Ecommerce Encyclopedia

Dropshipping explained: How does it work?

Dropshipping explained

In the previous article, we took the very first step to understand what dropshipping is. Today, we are going to figure out 2 things: what is included in a dropshipping process and what types of payment structure suppliers offer sellers.

The dropshipping process explained in 3 steps

Dropshipping involves 3 parties: suppliers (or manufacturers/wholesalers), sellers (or merchants/retailers), and end customers. 3 main stages in the whole process of dropshipping are as follows:

  • Sellers import products from suppliers’ websites to their online store/website, where customers visit and place an order.
  • Sellers transfer order details to suppliers.
  • The suppliers fulfill the orders. Fulfillment includes product sourcing, packing, and shipping. The sellers keep track of the orders via tracking number (provided by the suppliers).

What is Dropshipping? How Does Dropshipping Work in 2020?

Dropshipping Explained: How does it work?

Dropshipping costs

Types of cost in the dropshipping business include:

  • Product costs and processing fees for suppliers
  • Costs of creating and running a website/online store
  • Product promotion costs (Facebook ads, Google ads)
  • Additional costs for customers service, payment processing fee, tax

Dropshipping companies currently offer various payment structures as follows:

  • Pay per product: Sellers have to pay product wholesale prices plus an extra processing fee calculated per item. Also, sellers are responsible for packing and shipping costs to have their products got into end-customers’ hands. These two fees, which are determined by products’ size and weight, are often ranged from $2 to $5.
  • No extra fee: All fees and charges are already included in product costs. This means that in addition to product prices, sellers pay don’t have to pay any extra money. Many vendors on AliExpress run a business this way.
  • Pay per month: Many sellers prefer to pay monthly rather than to pay per item, especially sellers who want to stick to their budget. By contrast, sellers new to the market often turn down this payment option.