Many of those who first hear about dropshipping think it is illegal and poses a lot of risks and issues as compared to just establishing a physically existing store. This is what primarily hinders them from venturing into one of the most successful and profitable business models to ever exist.
If you're here, you're probably thinking the same thing.
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So, is dropshipping really legal? And how do people get away with doing it? Let's find out what this business model really is all about.
What is Dropshipping?
Think of retail, but without the back room. No worries about having a big space and hiring 3 or 4 people to manage and stockpile. You can even sell products directly to your customers without ever having worry about inventory, because someone else will do that for you (and you don't even have to pay them for it). All you need to do is to properly advertise your goods and make sure that you can face customer inquiries and complaints efficiently. This is, in a nutshell, the essence of dropshipping.
This all sounds easy, right? However, in order to become successful at it, there are multiple aspects that you need to take into consideration. First off, you need to determine which products are actually profitable, and which sellers can handle your transaction volume without hassle. Next comes the marketing strategy, order fulfillment strategy, and many more.
Welcome to my world.
Is Dropshipping Legal?
Let's cut to the chase. Yes, dropshipping is legal. If it wasn't, then I wouldn't be running any of my multiple businesses at all. Dropshipping is perceived by some as being illegal because one doesn't need a physical store to be able to smoothly run a dropshipping store.
Depending on your area, there are certain laws that you might need to dig deeper into if you want to avoid any legal issues. The eCommerce field is generally recognized by the world, so it is actually quite easy to do your own research.
Is dropshipping legal in your area?
- USA: YES! You only need to be on the lookout for local business policies and regulations.
- UK: YES! Just keep in mind that like any other type of business, you need to file your taxes properly and on time.
- Australia/Asia: YES! I'm based on Australia, and I can tell you that business is going extremely well!
How Does Dropshipping Work?
The whole concept of dropshipping is portrayed in the following cycle:
1. Find. The first step is to find trustworthy suppliers that can handle all your potential transactions. Of course, as you will be running an online store, the most likely case will be that your suppliers can also be found on the Internet. And trust me when I say that there are a lot of websites to look at. These include online marketplaces such as Alibaba and AliExpress, and if you're not up to scouting here, you can even go to social media platforms such as Facebook and Instagram.
You can read more about the criteria for selecting the best suppliers below.
2. Advertise. Arguably, this is the hardest part of the whole dropshipping process. After you've sealed some juicy deals with your suppliers, it's high time to promote their (which are now also yours) products to your target audience. This step is when you will actually create and optimize your dropshipping store, find the best advertisement strategies, run email campaigns, do SEO, and the like.
For this step, your main goal should be for your advertisements to reach their target audiences and ultimately generate sales.
3. Order and Ship. Once those sales start making their way to your system, you can now forward them to your suppliers for them to handle the fulfillment. Based on your terms, you can either have them deliver the goods to your personal address and you can forward them to their respective recipients yourself, or you can ask them to modify the shipping details such that the goods would appear to have come from you.
I can't tell you which option is better, though, because I use these two methods simultaneously.
4. Repeat. Aaaand that's it! That's basically the gist of dropshipping. All that's left to do is to repeat the cycle for your new or existing stores, for when you wish to scale your business up.
So, in a sense, a dropshipping store acts as an global-scale (depending on the owner's shipping preferences) advertisement for small to medium businesses who have the capacity and capability to produce their own goods but cannot afford to create an online store for themselves.
Elements of a Safe and Successful Dropshipping Business
Now that you know how dropshipping works, let us go over some of the things that you need to put a little extra effort on, so you can be assured that your dropshipping business will work smoothly, can avoid any issues or complaints, and best of all, make you tons of profit.
As earlier implied, a dropshipping business will always start with finding the most reliable suppliers from various online sources. A good and dependable supplier must possess the following traits:
- Easy to contact;
- Transparent in terms of disclosing product information;
- Open to negotiations;
- Has multiple positive reviews;
- Has multiple products (it's best to keep your supplier count to a minimum; more on this on upcoming blog posts);
- Will not enforce any unnecessary or suspicious upfront payment;
- Will not ask for any personal information (unless necessary).
Are you on a quest to find the best suppliers for your business? Use this as a checklist to avoid red flags!
How do you check the authenticity of the products being sold by your suppliers? Look at the customer reviews and see what people have to say with their purchases. Regardless of what is written, you can be sure that it is honest and sincere. At certain cases, people might even post reviews with photos of the actual items that they have received.
Reliable eCommerce Platform
It should be well noted that creating a dropshipping store from scratch is no easy feat, most especially if you plan on doing it alone. Fortunately, the Internet gods have graced aspiring entrepreneurs with multiple eCommerce platforms that can and will help ease up the process of crafting their own online store.
Whether you choose to go with CommerceHQ, Shopify, GoDaddy, or others, make sure that your preferred eCommerce platform will provide you with everything that you think you will need to turn your dream store into a reality.
Reliable Customer Care
Customer service is a significant element of any business in a sense that the people behind it are the ones who are going to handle all of your customers' inquiries and/or complaints. It is important for the CS team to always be updated of everything that's happening within your store such that they could efficiently relay necessary information to those who need it. In addition, they must be patient, understanding and polite, because as we all know, the phrase "The customer is always right" can be abused at certain times.
It can be said that aside from your PA, the customer support team is next in command in your customers' perspective.
Where to Get Reliable Virtual Assistants For Your CS Team
Man, the Internet definitely has an answer to everything. On the lookout for virtual assistants? You can check out freelancer platforms such as UpWork. Said website offers a straightforward process wherein you hire freelancers, discuss terms, activate a contract and get started right away.
I personally have had experience in hiring virtual assistants from around the globe, but I have to say that the best ones come from the Philippines. Most Filipino freelancers are fluent in English, trustworthy, work efficiently, and best of all, if you are based in Australia, their timeline works really well with our timeline!
- Proper Tax Management: Sales tax regulations vary from area to area, so there is no generic advise on this. However, if your business address falls into a place where tax collection is imposed, it is best to consult with an experienced accountant and business advisor for you to be informed of the proper tax calculations, management, payment method, etc.
- Licenses: Dropshipping generally does need a business license to be able to operate unlike physically existing stores, although that does not mean you can't get one. A license to operate is a plus factor for potential customers to put their faith in your services. There is not much need for government oversight, though.
Please do take note that the information provided here are for educational purposes only, and are not in any way coming from a legal counselor-client partnership. If you need more accurate details, do consult a legal professional.
Risks of Dropshipping
Dropshipping is highly profitable, especially when the business is well managed. However, as with any other type of business, there are risks that an entrepreneur will inevitably encounter on his/her journey to success.
Below are some of the risks of dropshipping.
1. Tasks can get overwhelming. This can happen quite frequently mostly with people who are working from home, which will very likely happen if you are to run an online store. Because of moderate to poor workplace conditions, there is a tendency for you to lose your focus, productivity and motivation.
A quick search on YouTube will show you videos of entrepreneurs who discuss work stress and how they manage it themselves and get back on their feet.
2. Poor hiring judgements. I actually want to imply two things, with the first one being in connection with our first risk. When you get overwhelmed with your tasks, you start to think that you would need more people to do them for you when, in fact, you already have more than enough staff on your hands.
The other point is, once you start to feel an urgent need to hire someone for a specific task, there is a tendency for you to overlook an applicant's inexperience, weakness and/or work ethic because of their flashy cover letter. It is always a good idea to perform a quick background check. Read client testimonials, ask them to do a test task first, have them answer a few personality questionnaires (which are also available on the Internet) -- gotta make sure you only get the best for your own sake!
3. Fraudulent suppliers. Unfortunately, there are still some people in the world who like to take advantage of others for their own profit. Some suppliers across the online space can and will scam inexperienced dropshippers into thinking that forming a partnership with them will be the best move for the latter's business.
If you want to avoid these red flag suppliers, I encourage you, again, to make use of the list above to assess potential suppliers.
4. Competition. As dropshipping makes earning money easy, the gradually increasing number of competitors should not come as a surprise. As a result, product pricing can become difficult, and you might even end up with less profit than usual.
5. No control over product inventory and shipping. Product inventory and shipping will mainly depend on your supplier, and you have no way to replenish stocks nor take control of the delivery unless the other party initiates it. Especially in this time of global crisis, some suppliers might even refuse to ship out products for their own safety.
Is Dropshipping Legal? Let's Wrap It Up!
Yes, dropshipping is 100% legal, and this business model is highly profitable, but will only be so when you learn how to run and manage it properly and with excellent customer satisfaction in mind.
However, just because it is legal doesn't mean that you can simply run it without exerting too much effort. You need to be able to make money without causing trouble for your customers, and thus, you need to abide by a few dropshipping rules to achieve maximum customer satisfaction.
If you have any more questions about dropshipping or anything regarding this video, feel free to personally contact me via the Contact Form HERE. You can also leave your comments and feedback below, and our team over at WagePirate will definitely get back to you with a response. For more reviews, news and updates, don't forget to subscribe to my YouTube channel!