What is Dropshipping and How Does It Work? The Complete Guide 2025
In e-commerce, there are many different business models. Some swear by arbitrage, others run their own shop with independent logistics, and some trust in Amazon FBA. Less common and sometimes viewed with suspicion is the dropshipping method. Perhaps this is because traditional dropshippers do not hold their own inventory. Or the popularity among self-proclaimed YouTube gurus has harmed its image too much. In any case, dropshipping is better than its reputation, especially for beginners in the e-commerce business who want to learn and gain valuable experience first.
In this guide, we aim to answer all the important questions: What dropshipping means, how it works, what the advantages and disadvantages are, how beginners can find suitable suppliers, and whether there are good alternatives.
What is Dropshipping? Simple Definition Explained
Unlike traditional online retailers who purchase goods, store them, and ship them to customers after an order is placed, dropshipping does not involve maintaining any inventory. Instead, the wholesaler or manufacturer directly supplies the customer. The actual provider of the products acts merely as an intermediary. They offer the products, handle advertising and online presence, but do not hold any items in stock.
For the customer, this has no further relevance. They get the impression of receiving all services from a single source, as the actual shipper of the goods does not appear directly, and the products are either not branded at all or are appropriately customized. This model has several advantages for both the online retailer and the manufacturer, as it saves each a significant portion of the supply and distribution chain.
By the way, dropshipping concepts are not a new invention; they have long been known as “direct shipping” or “stretch business.” The trendy English term has particularly gained traction in the bubble surrounding passive income.
How Does Dropshipping Work?
Online retailers and wholesalers or manufacturers share the workload. The products are offered online – for example, in a personal shop, on Amazon, eBay, or Etsy. The online retailer is responsible for the product presentation and promotion. When a customer places an order, it is received in the retailer’s systems and is typically forwarded automatically to the manufacturer. The manufacturer then takes care of producing the product if necessary and/or shipping it from their warehouse. The customer still receives all information (order and shipping confirmation, tracking, invoice, etc.) from the online retailer, not from the dropshipping partner.
In the event of a return or if the customer contacts customer service, this is typically handled by the online retailer. However, there are also models where the manufacturer or wholesaler takes care of these areas. For the customer, these processes are usually invisible, as the sender address, logos used, etc., are typically provided by the online retailer.
Wholesale Warehouse vs. Consignment Warehouse
There are fundamentally two different types of dropshipping. Either the fulfillment is handled through a wholesale warehouse or through a consignment warehouse.
Both models have their advantages and disadvantages, which each online retailer must weigh individually.
Advantages and Disadvantages of Dropshipping
Negative experiences with dropshipping suppliers from Europe, Asia, etc., are often reluctant to be shared publicly. Understandably, no one wants to damage the established business relationship that is essential for their own business. However, those interested should thoroughly examine the general advantages and disadvantages of this business model to make the most informed decision possible.
Advantages
Disadvantages
Starting with Dropshipping: Finding Suitable Partners
Finding the right dropshipping provider who ships products quickly, ensures quality, and ideally also handles returns management is not easy. Therefore, take your time and thoroughly evaluate your options before committing. Here are the aspects you should pay attention to:
Finding Dropshipping Products in 2025: What Suppliers Are Available?
There are now a variety of dropshipping providers available. Which one suits you as an online retailer is very individual. Below, we provide a general overview of the most well-known manufacturers and wholesalers.
AliExpress/Alibaba
On AliExpress, interested parties can find a vast selection of products at low prices. However, retailers must also expect longer delivery times from Asia to Europe and the USA. Additionally, the quality of the products is not always guaranteed.
Oberlo
Oberlo is conveniently integrated directly into Shopify, providing a user-friendly platform and a direct connection to AliExpress. However, products cannot always be customized.
Printful
Those who value personalized products will find what they’re looking for here. This provider also excels in fast shipping and product quality. However, this comes at a cost, resulting in narrower profit margins.
Spocket
This provider offers fast delivery times to the EU and the USA, a good selection of products, and good integration with existing e-commerce systems. However, the prices are higher, and compared to Asian suppliers, the range is limited.
SaleHoo
SaleHoo provides access to a comprehensive list of verified suppliers from around the world. However, there is no direct sale of products, so retailers must actively seek partnerships.
Doba
Doba follows the same concept. In addition to the supplier database, products can also be searched for and purchased directly on the platform. A monthly fee is charged for usage.
CJ Dropshipping
A large product range, fast shipping to the USA and Europe, and good customization options make this provider popular. However, product quality can vary, and individual branding comes at an additional cost.
Modalyst
The focus here is on high-quality, unique products. Since the collaboration is with local suppliers, the shipping speed is also commendable. However, this comes with corresponding product prices.
Wholesale2b
Wholesale2b is characterized by a very large product range from international suppliers and integration into existing e-commerce platforms. However, a monthly fee applies, along with potential additional shipping costs (depending on the supplier).
Remember that you are not obligated to work with just one supplier. On the contrary, to prevent delivery difficulties, reduce dependency, and expand your product selection, it is highly advisable to have multiple dropshipping suppliers at your disposal.
Alternatives to the Dropshipping Business
Dropshipping is a great way to enter e-commerce, but it is far from the only option. What alternatives do beginners and experienced sellers have?
Arbitrage
Retail or Online Arbitrage refers to the exploitation of price differences between two or more markets in e-commerce to generate profit. A product is purchased in Market A at a lower price and then resold in Market B at a higher price. For example, a microwave from a popular manufacturer can be purchased at Walmart for a discounted price of 299 euros. On Amazon, the same model is sold for 249 euros. This allows sellers to make a profit of around 50 euros due to the price differences.
This business model is suitable for beginners as it requires relatively low initial investments, has manageable risks, and offers high flexibility. However, profit margins are often not very good, and the research effort can be high.
Wholesale/Trade Goods
Wholesale refers to the sale of licensed brand products. It is, alongside Private Labels, the most well-known and likely the most popular concept on the Amazon marketplace. Sellers act as traditional intermediaries. For example, they purchase electric toothbrushes from Oral-B in a certain quantity and resell them at a markup.
However, the competitive pressure is particularly high on Amazon. Additionally, larger quantities of products usually need to be purchased, which further increases the financial risk.
Private Labels
Private Labels are products that sellers produce and sell under their own brand. Although the goods are usually manufactured by third parties, the seller retains control over branding, design, and packaging. Private label products are typically exclusive to the respective seller, which can provide a competitive advantage with reduced competitive pressure. Additionally, private labels often have high profit margins.
However, the risk is particularly high here, as initially there is no established brand to rely on. The initial investments can also be substantial, and building the brand must be managed independently.
Manufacturing/Own Production
Instead of purchasing products from a third party, sellers can also develop and manufacture products themselves. However, this often requires high initial investments and specialized knowledge in product design and possibly production. On the upside, sellers have the highest level of control over their goods, which are guaranteed not to be sold anywhere else.
This path is not particularly suitable for beginners in e-commerce, as setting up production, quality control, and the supply chain is very complex.
White Labels
In white labeling, the seller sells products from a manufacturer that are already completed and simply adds their branding. Unlike private label products, white label products are not customized but are only branded with the seller’s own label (logo, packaging, etc.). The entry is usually less time-consuming since the products are already available, and the investments remain manageable.
At the same time, standardized goods always carry the risk that others will sell the exact same product as well. Additionally, white labels cannot be tailored to the specific target audience.
Amazon FBA
Fulfillment by Amazon (FBA) is essentially not a standalone product concept but describes the method of fulfillment. Nevertheless, it can be considered an alternative to dropshipping. Those who operate through FBA send their goods to an Amazon logistics center, where they are stored. When an order comes in, the platform takes care of all subsequent steps—from picking and packing to shipping, customer service, and returns management. This makes it extremely easy for newcomers in the business to sell their first products, as they do not have to worry about the time- and cost-intensive logistics. Instead, they can rely on Amazon’s extremely high standards.
However, this comes at a cost and reduces profit margins. Nevertheless, shipping through Amazon has practically become a standard for many professional online sellers.
In conclusion, while Amazon FBA offers significant advantages in terms of logistics and customer service, it also comes with costs that can impact profit margins. For many sellers, the convenience and efficiency of using Amazon’s fulfillment services outweigh these costs, making it a popular choice in the e-commerce landscape. Ultimately, sellers must weigh the benefits against the expenses to determine if FBA aligns with their business goals and strategies.
Dropshipping, despite its somewhat tarnished image, is a promising business option in e-commerce, especially for beginners. The low initial investments, the absence of personal inventory, and the high flexibility allow new sellers to enter online retail without significant financial barriers and gain valuable practical experience. Additionally, dropshipping provides the opportunity to offer a wide range of products and easily scale the business.
However, aspiring dropshippers should not overlook the associated challenges. Low profit margins, dependence on reliable suppliers, and difficulties in brand building require careful planning and a strategic approach. A thorough selection of partners and effective management of customer relationships are essential for long-term success.
Despite these disadvantages, dropshipping is an attractive entry point into e-commerce. With the right approach and a mindful handling of the specific challenges, sellers can optimally leverage the advantages of this model and establish a solid foundation for their online business, which they can gradually expand from that point onward.
**Häufig gestellte Fragen** **1. Was ist Dropshipping?** Dropshipping ist ein Geschäftsmodell, bei dem Händler Produkte verkaufen, ohne diese selbst auf Lager zu haben. Stattdessen kauft der Händler das Produkt erst, wenn eine Bestellung eingeht, und der Lieferant versendet das Produkt direkt an den Kunden. **2. Ist Dropshipping legal?** Ja, Dropshipping ist legal, solange die Produkte, die verkauft werden, nicht gegen Urheberrechte oder Markenrechte verstoßen und die Händler sich an die Richtlinien der Plattformen halten, auf denen sie verkaufen. **3. Welche Vorteile bietet Dropshipping?** Dropshipping bietet geringe Anfangsinvestitionen, keine Notwendigkeit für Lagerbestände, hohe Flexibilität und die Möglichkeit, ein breites Produktsortiment anzubieten. **4. Welche Nachteile hat Dropshipping?** Nachteile sind unter anderem geringe Gewinnmargen, Abhängigkeit von zuverlässigen Lieferanten, längere Lieferzeiten und Schwierigkeiten bei der Markenbildung. **5. Wie finde ich geeignete Dropshipping-Lieferanten?** Geeignete Lieferanten können über Plattformen wie AliExpress, Oberlo, Printful oder lokale Großhändler gefunden werden. Es ist wichtig, die Seriosität und Qualität der Produkte zu überprüfen. **6. Wie viel Geld kann ich mit Dropshipping verdienen?** Die Verdienstmöglichkeiten variieren stark und hängen von der Produktwahl, den Gewinnmargen und dem Verkaufsvolumen ab. Erfolgreiche Dropshipper können jedoch signifikante Einnahmen erzielen. **7. Brauche ich ein Gewerbe, um mit Dropshipping zu starten?** Ja, in den meisten Ländern ist es erforderlich, ein Gewerbe anzumelden, um legal Produkte zu verkaufen. **8. Wie kann ich meine Dropshipping-Geschäfte skalieren?** Durch die Erweiterung des Produktsortiments, die Optimierung von Marketingstrategien und die Automatisierung von Prozessen können Dropshipping-Geschäfte effizient skaliert werden.
Image credits in the order of the images: © Steve – stock.adobe.com / © madedee – stock.adobe.com / © Sergej Gerasimov – stock.adobe.com / © See Less – stock.adobe.com / © atipong – stock.adobe.com
