Dropshipping

What dropshipping means

With dropshipping the manufacturer or wholesaler ships straight to the customer. The retailer holds no stock of its own, takes the order and passes it on. The goods leave the supplier's warehouse under the retailer's name or on their behalf. The goods are paid for only after the customer has ordered and paid, which lowers the need for upfront financing.

That is the essential difference from classic retail: the stock sits with the partner, and with it the storage risk. In return the retailer loses control over packaging, delivery time, inserts and quality checks.

How the costing looks

The calculation is simple and is frequently done wrong. From the selling price, after purchase price, shipping, payment fees, advertising cost and returns, considerably less remains than a first glance suggests. Because the products usually come from a broad range and are barely differentiated, they have to be sold through advertising. Advertising cost is therefore the largest item, not the purchase price.

Where the traps sit

• Delivery time: if the goods come from overseas, the customer plans for a week and waits three. That produces enquiries and returns.
• The double legal role: the retailer remains the seller. Right of withdrawal, warranty and mandatory disclosures sit with them, even if they never saw the goods.
• Stock figures: without a link to the partner's warehouse system, the shop sells what cannot be delivered.
• Product safety: labelling duties and checks cannot be pushed onto the supplier.

When the model carries

Dropshipping suits building a broad assortment without tying up capital and testing which products have demand at all. For brand building and repeat customers it is rarely the right foundation, because delivery time and packaging make the difference. Anyone running it should work with a few suppliers whose processes they know, instead of spreading the assortment across several middlemen.

Frequent questions

• Is dropshipping allowed? Yes. The same duties apply as for retail with its own warehouse.
• Do I need a registered business? Yes, the selling is commercial and has to be registered.
• How high is the margin? It depends on the product and the advertising cost. Without your own numbers, any figure from a guide is worthless.