How to Start a Dropshipping Business

What is dropshipping and how does it work?

Dropshipping is online retail without your own inventory. A customer orders from your store, you pay a supplier for the item, and the supplier ships it straight to the customer. Your income is the difference between what the customer pays and what you pay the supplier, minus platform fees, advertising and refunds.

That model shifts where the work happens. You skip buying stock up front, but you spend more time on product research, supplier management, customer service and marketing. You also give up control of packaging, stock levels and shipping speed, which is why the rules below matter so much.

If you are still comparing ideas, the business ideas page lists other online and low-overhead options, and our general guide to starting a business covers the steps every new owner shares.

How do you choose products and suppliers?

Choose products you can describe accurately and support after the sale. Items that are fragile, sized, regulated or prone to defects bring more returns and complaints, so many new sellers start with simple, durable goods.

Vet every supplier before you list a single product:

1. Order samples. Buy the product as a customer would, shipped to your own address. Note the real delivery time, the packaging and the quality.
2. Ask about stock and shipping. Get the supplier's typical processing time, shipping method and what happens when an item is out of stock.
3. Get the return process in writing. Know who pays return shipping, where returns go and how fast the supplier refunds you.
4. Check what you can claim. Only describe features, materials or origin that you can back up. If the supplier cannot confirm a claim, leave it out of your listing.
5. Keep a backup supplier for your top products, so one stockout does not stall every order.

Your sample order is your evidence: it tells you what shipping time you can honestly promise.

Before you open the store, write three short policies and link them from every product page:

• Shipping policy. The processing time plus the delivery window you saw in your sample orders, and what you do when an item is delayed.
• Return and refund policy. Who pays return shipping, the return address (often the supplier's, not yours) and how long refunds take to reach the customer.
• Contact page. An email address you check every day. Customers who cannot reach you tend to dispute the charge with their card issuer instead.

Keep the policies consistent with your supplier agreement. If the supplier only accepts returns within a set number of days, your policy should not promise a longer window unless you are willing to absorb the cost yourself.

Do you need to register a dropshipping business?

Yes, in most cases you should set it up like any other retail business. Start with a structure. Many sellers begin as a sole proprietor and later form an LLC; the SBA explains how the main structures differ in liability and taxes ^[1]. If you form an LLC, our LLC guides by state walk through filing directly with the state, such as how to start an LLC in Texas.

Next, get an EIN. The IRS issues it for free online ^[2], and suppliers and payment processors often ask for one.

Finally, check licenses. The SBA notes that most small businesses need a combination of licenses and permits from federal and state agencies, and that county and city requirements depend on your location ^[3]. Even a home-based online store may need a city or county business license, so ask your local licensing office.

How does sales tax work when you dropship?

Sales tax is often the most confusing part of dropshipping, because the seller, the supplier and the buyer can all be in different states. In general you look at two questions: where you have a physical presence, and which states you sell enough into to cross their remote seller thresholds.

State thresholds differ. Two official examples, as of November 2026:

State	Remote seller threshold	Source
Texas	Must get a permit and collect use tax once total Texas revenue reaches $500,000 in the preceding twelve calendar months	Texas Comptroller
New Jersey	Must register and collect once sales into New Jersey exceed $100,000 or reach 200 separate transactions in the current or prior calendar year	New Jersey Division of Taxation

Texas sets its safe harbor at less than $500,000 in total Texas revenue over the preceding twelve calendar months, and sellers above it must get a permit and collect state and local use tax ^[4]. New Jersey uses a $100,000 or 200-transaction test, and it makes marketplace facilitators collect tax on marketplace sales regardless of the seller's size ^[5].

Your home state is a separate question. If you are based in a state with a sales tax, you will usually need to register there before your first taxable sale. Suppliers may also ask for a resale certificate so they do not charge you tax on items you resell. Check your home state's revenue department first, then track sales into each other state as you grow.

What does the FTC require when a supplier ships for you?

This is the rule most new dropshippers miss. The FTC's Mail, Internet, or Telephone Order Merchandise Rule covers orders taken online, and it puts the duty on whoever solicits the order. The FTC's business guide says that the person soliciting the order, not the agent fulfilling it, is the seller under the rule, so you are liable for delays caused by a drop shipper ^[6].

The core duties, from the same FTC guide:

• Reasonable basis. You need a reasonable basis to expect you can ship within the time you advertise. If you state no time, you must ship within 30 days of receiving a properly completed order.
• Delay option notice. If you cannot ship on time, you must tell the buyer and offer a choice to accept the delay or cancel for a refund, without waiting for them to ask.
• Prompt refunds. For most payment methods, refunds must go out within seven working days after the buyer's right to a refund arises.

The FTC also suggests practical safeguards: put compliance with the rule into your supplier contract, place test orders to monitor fulfillment times, and watch for spikes in complaints ^[6]. If your supplier's delivery time is uncertain, state a longer shipping window rather than a fast one you cannot support.

How is dropshipping different from holding inventory?

Dropshipping lowers what you spend before your first sale, but it trades that for less control. Holding your own stock costs more up front and takes space, yet it lets you inspect every unit and ship on your own schedule.

Your setup costs depend on your store platform, samples, advertising budget and any registration fees in your state. The cost summary on this page lists sourced estimates when they are available, and the startup cost calculator lets you add up your own quotes. If you would rather design your own products, see how to start a clothing brand, and for official links in one place, visit the resources page.