I used to sell a particular 3M product via the mail. I generally did not drop ship it, I ordered it in bulk from a wholesaler and then sold it on eBay, as well as on a website I maintained, which ran a heavily modified version of osCommerce.

Buying this one item, which I knew had regular demand, from a retailer allowed me to offer a price which was competitive, but from which I could also make a small profit. With dropshipping, I was competing against others who could drop ship the same items, so I could not offer as competitive a price, nor have any kind of margin.

I used dropshipping for two scenarios. One was if I traveled and was unable to ship out the item I had in stock. In this scenario, I would drop ship the item and lose any margin (or sometimes even take a small loss).

The other scenario was to test new items to sell. My main wholesaler (which I bought my 3M bulk item from) could drop ship a catalog of items at a decent rate from their one watehouse. I also had accounts with two larger dropshipping wholesalers, both of whom had multiple warehouses with mostly the same catalog in stock - with items more likely in stock, but at a higher markup.

So what I did was for through my main wholesaler's catalog and see what items they had. I then checked that both other wholesalers had the same item in their catalog, and that all currently had the item in stock. Generally my main wholesaler would drop ship for the lowest rate. So I put the item up on my website, at a break even price. I did this for many items.

Sometimes I would have a sale. Often my main wholesaler still had the item in stock. I would break even on the sale, but would know there was demand. Sometimes they would be out of stock - then I would drop ship from one of the two backups and lose some money on the sale. Maybe I would increase my sale price until I knew my main wholesaler had the item in stock again.

As margins were small, one goal was to sell more and increase margins. If I bought boxes, tape and shipping labels in bulk, my margins increased a few cents per sale - I could decrease the sale price (and increase sales doing so) while also increasing my cut a few cents. This worked for a number of things - with $3,000 a month in sales my Payapl fees would drop, with $10,000 a month in sales they would drop even more. This would also allow me to offer more items at a competitive price.

I'm not sure how it works nowadays. One lesson I learned was what to do when you succeeded. I got to where I was shipping several items a day and making a small margin, and had the opportunity to ship even more. But it would then outgrow my closet space - I would need to rent some warehouse space or something to receive shipments and store items. Also, as sales grew, I spent less time programming my web site, and more time putting items in boxes, taping up boxes, weighing boxes, printing out shipping labels to attach to boxes etc. I figured I eventually would have to hire someone part time to ship items out during the week. By then I was familiar enough with the business to decide I did not want to make this leap, and decided to wound down my business. Actually I stumbled out of the business like I stumbled into it - my friend had some familiarity with some of these wholesalers, knew I could sell online and suggested I try it out, which I did.