What Is Dropshipping? How It Works, What It Really Costs and the Rules Sellers Face

What is dropshipping and how does it work?

Shopify, which sells e-commerce software, defines dropshipping as a retail fulfilment method that involves selling products without buying inventory ^[1]. The seller runs the shop and the marketing. When a customer pays, the order is forwarded to a supplier, who packs the item and ships it straight to the customer; the seller never handles the goods ^[1].

1. The customer orders and pays the seller's retail price.
2. The seller pays the supplier the wholesale price plus shipping.
3. The supplier ships the product to the customer.
4. The seller keeps the difference, minus payment fees, platform fees, advertising and refunds.

The model is legal, but the seller remains responsible for consumer rules on delivery and returns ^[4][8]. What determines success is the gap between price and total cost per order, and whether the seller can deliver on time and handle returns. This is general information, not financial, tax or legal advice.

What are the advantages and disadvantages of dropshipping?

Advantages. Shopify lists low start-up costs, a wide product selection, no product development costs, location flexibility, and easier testing and scaling ^[1]. Because no stock is bought in advance, a product that does not sell does not leave unsold inventory.

Disadvantages.

• Thin margins. Shopify cites a 2026 Trueprofit analysis putting the average net margin of dropshipping brands at 15% to 25%, and says competition can push margins down ^[1].
• Stock surprises. Suppliers fill orders for many retailers, so availability can change suddenly ^[1].
• Shipping complexity. Orders from several suppliers can mean several packages and charges, and international orders can add duties and customs delays ^[1].
• Less quality control. The seller does not inspect products, so Shopify recommends ordering samples; it quotes Alibaba as saying most cost $50 to $100 including shipping ^[1].

What does dropshipping really cost?

Store platform

As of 3 November 2026, Shopify's US pricing page listed the Basic plan at $27 a month when billed monthly, with lower monthly rates on yearly billing; prices can differ by country ^[2]. A store that uses a third-party payment provider instead of Shopify's own pays an extra transaction fee of 2% on Basic, 1% on Grow and 0.6% on Advanced ^[2].

Payment processing

Stripe's US standard pricing is 2.9% + 30 cents per successful domestic card payment, plus 1.5% for international cards and 1% when currency conversion is needed ^[3]. Each card dispute (chargeback) costs $15 when received, and a further $15 to contest it manually, refunded only if the seller wins ^[3].

Product, shipping, samples and advertising

The supplier's price and shipping are usually the main per-order costs, and they vary by product. Samples add about $50 to $100 per product tested, based on Alibaba figures quoted by Shopify ^[1]. Advertising to find customers is a further cost; it varies widely by product and market and appears in no published fee schedule.

How much profit is left on one order?

The worked example below is illustrative. Only the card fee uses a published rate (Stripe's US standard pricing ^[3]); the product, shipping and advertising figures are assumptions chosen to show how quickly costs add up.

• Retail price paid by the customer: $30.00
• Supplier's product cost (assumed): $12.00
• Shipping to the customer (assumed): $5.00
• Card fee at 2.9% + 30 cents: $1.17 ^[3]
• Advertising cost per order (assumed): $8.00

Total cost is $26.17, leaving $3.83, or about 12.8% of the sale, before the monthly store plan, apps, refunds, chargebacks, import duties and tax. One $15 dispute fee ^[3] would wipe out the profit on roughly four such orders. The result sits below the 15% to 25% average net margin Shopify cites ^[1], which shows how sensitive the model is to advertising and shipping costs.

What rules apply to shipping times and refunds?

United States: the Mail Order Rule

The Federal Trade Commission's Mail, Internet, or Telephone Order Merchandise Rule applies to online sellers. A seller must have a reasonable basis for any shipping time it states or implies, and if it states none, it must reasonably expect to ship within 30 days ^[4]. If it cannot ship on time, it must seek the customer's consent to the delay, and must give a prompt refund if the customer does not agree or the order cannot be filled ^[4]. Long supplier delivery times are therefore a legal issue, not just a customer-service one.

European Union: the 14-day right of withdrawal

EU consumers can cancel an online purchase within 14 days without giving a reason; for goods, the period starts on the day of delivery ^[8]. The buyer normally pays return postage unless the seller offered to pay or failed to disclose the cost beforehand ^[8]. A dropshipper selling to EU customers has to be able to accept returns even if the supplier is abroad.

Reviews and advertising claims

Since 2024, the FTC's rule on reviews bans fake reviews and testimonials, including AI-generated ones, and offering rewards for reviews that must express a particular sentiment, positive or negative, and lets the FTC seek civil penalties from knowing violators ^[10].

How do import duties and VAT affect dropshipping?

United States

When suppliers ship from abroad, duties and customs delays can apply ^[1]. Executive Order 14324, signed on 30 July 2025, suspended duty-free de minimis treatment for low-value shipments from all countries from 29 August 2025 ^[5]. US Customs and Border Protection (CBP) states that the suspension covers merchandise valued at $800 or less from all countries and of all types, arriving by any mode including the international postal network, unless specifically excepted under a separate authority ^[6]. CBP describes the suspension as indefinite, and such parcels now need a formal or informal customs entry, with any applicable duties paid, which raises landed costs ^[6].

European Union

Since 1 July 2021, EU VAT rules for cross-border online sales to consumers have changed, and the Import One Stop Shop (IOSS) lets sellers declare and pay VAT on distance sales of low-value goods, not exceeding €150, imported from outside the EU ^[7]. The portal also sets out separate special arrangements for such consignments of up to €150 ^[7]. Either way, VAT is now due on these imports, so it belongs in the price. In addition, from 1 July 2026 the EU applies a temporary €3 customs duty to low-value parcels worth up to €150 imported from outside the EU, charged per product type by tariff classification rather than per unit ^[12].

How can you spot a dropshipping course scam?

Dropshipping is often sold through courses and coaching. The FTC warns that promises such as guaranteed income, large returns or a proven system are signs of a scam, and that no one can guarantee you will make money in business ^[9].

1. Distrust earnings claims. The FTC calls figures like guaranteed 50% to 100% first-year returns made-up numbers ^[9].
2. Resist pressure. Pressure to decide quickly and requests for card or bank details before you can research the offer are warning signs ^[9].
3. Be wary of turnkey stores. The FTC flags claims that experts will handle everything for you ^[9].
4. Ask for detail. Honest sellers of business opportunities should give detailed information about what you get ^[9].

Can people in Iran run a dropshipping store on US platforms?

US sanctions make this very difficult. Under the Iranian Transactions and Sanctions Regulations, US persons, wherever located, may not export, sell or supply goods, technology or services to Iran, directly or indirectly, unless authorised ^[11]. Store builders and payment processors that are US persons are bound by this rule ^[11]. Anyone affected should check current rules from the US Treasury's Office of Foreign Assets Control and take qualified legal advice; this is not legal advice.

What is the outlook for dropshipping?

The model's economics have tightened. The end of US duty-free treatment for low-value imports ^[5][6] and EU VAT collection and the temporary €3 duty on low-value imports ^[7][12] remove some of the cost advantage that direct overseas shipping once had. Meanwhile, payment and platform fees ^[2][3] and the cost of advertising remain. On this guide's reading, sellers who focus on reliable suppliers, honest delivery promises ^[4] and realistic pricing are better placed than those relying on the low prices that cheap cross-border shipping used to allow.