How to Start Dropshipping (2026): Step-by-Step Setup, Costs, and Profit Margin Reality

Dropshipping is the ecommerce model where you never touch inventory. A customer orders from your online store. You forward that order to a third-party supplier. The supplier ships directly to the customer. You keep the margin between your selling price and the supplier’s cost.

That model is real and functional. Thousands of stores run profitably on it.

What’s also real: the failure rate is brutal. Most estimates put dropshipping store failure at 80–90% within the first year, and the primary killer isn’t the business model itself — it’s the gap between what gurus promise and what the economics actually demand. They show you the Shopify dashboard with $50,000 in revenue. They don’t show you the $38,000 in ad spend, the $8,000 in product costs, and the $3,500 in refunds that turned that $50K into a $500 profit — or a loss.

I’ve spent over 15 years evaluating online business models. Dropshipping is legitimate. But starting it without understanding the margin math, advertising economics, and competitive landscape is the fastest way to turn $1,000–$5,000 in startup capital into an expensive education.

This guide walks through the actual step-by-step process — not the version that sells courses, but the version that shows what it truly costs, what margins look like, and where most people fail.

First — This Is Important…

Hey, my name is Mark.

After 15+ years testing business models, I’ll be direct: dropshipping can work, but it’s a marketing business disguised as an ecommerce business. Your success depends almost entirely on your ability to run profitable paid ads — not on finding a “winning product” or building a pretty store. If you can’t profitably acquire customers through Facebook, TikTok, or Google ads, the business doesn’t function.

The model I recommend instead is local lead generation. I build simple websites that rank in Google and generate leads for local businesses. Each site pays $500–$1,200/month, recurring, with 92–97% margins and no ad spend required. The economics are fundamentally different.

Go here to see the exact system I use to do this

Here’s exactly how to start a dropshipping business — with full cost transparency.

What Dropshipping Actually Is (And Isn’t)

Dropshipping is: An order fulfilment method where you don’t hold inventory. The supplier warehouses, packages, and ships products. You handle marketing, customer acquisition, and customer service.

Dropshipping is NOT: A passive income model. A “set and forget” business. A way to make money without significant marketing investment. Easy. Automatic.

The flow of money:

1. Customer buys a product from your store for $39.99
2. You purchase that product from your supplier for $12.00
3. Supplier ships to customer (shipping cost: $3–$8, depending on method)
4. Your gross margin: $39.99 – $12.00 – $5.00 shipping = $22.99
5. Facebook ad cost to acquire that customer: $15–$25
6. Net profit per sale: –$2.01 to $7.99

That’s the reality — not $22.99 profit per sale like it looks on the surface. The advertising cost eats most of your margin. This is the single most important concept new dropshippers fail to understand: your product margin is meaningless if your customer acquisition cost exceeds it.

Step-by-Step Startup Guide

Step 1: Choose a Niche (Week 1)

Don’t start with a product. Start with a market.

Viable dropshipping niches share three traits: The target audience is identifiable and reachable through paid ads (you can target them on Facebook/TikTok by interests, demographics, or behaviours). The products solve a problem or trigger an emotional impulse purchase. The products aren’t easily compared on price (commodity products like phone cables get undercut by Amazon).

Niches that work: Pet accessories, home organisation tools, fitness accessories, beauty/skincare gadgets, hobby-specific gear (fishing, yoga, gardening), phone/tech accessories with unique features, posture correctors and ergonomic products, novelty gifts and personalised items.

Niches to avoid: Anything Amazon dominates on price (electronics, basic household items). Anything with complex sizing (general clothing — returns will kill you). Anything fragile with high breakage rates during shipping. Consumables with regulatory requirements (supplements, food). Anything requiring certifications or compliance testing.

Step 2: Find Reliable Suppliers (Week 1–2)

Your supplier determines product quality, shipping speed, and whether your customers actually receive what they ordered.

Supplier platforms:

• AliExpress — The most common starting point. Millions of products, easy to browse, buyer protection. Downsides: 15–45 day shipping from China (ePacket, AliExpress Standard). Inconsistent quality between sellers.
• CJ Dropshipping — Offers warehousing, faster shipping (US/EU warehouses available), custom packaging, and product sourcing. Better for scaling than AliExpress.
• Spocket — US/EU suppliers with 2–7 day shipping. Higher product costs but dramatically better customer experience due to faster delivery.
• Zendrop — Similar to CJ, with US fulfilment centre options, branded packaging, and faster shipping.
• DSers — AliExpress integration tool that automates order processing. Not a supplier itself but essential if using AliExpress.

Supplier evaluation checklist: Order samples yourself before listing any product. Check supplier ratings and order history (1,000+ orders with 4.7+ rating minimum on AliExpress). Test shipping speed to your target market. Verify product quality matches listing photos. Confirm communication responsiveness.

Step 3: Set Up Your Store (Week 2–3)

Shopify is the dominant platform for dropshipping stores ($39/month basic plan). Alternatives include WooCommerce (WordPress-based, lower monthly cost but more technical setup) and BigCommerce.

Essential store setup:

• Purchase a domain name ($10–$15/year via Namecheap or Google Domains)
• Install a clean, professional theme (free Shopify themes work fine — Dawn, Sense, Craft)
• Create essential pages: About, Contact, Shipping Policy, Return Policy, Privacy Policy, Terms of Service
• Set up payment processing (Shopify Payments eliminates transaction fees on Shopify plans)
• Install DSers or your chosen supplier integration app
• Import products with original, rewritten descriptions (never copy-paste supplier text)

Product listing optimisation:

• Professional product photos (request high-quality images from supplier, or order samples and photograph yourself)
• Original product descriptions that sell benefits, not features
• Clear shipping timeframe expectations (if shipping takes 15–25 days, say so — managing expectations prevents disputes)
• Competitive pricing that leaves room for advertising costs

Step 4: Set Up Paid Advertising (Week 3–4)

This is where 80% of dropshipping businesses succeed or fail. Your store can be perfect, your product can be great, but if you can’t profitably acquire customers through paid ads, the business doesn’t work.

Facebook/Meta Ads (most common starting point):

• Create a Facebook Business Manager account
• Install the Meta Pixel on your Shopify store (this tracks visitor behaviour and enables retargeting)
• Start with a $20–$50/day testing budget
• Create 3–5 ad variations (different images, headlines, copy) targeting your niche audience
• Test for 3–7 days before making decisions about what’s working
• Kill underperforming ads, scale winning ones

TikTok Ads:

• Growing platform for impulse-purchase dropshipping
• Create a TikTok for Business account
• Short-form video ads (15–60 seconds) showing the product in use
• Lower CPMs than Facebook in many niches, but conversion rates vary
• Best for visually interesting products that demonstrate well in video

Google Shopping Ads:

• Higher purchase intent than social media (people are actively searching for products)
• More expensive per click but higher conversion rates
• Better for established stores with proven products
• Requires Google Merchant Center setup and product feed optimisation

Step 5: Test, Analyse, Iterate (Week 4+)

The testing phase is where you spend money to learn what works.

Key metrics to track:

• Cost per purchase (CPP): How much you spend on ads per sale. Must be lower than your gross margin to be profitable.
• Return on ad spend (ROAS): Revenue ÷ Ad spend. A 2x ROAS means $2 revenue for every $1 spent. You need 2.5x+ ROAS to be profitable after product costs and fees.
• Cost per click (CPC): Typically $0.50–$2.00 on Facebook, $0.30–$1.50 on TikTok
• Conversion rate: Industry average for dropshipping is 1–3%. Below 1% means your store or product needs work. Above 3% means you’re doing well.

The testing budget reality: Expect to spend $500–$2,000 testing products and ad creative before finding a profitable combination. This isn’t wasted money — it’s the cost of market research. But it does mean dropshipping requires upfront capital with no guarantee of return.

Startup Cost Breakdown

Expense	One-Time / Monthly	Cost
Shopify subscription	Monthly	$39/month
Domain name	Annual	$10–$15/year
Product samples	One-time	$30–$100
DSers/supplier app	Monthly	$0–$20/month
Ad testing budget	Monthly (initial)	$500–$2,000
Logo/branding	One-time	$0–$50 (Canva free)
Email marketing (Klaviyo)	Monthly	$0–$20/month
Total to launch + test		$600–$2,300

The “start dropshipping for $0” claims you see online are misleading. You can build a store for under $100, but without an advertising budget, nobody will visit it. Organic traffic (SEO, social media) takes months to build. Paid ads are the primary traffic source for new dropshipping stores, and ads cost money.

Profit Margin Math: The Numbers That Matter

Here’s a realistic breakdown of a $30 product (a common dropshipping price point):

Line Item	Amount
Selling price	$29.99
Product cost (from supplier)	$8.00
Shipping cost	$4.00
Shopify transaction fees (~2.9% + $0.30)	$1.17
Gross margin	$16.82
Facebook ad cost per acquisition	$12.00–$20.00
Net profit per sale	–$3.18 to $4.82

At the good end ($4.82 profit per sale): You need 208 sales/month to make $1,000/month profit. At a 2% conversion rate, that requires ~10,400 store visitors/month. At $1.00 CPC, that’s $10,400 in ad spend to generate $6,237 in revenue and $1,000 in profit.

At the bad end (–$3.18 per sale): You’re losing money on every sale. This happens more often than most gurus admit — especially during the testing phase.

The scale equation: Dropshipping profit comes from volume at thin margins, not high margins on few sales. A store making $3 profit per sale needs 333 sales/month ($10,000 revenue) to generate $1,000/month profit. This requires significant ad spend, solid conversion rates, and consistent supplier fulfilment.

For detailed margin analysis, see how to make money dropshipping. For whether the model is worthwhile, see is dropshipping worth it.

Common Mistakes That Kill Dropshipping Stores

1. Underestimating ad costs. The biggest killer. New dropshippers budget $100 for ads and expect sales. Realistic testing requires $500–$2,000 before finding a profitable product/ad combination. Many products require $200–$500 of testing before you know if they’ll work.

2. Ignoring shipping times. 25–40 day shipping from China creates chargebacks, negative reviews, and PayPal disputes. If you use AliExpress suppliers without US/EU warehouse options, set shipping expectations clearly and prepare for customer service volume.

3. Selling commodity products. If a customer can find your product on Amazon for the same price with 2-day shipping, they’ll buy from Amazon. Sell products that are unique, solve a specific problem, or trigger impulse purchases — not products that compete on price.

4. No customer service plan. Dropshipping generates more customer service inquiries than traditional ecommerce because shipping is slower and you don’t control quality. Budget 30–60 minutes daily for email/chat support, or your refund rate will spike.

5. Scaling too fast. Finding one profitable product/ad combination doesn’t mean doubling your budget immediately. Scale ad spend by 20–30% per day maximum. Rapid scaling breaks Facebook’s algorithm optimisation and raises your CPC.

6. Not tracking true profit. Revenue is not profit. Track every expense: product cost, shipping, ad spend, Shopify fees, app subscriptions, refunds, chargebacks, and transaction fees. Many “successful” stores are revenue-rich and profit-poor.

For comparison with other business models, see dropshipping vs Amazon FBA and best business model for long-term income.

Timeline Expectations

Timeframe	Milestone	Investment
Week 1–2	Niche selected, suppliers vetted, samples ordered	$30–$100
Week 3–4	Store built, products listed, ads created	$50–$75 (Shopify + domain)
Month 1–2	Initial ad testing, first sales (possibly unprofitable)	$500–$2,000 (ad budget)
Month 3–4	Optimised ads, testing new products, improving conversion rate	$500–$1,500/month ad spend
Month 4–6	Potentially profitable if product/market fit achieved	Variable
Month 6–12	Scaling profitable products, adding new products, building email list	Variable

Realistic income timeline: Most dropshipping stores take 2–4 months of testing before achieving consistent profitability. Many never achieve it. The stores that succeed typically spend $2,000–$5,000 in the testing phase before finding a winning formula. If you’re expecting profit in week one, dropshipping will disappoint you.

Who Dropshipping Is NOT For

This business model is wrong if you have less than $1,000 to invest in testing (you’ll run out of budget before finding what works), are unwilling to learn Facebook/TikTok advertising (this IS the core skill), expect passive income (dropshipping requires daily attention to ads, customer service, and supplier management), need income within 30 days (the testing phase takes 1–3 months minimum), are uncomfortable with financial risk (you will lose money during testing — the question is whether you recoup it later), or have zero tolerance for customer complaints (long shipping times, quality inconsistencies, and occasional lost packages are part of the model).

For an overview of which business models suit different goals, see realistic online income expectations. For the model I recommend instead, see local lead generation.

Pros and Cons

Pros: Low startup cost compared to traditional retail (no inventory investment). Location-independent — run from anywhere with internet. Huge product selection — test multiple products without inventory risk. Scalable — successful products can scale to significant revenue. Low overhead — no warehouse, no employees required initially. Educational — teaches marketing, ecommerce, and business fundamentals.

Cons: Thin profit margins (often 10–20% net after all costs). Advertising costs eat the majority of gross margin. High failure rate (80–90% of stores don’t achieve sustained profitability). You don’t control product quality, shipping, or packaging. Customer service burden is high due to shipping delays and quality inconsistency. Significant testing budget required ($500–$2,000+) with no guaranteed return. Not passive — requires daily management of ads, orders, and support. Facebook/TikTok ad account bans can shut your business down overnight.

Frequently Asked Questions

How much money do I need to start dropshipping? Realistically: $1,000–$2,500. This covers Shopify ($39/month), domain ($12), product samples ($50–$100), and initial ad testing budget ($500–$2,000). You can build a store for under $100, but without advertising budget, you won’t generate sales.

Is dropshipping still profitable in 2026? Yes — stores with strong marketing, fast shipping (US/EU suppliers), and differentiated products still profit. But the landscape is significantly more competitive than 2018–2020, ad costs have risen, and customer expectations for shipping speed have increased. Margins are thinner.

How long until I make money dropshipping? Expect 2–4 months of testing before achieving consistent profitability. Some stores never become profitable. The testing phase is an investment with uncertain returns.

What’s the average profit margin for dropshipping? Gross margin: 30–60% (before advertising). Net margin after all expenses: 10–20% for profitable stores. Many stores operate at 5–15% net margin or at a loss during testing phases.

Can I dropship on Amazon? Yes, but Amazon’s terms are strict — you must be the seller of record, products must ship with your brand information, and supplier errors (late shipments, quality issues) impact your Amazon seller rating. Amazon dropshipping has additional risks beyond standard Shopify dropshipping.

Do I need an LLC to start dropshipping? Not legally required to start, but recommended once generating consistent revenue. An LLC provides liability protection and simplifies tax filing. Most dropshippers start as sole proprietors and form an LLC once profitable.

The Bottom Line

Dropshipping is a real business model with real profit potential — but it’s fundamentally a marketing business that happens to sell physical products. Your success is determined by your ability to profitably acquire customers through paid advertising, not by finding a “secret winning product” or building a beautiful store.

The realistic path: invest $1,000–$2,500 in store setup and ad testing. Spend 2–4 months learning what works. Accept that the testing phase will lose money. If you find product-market fit and can run ads profitably, scale from there. If you can’t crack profitable customer acquisition after $2,000–$3,000 in testing, acknowledge the data and consider alternatives.

For a business model with higher margins, no ad spend requirement, and recurring revenue, here’s how I build simple websites that generate $500–$1,200/month each through local lead generation.