Dropshipping from China: What Actually Drives Your Costs

Ask a seller what their product costs and most will quote the factory price. That number is usually the smallest part of the decision they are making.

The number that determines whether the business works is landed cost per delivered order — everything from the factory floor to the customer’s hand, divided by the orders you actually fulfil.

Here is the full stack, and where the leverage is.

The cost stack, in order

1. Product cost

The factory price, or the price your agent pays on your behalf.

What moves it:

• Order volume — the biggest lever
• Material and grade
• Packaging complexity
• Whether it is a catalogue product or built to your specification
• How well the sourcing agent negotiates

2. Sourcing or agent fee

Whatever your arrangement is: commission on order value, flat project fee, per-unit markup, or a retainer.

The test is transparency. If you cannot see the factory price, you cannot judge the fee.

3. Inspection

Per batch or per man-day, depending on the arrangement. Cost scales with SKU count, complexity and whether lab testing is involved.

This line is usually small compared with the losses it prevents. A defect rate discovered in China costs a replacement unit. The same defect discovered by the customer costs a replacement, two shipments, a refund and a review.

4. Domestic freight in China

Moving goods from the factory to the warehouse. Driven by how many suppliers you have and how far they are from the consolidation point.

Multiple suppliers in different provinces means multiple domestic legs. Consolidating with a partner who is near the manufacturing cluster reduces this.

5. Storage

Warehouse space, usually free within an allowance and billed per unit, pallet or cubic meter beyond it.

Storage cost creeps up with slow-moving SKUs. If you hold thirty products and sell five well, you are paying to store twenty-five that are not returning anything.

6. Pick, pack and materials

A per-order fee, plus packaging materials.

The variable most sellers overlook: packaging size drives shipping cost. A box that is 10% too large can cost meaningfully more per parcel on dimensional weight, multiplied across thousands of orders.

7. International shipping

Usually the largest single line for light goods, and the most variable.

Driven by:

• Weight and dimensions (including dimensional weight, not just actual weight)
• Destination country and region
• Service level — economy, standard, express, dedicated line
• Whether duty and tax are pre-paid or collected on delivery

8. Duties, taxes and clearance

Import duty, VAT or sales tax, and any clearance handling fees in the destination country. Depends on the product category and the destination’s rules.

This is the line sellers most often forget when comparing a China supplier against a domestic one. The domestic supplier’s price already includes these.

9. Payment and currency

Transfer fees, currency conversion spread, and platform charges. Small per transaction, noticeable across thousands.

10. Returns and refunds

Not a shipping cost — a business cost that belongs in the unit economics.

If 3% of orders come back or get refunded, your effective cost per successful order is higher than your cost per order. Work out the defect and return rate you are actually running, and price accordingly.

The number you should be tracking

Landed cost per delivered order =

(product cost + agent fee + inspection + domestic freight + storage + pick/pack + international shipping + duties + payment fees) ÷ (orders delivered, net of refunds and reships)

That denominator is where most spreadsheets go wrong. They divide by orders placed rather than orders that arrived and stayed.

Where the real savings are

Most sellers spend their energy negotiating the unit price, which is the hardest lever. Easier ones:

Reduce packaging volume. Get quotes for a smaller carton. Dimensional weight savings compound across every order.

Match the shipping line to the parcel. Using one line for everything means overpaying on light items and under-serving heavy ones. Recheck the line mix every quarter.

Consolidate suppliers geographically. Fewer domestic legs, less handling, fewer chances for damage.

Cut slow-moving SKUs. Every SKU you hold costs storage and attention. Killing three dead products often saves more than negotiating a 3% discount.

Increase order volume per shipment. Two items in one parcel is cheaper than two parcels, and it improves the customer experience.

Buy packaging at volume, not per order. If you use thousands of mailers a year, buy them in bulk and store them.

Pre-clear duties where the line supports it. Avoids surprise charges and failed deliveries at the door.

Improve inspection before shipment. Cheap, and it removes the most expensive category of loss.

A worked structure

Rather than specific numbers that will be wrong for your product, build the model like this:

1. Take one real order you shipped last month.
2. Write down every cost line above that applied to it.
3. Divide by one delivered order.
4. Repeat for your cheapest product and your most expensive.
5. Compare the two — the gap tells you which products deserve more of your marketing budget.

Doing this once usually changes where a store spends its effort. Products that looked profitable on the factory price often are not, and vice versa.

What to ask a fulfillment partner

• What is the per-order fee at my volume, and what does it exclude?
• How is shipping calculated — actual or dimensional weight?
• Which lines would you use for my destinations, and what do they cost per kilogram or per parcel?
• Is storage included up to a limit, and what happens past it?
• Are duties and taxes handled, pre-paid or collected?
• What is the process and cost when an order is returned?
• Can you quote a landed cost per order for my product, so I can model margin properly?

That last one is the question worth asking. An agent who can produce a landed cost per delivered order understands your business. One who can only quote a per-order fee is selling you a service, not a result.

The short version

Optimise the whole stack, not the factory price. The levers that move the number most are packaging volume, line selection, SKU discipline, and catching defects before they ship.

Send us your product and destinations and we will come back with a cost breakdown you can model against. You can also read the fulfillment guide for the operational detail, or see our services.