Dropshipping Fulfillment: The Complete Guide

Dropshipping fulfillment allows you to list and sell products in your store without the logistical headaches.

Dropshipping fulfillment allows ecommerce businesses to meet order demands without the costs and risks of keeping inventory.

But how does dropshipping fulfillment work? And how can you start dropshipping? Read on for answers.

What is dropshipping fulfillment?

Dropshipping fulfillment refers to when a business doesn’t keep the products it sells in stock. Instead, when a dropshipping business makes sales, it outsources packaging and shipping to a third party fulfillment service, which ships the order to the customer.

As a result, the seller doesn’t handle products directly or manage the supply chain.

In most cases, there are three players that make up the dropshipping supply chain: manufacturers, dropshipping suppliers, and retailers.

📚 Read more: Gymshark Started with a Dropshipping Business

Manufacturers

Manufacturers create the product, and most do not sell directly to retailers or consumers. Instead, they sell in bulk to suppliers.

Buying directly from the manufacturer is the cheapest way to purchase products for resale, but most have minimum purchase requirements you’ll need to meet. You’ll also need to stock and then re-ship the products when selling them to customers. For these reasons, it’s often easier to partner with a dropshipping supplier.

Dropshipping suppliers

A dropshipping supplier could be a:

• Manufacturer 
• Distributor 
• Brand that had the product created by a manufacturer

The unique thing about the dropship supplier is that they own the title of the goods, hold the inventory and ship the product to the customer.

Retailers

A retailer is anyone who sells products directly to consumers. If you run a business that fulfills orders via a dropshipping supplier, you’re a retailer.

5 dropshipping fulfillment benefits

Dropshipping fulfillment allows you to offer different products in your store without the responsibility of managing the supply chain. After partnering with a dropshipping supplier, you’ll be able to quickly import product listings from their catalog into your store at no cost.

Here are five benefits of using dropshipping as your store's fulfillment method:

1. Low capital requirements

You don’t have to purchase products ahead of time when using dropshipping fulfillment. This makes it cost-effective to start an ecommerce store or expand your product offering without investing thousands of dollars in inventory up front.

2. Easy to start

You also don’t have to deal with physical products. Dropshipping suppliers have their own fulfillment centers where they pack and ship your customers’ orders. Depending on how you handle returns, you won’t have to worry about inventory management or managing stock levels. All you need is a laptop to start.

3. Low overheads

Because you don’t have to invest much money upfront, your overhead expenses are low. Many dropshipping stores start as a home-based business idea that turns into something bigger.

4. More scalable

If you’re a traditional retailer, every time you receive an order, you must receive, fulfill, pack, and send the order manually. That’s a lot of work for a small team. With dropshipping order fulfillment, suppliers do all of that for you. So you can sell as much as you want, on any marketplace or channel you want, without falling behind.

5. Wide variety of products to sell

As a dropshipping retailer, you’re not limited to the items you can sell. If your supplier stocks a new product in their fulfillment center, you can list it for sale in your store at no extra cost.

Common dropshipping challenges

Like any fulfillment method, businesses using dropshipping face a variety of pros and cons. Some get stuck on finding good dropshipping suppliers, while others have trouble attracting store traffic.

Here are the most common challenges for dropshipping stores:

Low profit margins

Low profit margins are a top challenge for many dropshippers operating in competitive dropshipping niches. Because it’s easy to start, competitors can sell items at low prices to grow revenue through sales volume rather than quality. Since they don’t invest much to start a dropshipping business, they can afford to operate on small margins.

Supplier challenges

Even the best dropshipping suppliers will make mistakes fulfilling customer orders—mistakes you’ll need to take responsibility for and apologize on behalf of. A low-quality fulfillment partner can cause havoc with missing items, mishandled shipments, and poor packaging. If you work with multiple fulfillment centers, which many dropshippers do, it makes order fulfillment more challenging.

It’s important to find reliable dropshippers to fulfill your orders. Vet your options. Check reviews on supplier sites like DSers. Top things to look out for when choosing a good supplier include:

• Fair fees
• Low order minimums
• Fast, reliable shipping
• Expert knowledge
• Customer support
• Responsiveness

If you can find a supplier that checks the boxes above, you’re more likely to have good dropshipping fulfillment experiences.

Poor unboxing experience

For online businesses, shipping and fulfillment is the most direct touchpoint and connection with a customer. Customers can’t touch or feel products before purchasing them. The unboxing experience is where you can create a memorable experience and differentiate yourself amongst competitors. It’s also a common challenge for many dropshippers.

Shipping issues

Shipping times and delays are common in dropshipping fulfillment. Depending on the country you’re shipping to, shipping times can take up to 60 days.

Shipping from your home country is one option to bring down shipping costs and complexities. Some dropshippers also solve this shipping problem by buying products wholesale, then hiring a fulfillment center in the country they ship to. This lets them deliver orders in a few days versus a few months.

Dropshipping fulfillment in action

Let's imagine we're running an online store called Phone Outlet that sells phone accessories. Phone Outlet dropships all its products from a fulfillment supplier called Wholesale Accessories.

Here's how Phone Outlet would receive a dropshipping order and process it with Wholesale Accessories:

Customer places order with Phone Outlet

Mr. Allen needs a case for his new smartphone and places an order via Phone Outlet’s online store. Once the order is approved, a few things happen:

• Phone Outlet will be notified of the new order through their ecommerce software. Depending on the software, Mr. Allen will also get an email order confirmation.
• Mr. Allen’s payment is captured during the checkout process and will be automatically deposited into Phone Outlet’s bank account.

Phone Outlet places the order with its supplier

This step is usually as simple as Phone Outlet forwarding the order to a sales representative at Wholesale Accessories. Wholesale Accessories has Phone Outlet's credit card on file and will bill it for the wholesale price of the goods, including any shipping or processing fees.

Many dropshipping supplier apps support automated order forwarding or allow retailers to batch submit orders.

Wholesale Accessories ships the order

Assuming the item is in stock, and they are able to successfully charge Phone Outlet’s card, Wholesale Accessories will box up the order and ship it directly to the customer. Though the shipment comes from Wholesale Accessories, Phone Outlet’s name and address will appear on the return address label and its logo will appear on the invoice and packing slip.

Once the shipment has been finalized, Wholesale Accessories will email an invoice and a tracking number to Phone Outlet.

The turnaround time on dropshipping orders is often faster than you’d think. Many quality suppliers will be able to get an order out the door in a few hours, allowing merchants to advertise same-day shipping even when they’re using a dropshipping supplier.

Phone Outlet alerts the customer of the shipment

Once the tracking number is received, Phone Outlet will send the tracking information to the customer, likely using an email interface that’s built into the online store. With the order shipped, the payment collected and the customer notified, the order fulfillment process is complete.

Phone Outlet’s profit (or loss) is the difference between what it charged Mr. Allen and what it paid Wholesale Accessories.

Handling returns as a dropshipper

Returns get more complex with a dropshipping supplier involved. Every supplier will have different policies for returns. Some won’t allow returns at all, some will charge you a high restocking fee. You may have to pay postage to return defective items. It varies. Regardless, the customer will come to you for returns. And you need to make sure it’s an easy experience for them.

Fulfillment services aside, the returns process for dropshippers looks like this:

1. The customer requests a return.
2. You request an RMA (return merchandise authorization) number from the supplier.
3. The customer mails back the merchandise to your supplier, noting the RMA number on the address.
4. The supplier refunds your account for the wholesale price of the merchandise.
5. You refund the customer for the full price of the merchandise.

There is no right or wrong way to process returns as a dropshipper. Some ecommerce businesses will even offer “returnless refunds,” or a full refund that’s granted to a customer without having them return the merchandise.

Write out a return policy and place it on your website for customers to see. It can build trust with shoppers and encourage them to buy. If you’re stuck, use Shopify’s Return Policy Generator to create one quickly and easily.

Fulfillment companies are invaluable

Despite the important role they play, dropshipping fulfillment companies are often silent partners and invisible to the end customer.

For example, if Mr. Allen receives the wrong case, he would contact Phone Outlet, which would then coordinate behind the scenes with Wholesale Accessories' fulfillment service to get the right item sent out.

With dropshipping fulfillment, the process of stocking products and shipping orders is managed by fulfillment services from start to finish. With third party fulfillment on your side, you can stop worrying about your inventory management and concentrate on the things that help grow your online business: marketing, website development, and customer experience.

Dropshipping fulfillment FAQ

What’s the difference between a dropship order and a regular order?

The difference between dropshipping and the traditional retail business model is that sellers don’t own inventory. Instead, when a customer purchases an item, a third party, like a wholesaler or manufacturer, fulfills the order.

What are the benefits of dropshipping fulfillment?

• Low risk
• Low capital requirements
• Low overhead
• Easy to start
• Wide variety of products to sell

How do I process a dropship order?

1. Your customer places an order from your online store.
2. Your store automatically sends the order to a dropshipping supplier.
3. Your dropshipping supplier prepares the customer’s order.
4. The dropshipping supplier ships the order to your customer.