Drop shipping is a product delivery method in which the seller (retailer) accepts payment for an order, but the customer receives the product(s) directly from the manufacturer. In a drop shipping arrangement, the retailer acts as a middleman between the manufacturer and the customer. His profit in the transaction is the difference between the wholesale and retail price of the items sold.

Drop shipping is very beneficial to smaller retail shops, internet-only storefronts and those who primarily use catalogs for sales. Customers of these outlets don't always expect to walk out with their purchases, so a slight delay between ordering and drop shipping is not a drawback. A representative item may be displayed on the store's shelves or pictured in its catalog, but the actual product purchased may be sitting in a factory's warehouse 3000 miles away.

One of the biggest problems drop shipping addresses for retailers is inventory control. In a traditional retail store setting, products are ordered in bulk from the manufacturer and must be stored in a secure area until displayed. This means maintaining a proper storage area, hiring employees to handle the stock and investing in security measures to prevent theft. With drop shipping, the retailer does not keep a large inventory on the premises. More space can be devoted to displays, and fewer employees need to be hired to handle shipping, receiving, inventory and security.

Many manufacturers also embrace the idea of drop shipping, because the retailer essentially becomes an additional salesman. Delivering large orders or bulky items to a retailer costs money in handling and fuel. With drop shipping, the manufacturer can use inexpensive shipping methods (UPS, FedEx, local delivery companies) to get the ordered product to the customer directly. Manufacturers also own much more secured warehouse space than most retailers, so their products remain safe until ordered.

There are some drawbacks to using a drop shipping system, however. Some manufacturers will not allow for drop shipping at all. Personnel have to be assigned to process and ship these individual orders, which means the main shipping and receiving system may become bottle-necked. Some companies only deal in bulk orders to larger retailers, making it impossible for smaller outlets to custom order only a few items. The customer may have to assume the cost of shipping as well as the retail price, which could be prohibitive in the case of large items like furniture or high-end electronics.

When drop shipping is available, many small retailers and internet-only stores discover it solves many more problems than it creates. Shipping is left up to professionals, there is virtually no inventory to track and more retail space is available. Smaller shops can offer exotic or over sized products without worrying about importation costs or expensive storage. Manufacturers also benefit from reduced shipping costs and more sales exposure of their products.