What is Dropshipping Algorithm and How it Works?

There are many buzzwords in the world of computing: AI, supercomputers and machine learning. The word algorithm is a key term in computing.

An algorithm, in its most basic sense, is a sequence of instructions that tells a computer how transform a set facts about the world into useful data. The data are the facts, while the useful information is knowledge, instructions for machines, or input to another algorithm. Many algorithms are used in everyday life, such as sorting numbers and finding routes through maps. They also display information on a screen.

Try dressing up in the morning to get an idea of the concept behind algorithms. It is something that few people think about. How would you describe your process to a 5-year old? These questions can be answered in detail to create an algorithm.


Input is information that a computer uses to make decisions.

What information is necessary to get ready for the day? You need to first know what clothes you have in your closet. Next, you can consider the temperature, the forecast for the day, the season, and your personal preferences.

Data, which are essentially collections of numbers and words, can represent all of these things. A weather forecast could be described as “rainy” or simply “sunshine”.


The heart of an algorithm is computation. Computations include arithmetic and decision-making.

How does this work for getting dressed? Calculating the input quantities helps you make your decisions. The temperature will determine whether you wear a jacket, while the forecast may influence which jacket you choose. A computer would interpret part of our getting dressed algorithm as “If it is below 50 degrees and raining, then choose the rain jacket and long-sleeved top to wear under it.”

Once you have chosen your clothes, it is time to put them on. This is an important part of our algorithm. A computer can express a repetition as “for every piece of clothing, put it in.”


The final step in an algorithm’s process is output. This is the expression of the answer. Output is often more data than input. It allows computers to combine algorithms in complicated ways to create more algorithms. Output can also include presenting information. For example, it could be putting words on a screen or producing auditory cues.

After getting dressed, you are ready to face the elements and be viewed by the people around. You might even snap a photo and post it on Instagram.

Q: I’d like to start an eBay business but don’t want too much inventory until I have a better idea of what might sell. I was reading another article about dropshipping but am still not sure how it works. Dropshipping can be a great way to get an eBay business started. If so, how do you go about getting started? Candace M.

Q: Dropshipping was a topic I first covered in my column in April 2003. That’s a long time ago in Internet years. Dropshipping has become a hot topic due to the continued growth of eBay and its positioning as an option for anyone wanting to start an ebusiness. However, it is now more confusing than ever.

Dropshipping is a practice that has existed since Sears began selling products via its mail order catalogs more than 100 years ago. Dropshipping is still a confusing concept for many who don’t know how it works.

Dropshipping, by definition, is selling or distributing goods through a distributor or supplier. The dropshipper ships the product directly on behalf of the retailer (that’s you).

Dropshipping is a process that involves three parties. They take a product from manufacturing and bring it to market. They are a manufacturer and distributor as well as a reseller.

Let’s take a blue widget to illustrate the process.
Blue Widget Manufacturing (manufacturer: This company manufactures blue widgets. Blue Widget Manufacturing doesn’t sell directly to the public. They only supply retailers with the blue widgets that they sell to end users. Blue Widget Manufacturing prefers to have distributors handle the job of getting their blue widgets to customers. Blue Widgets sells blue Widgets by the truckload to distributors for $5 per blue widget.

A1 Distributing (distributor/dropshipper): A1 Distributing is the company that purchases blue widgets in bulk from the manufacturer and supplies them to resellers at a cost of $7 each. The distributor doesn’t ship blue widgets directly to resellers, but instead ships them to their customers as soon as the widgets have been sold.

Big Bob’s eBay Widget Store – Big Bob sells blue widgets directly to the public through his eBay store. Bob orders blue widgets from A1 Distributing and then has them shipped directly to his customer. Bob sells blue widgets for $10 each to the public. This means that for every blue button sold, he makes $3.

How Dropshipping Works

These are the seven steps to start an e-business that sells dropshippers.

STEP 1: Select a Product to Sell

The first step in any sales process involves deciding which product to sell. There are many things to consider before deciding which product to sell. Let’s assume that you decide to sell CD-players on eBay.

STEP 2 – Locate a Supplier who will Dropship for You

You can search the internet for companies that will dropship CD players. You will receive $100 per CD player from the company, and they will give you $135 for each additional cost. To avoid selling products that are back-ordered, ensure that the dropshipper keeps enough CD players in stock.

STEP 3: Create an Account with The Dropshipper

Contact the company that supplies the CD players to set up a reseller account. Although this can be done either online or over the phone, some companies may require you to complete and return a reseller application in order to open an account. Some companies might also require a tax ID or business license.

STEP 4: List the Product for Sale on eBay

Once you have your supplier in place and the product is in stock, you can make a sale. The product is advertised via an eBay auction. You know the price you have to pay the dropshipper to ship the product. This allows you to determine the minimum amount that you will pay for it. This is the price you would pay to start an auction. You can lower the price if you’re confident you’ll get more than $100. However, keep in mind that you lose money if you sell the product for less than it costs to fulfill the order. Remember that dropshippers will charge shipping so this should be included in your sales.

STEP 5: The Product Sales

Your CD player sells at $135, and your customer makes a PayPal payment instantly. If you sell on eBay, I recommend you use PayPal or another online payment processor to accept instant payments. This allows customers to pay you quicker, which makes it easier for you to place orders with dropshippers faster.

STEP 6: Place the Order with The Dropshipper

Once your customer has paid you, contact the dropshipper to place the order on your customer’s behalf. The dropshipper will ship the product to your customer using your company name and address.

STEP 7: Follow up after the sale

This is where most new ebusiness owners make mistakes. You are not out of the loop just because the customer has paid you, or that the dropshipper placed the order. You are responsible for any problems that may arise with your order.

Your customer service should be proactive. To let your customer know that the item was shipped, follow up with them. You can be the contact person for any questions. This is a great way for you to sell more products to your customer. If you have an eBay store, invite them to visit it.

Dropshipping is a popular way to sell products. Many horror stories are written about dropshippers that take money but don’t fulfill orders, merchandise that is never shipped, and unscrupulous middlemen pretending to be dropshippers. There are many scammers in the dropshipping business, just like any other industry. However, there are hundreds of trustworthy dropshippers who can help build a successful eBay dropship company.