Dropshipping: How It Works, Costs and Honest Odds

Dropshipping is selling products you never stock: a customer orders from your store, you pass the order to a supplier, and the supplier ships it. It removes the inventory risk of e-commerce, and leaves everything else — finding customers, handling refunds, and answering for a product you have never held.

Where the money goes

Your margin is the sale price minus the product cost, shipping, payment processing and platform fees, then minus advertising, which for most stores is the largest cost. Refunds, chargebacks and lost parcels come out of what is left. Many stores are profitable on paper per order and lose money once advertising is counted.

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The skill is marketing

Because anyone can list the same product, success depends on finding customers profitably — usually through paid ads or an audience you already have — and on choosing products with reliable suppliers and delivery times. Without that, a store is spending money to learn.

Rules to know

The FTC's Mail Order Rule requires you to ship within the time you state (or 30 days if you state none) or notify customers and offer a refund. Advertising claims must be truthful, and some product categories — supplements, cosmetics, children's products, electronics — have safety and labelling rules. Profit is business income on Schedule C, and you may need to collect sales tax depending on the states you sell into.

Honest odds

Courses and "done-for-you" stores are often sold with income screenshots, and the FTC has brought cases against sellers of such programmes. Most new stores make little or nothing. If you want to test it, set a fixed budget you can afford to lose, and stop when it is gone.

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