What is dropshipping and how does it work?
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In a traditional retail business model, a manufacturer (A) makes an item and then sells loads of that item in bulk to a distributor (B) shipping the items A→B, that distributor then breaks down those products into smaller lots and sells those lots to a retail store (C) shipping the items B→C, the retail store then puts the items up for sale individually and the customer (D) takes them home C⇢D. Altogether: A→B→C⇢D.
(Though there is also a fair amount of *”cutting out the middlemen”* that can occur, usually by a manufacturer “doing their own distribution” by selling direct to stores (AB)→C⇢D or other times a store gets big enough to start ordering in bulk direct from manufacturers A→(BC)⇢D. These kinds of arrangements generally absorb the middleman’s profit margin and also reduce costs by the cost of one → link.)
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Online retailing changed things up a little bit because these retail stores suddenly had to start paying for that last link in the shipping chain (and/or charging the customers for it explicitly), so A→B→C⇢D became A→B→C→D.
Drop-shipping is basically what happened when an online retailer asked themselves, why are we wasting time+money shipping this item through me from B→C→D when it would be logistically easier to ship B→D. So, they went to their distributor and said *”Hey, if you can start shipping individual orders direct to the customers I’ll cut you in on some of the money we save on shipping.”*. Conceptually, that means that the business model acts like A→B⇢C→D but actual delivery looks more like A→B→D.
In general, this is a smart idea for cutting down on unnecessary physical shipping costs, however, not all drop-shipping is created equal because not all distributors are going to say *”Ok, sure!”* to just any offer for a slightly larger cut. Some will decide that they need to charge at-least-$X-more-per-item to stay profitable (because shipping 1000x items via semitruck to one store is much cheaper/simpler than the increased handling costs that boxing and shipping individual items to 1000x customers via UPS/FedEx/USPS would involve). Furthermore, some will simply ship items in nondescript cardboard boxes for a low price, or others may offer to have store-branded packaging materials included for an additional fee. Et cetera, et cetera.
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Unfortunately, with the growing popularity of online retailing and small online boutiques, the “drop-shipping” buzzword has caught on in a number of *scammy* sales courses.
Sometimes this will just be a case of the scammer (S) posing as “the distributor” that they teach you to use (while they actually just drop-ship from a real unknown-to-you distributor), effectively taking a cut in the business model of A→B⇢S⇢C→D (shipped A→B→D). Or other times, they’ll follow that same model of A→B⇢S⇢C→D (shipped A→B→D) but instead of taking a cut as a middleman they will instead charge a subscription fee for the service that allows you to order through “the distributor” usually at high cost that will be charged whether-or-not your online boutique make any sales that month.
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