can be handled by getting yourself a fulfillment agent. They have their own warehouses in China and they can source the products for you.

They also have access to faster shipping lanes and they use different shipping options than Aliexpress. You could reduce your shipping times down to 5 to 10 days to the USA.

An alternative to a personal agent is to use a company like CJ Dropshipping or Udroppy. They can source almost any Aliexpress product for you and they have much faster shipping options – and they do quality control for you.

The best part is that Udroppy and CJ Dropshipping do not have any minimum orders like most private agents will require.

On top of that, a good agent will be quite savvy and pretty good at spotting poor products. Most agents do pretty good quality control.

Should You Start a Dropshipping Business?

Now that you know how Shopify dropshipping works, you will be either super keen or super scared.

Both these will be accurate reactions depending on your personality.

There are a lot of issues to deal with when you run a dropshipping store. There’s also a lot of money to be made.

I strongly believe that the dropshipping model should never be your long-term goal. Its a great way to test the waters and to see if your store works or not. It will also allow you to build up some initial cashflow.

Once you feel confident that your products are good and are selling, you should switch over to your won fulfilment. Buy products in bulk, warehouse them and start a REAL business where you have total control.