Pros and Cons of Dropshipping for Your Online Business

Dropshipping is a low-risk way to start an online business that has the ability to scale quickly and test new products without significant upfront investment. However, success depends on partnering with reliable dropshipping suppliers, maintaining sustainable profit margins, and ensuring efficient fulfillment.

Introduction to dropshipping

The global dropshipping market is estimated to grow to USD476.1 billion by 2026, underscoring its appeal for those wanting to start an e-commerce business with minimal up-front costs and without the hassle of tasks like managing inventory.

However, while the benefits of dropshipping make it an attractive option, challenges such as low-profit margins, supplier issues, and hidden costs can pose risks. That’s why it’s essential to understand the pros and cons of dropshipping business to make informed decisions that will set your online business up for success.

Major challenges and limitations of dropshipping

Understanding the challenges and limitations of dropshipping, and how to address them, can make the difference between success and failure.

• Less profit due to hidden costs: According to MYOB, dropshipping is “notorious for low-profit margins.” For example, a tech accessories store using dropshipping may sell phone cases for $20 each. If the supplier charges $12 per case and shipping costs another $5, the profit margin is just $3 per sale.

Negotiating better rates with suppliers based on consistent sales volume can help to improve profit margins.

• Reliance on other people’s stock: Since dropshipping businesses don’t hold inventory, they must rely entirely on suppliers’ stock levels. For instance, a fitness store selling resistance bands may experience issues if a supplier fails to restock during peak demand. Customers could cancel their orders, leading to lost revenue and reputational damage.
  

To reduce this risk, business owners can diversify their supplier base. Using multiple dropshipping suppliers for the same product ensures backup options if one runs out.

• Lack of control over fulfillment and shipping: Since online retailers must rely on third-party dropshipping suppliers to package and ship orders, many mistakes or delays are typically beyond their direct control. For example, an electronics store may receive complaints from customers who received incorrect or damaged items. Since the retailer never physically handles the product, resolving these issues can become complicated.

Partnering with reliable suppliers that provide quality control and consistent shipping service levels ensures fewer fulfillment issues. 

Key benefits of dropshipping

Dropshipping is more than just a low-risk way to start an online business. According to Radial, “dropshipping eliminates the need for inventory management and upfront investment in stock. It allows businesses to focus on marketing, customer acquisition, and building their online presence.”

• No order fulfillment costs: With dropshipping, suppliers handle all order fulfillment responsibilities, including packaging and shipping. This eliminates the need for businesses to manage logistics, which reduces the time and expenses associated with supply chain management. This allows the business to scale more efficiently without being overwhelmed by fulfillment tasks.
  

• Growing demand: As more consumers turn to online shopping, businesses that understand the pros and cons of dropshipping business can leverage the model to offer competitive pricing, a diverse product selection, and quickly adapt to trends to help keep their offering agile and competitive.

Dropshipping in practice: How to get dropshipping right

Understanding the pros and cons of dropshipping business is easier when viewed through practical examples. The following hypothetical examples illustrate both the strengths and challenges of dropshipping in real-world situations.

EcoThreadz by Sarah: Sarah runs a sustainable fashion dropshipping store, EcoThreadz By using cost savings from not managing inventory, she invests heavily in social media marketing. In this way, dropshipping enables Sarah to focus on growing her brand following and engaging with customers instead of managing logistics.

GizmoZap by John: John, owner of GizmoZap, tests new tech gadgets without investing in inventory and research and development. His ability to pivot quickly to trending products keeps his business competitive in a fast-moving market. Dropshipping minimizes financial risk, which allows John to experiment with products and adapt to consumer trends.

Home Haven by Mia: Home Haven, a dropshipping store run by Mia, has expanded from selling 10 products to 100 within a year. By relying on supplier networks, she adds product lines based on customer demand without worrying about warehousing. The scalability of dropshipping enables Mia to grow her business quickly and respond to market trends.

Gadget Treasure Trove by Gary: Gary runs the store Gadget Treasure Trove and loses customers during the holiday season because his dropshipping supplier runs out of stock on a bestseller. Gary’s dependence on a single supplier led to inventory shortages, which harmed customer satisfaction and revenue.

GiftME by Lisa: Lisa’s online store, GiftME, receives negative reviews when customers complain about inconsistent product quality from her dropshipping supplier. Despite offering refunds, her store’s reputation suffers. Without direct control over production, Lisa risks damaging her brand if supplier quality isn’t consistent.

TechDeals2u by Michael: TechDeals2u, run by Michael, struggles to compete with larger retailers that offer lower prices on the same products. Michael’s slim profit margins make it difficult to reduce his prices, scale, or invest in marketing. 

Dropshipping alternatives and complementary models

Online businesses may be able to improve profitability and customer satisfaction by combining dropshipping with other fulfillment methods. Exploring alternative models may also help entrepreneurs balance cost savings with more control over their inventory, shipping, and overall customer experience.

• Consignment: Consignment is another alternative model that allows businesses to sell products without purchasing inventory upfront. Unlike dropshipping, where suppliers ship directly to customers, consignment businesses receive stock from suppliers but only pay for what they sell. This model typically provides more control over product availability and shipping while still reducing initial investment risks.

Dropshipping: Frequently asked questions

Many online retailers use dropshipping selling platforms to set up and manage their online stores. These platforms provide tools for listing products, processing payments, and managing customer orders. Popular examples include Shopify, WooCommerce, and BigCommerce. Keep in mind that these platforms do not supply products. Rather, they act as storefronts where business owners sell items sourced from dropshipping suppliers.

Dropshipping supplier platforms connect retailers with suppliers who handle inventory and fulfillment. Businesses use these platforms to find and partner with dropshipping suppliers that ship products directly to customers. Popular examples include AliExpress, Spocket, and SaleHoo.

According to Shopify, “experts predict a 24.39% average annual growth rate of dropshipping between 2020 and 2026,” which means “in 2025, dropshipping remains an attractive business model for entrepreneurs looking to enter the e-commerce space without investing in inventory or warehousing.”

However, dropshipping is highly competitive, so choosing a less crowded niche, building a strong brand identity, and prioritizing customer service can help set you up for dropshipping success in 2025. 

The amount a successful dropshipper can make depends on profit margins and sales volume. While some entrepreneurs may generate a few hundred dollars per month, others scale their businesses to earn thousands or even six figures.

However, success largely relies on using pricing strategies that return sustainable profit margins. For example, a dropshipping business with a 35% net profit margin could generate $525 in profit from $1,500 in sales. However, understanding these margins is crucial to maximizing profitability. In contrast, a business with a poor profit margin – such as 10% net profit – would only make $150 in profit from the same $1,500 in sales. Low margins may make it difficult to scale, reinvest, or cover unexpected costs.

Dropship.io provides a handy dropshipping profit margin calculator that helps online retailers determine sustainable product pricing. 

When choosing a dropshipping supplier, Salehoo suggests avoiding those with frequent stock issues, poor packaging and quality control, and slow or unreliable shipping that can lead to customer dissatisfaction.

Rather, consider working with multiple suppliers to help you avoid stock disruptions. Product descriptions from suppliers may not always be accurate, so requesting product samples and writing your own product descriptions can help ensure that customers get exactly what they expect. And fi branding is a key part of your business strategy, finding a supplier that offers custom packaging or branded inserts can strengthen customer loyalty and set you apart from competitors.

Dropshipping conclusion

When evaluating dropshipping for your business, consider how it aligns with your goals and operational needs. If you want to test new markets or products with minimal risk, dropshipping allows for quick experimentation without a large upfront investment.

However, if maintaining control over branding, fulfillment, and customer experience is a priority, exploring hybrid models or self-fulfillment may be a better fit.

Profit margins, supplier reliability, and shipping logistics should factor into your decision. Before committing, analyze the trade-offs and ensure that dropshipping complements your long-term growth strategy rather than limiting your ability to scale and compete effectively.