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Starting a new business can require a lot of overhead costs for things like retail space and utilities. Even if you’re a small business owner who only sells products online, you can still incur expenses for storage space and shipping costs. A dropshipping business model can help you avoid a lot of these expenses.
Dropshipping is a cost-effective way to run an ecommerce store, and it’s a legal, legitimate business model. Here are some tips for starting a successful dropshipping business.
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What is dropshipping?
Dropshipping is a retail fulfillment method where one company handles sales, marketing campaigns, and customer service, and a different company handles the manufacturing and fulfillment process. The dropshipping business model is particularly popular among ecommerce retailers that have online stores offering various products.
When a customer places an order, a third-party supplier takes over. This outside supplier is the company that actually manufactures the product and sends it to the customer. In some cases, one outside company may make the product, and a different one ships it. Nonetheless, the company that sells the product to a consumer is not the one that makes the item or fulfills orders.
Is dropshipping legal?
Yes, dropshipping is legal. Like in any business, you must adhere to local, national, and international laws regarding the sale of merchandise. As long as you do this, dropshipping usually is a low-risk business model with little personal liability risk. You may want to have a lawyer draft legal agreements with your dropshipping companies to clarify who has legal liability for issues arising during the sales process, the shipping process, and during customer usage.
Here are some legal compliance issues to keep in mind when establishing your dropshipping business:
- Copyright laws. A common question among new ecommerce vendors is: “Can I get sued for dropshipping?” Like any business, you could be sued for any of a host of reasons, and copyright violations are among them. You may be in danger of violating copyright law if your supplier is selling counterfeit goods to fulfill your customer orders. Proceed with caution and take any ethical concerns seriously.
- Consumer protection laws. Even if you aren’t the company making a product, your online business must abide by consumer protection laws and is responsible for the quality and safety of goods shipped to your customers. If your product hurts someone, you could face personal injury litigation, so you’ll want to carry product liability insurance.
- Truth in advertising laws. You may not manufacture a product, but you’re still responsible for accurately representing it in your marketing efforts. If unhappy customers buy a deceptively marketed product in a retail store, they likely won’t sue the wholesale suppliers; they’ll probably sue the company whose name is on the box. The same is true of your dropshipping store. You’re responsible for accurately representing the goods you sell, and you’ll encounter legal issues if you mislead your customers.
- Tax and licensing laws. Like any retailer, you must collect and remit applicable sales tax. You also must pay income tax. Many states require a business license or sales permit to operate a retail business. Consult the Shopify starting up guide and contact legal professionals in your area for the most up-to-date information on how to start different types of businesses in different municipalities.
Why start a dropshipping business?
Running your online store as a dropshipping business offers several advantages over a traditional retail model, freeing you to focus on specific things and leaving other details to your dropshipping partners. The upsides to dropshipping include:
- Low startup costs. In the dropshipping industry, you don't need to lay out a lot of money to build up inventory, and you don’t have to pay for retail space. Your main expense is buying products from a dropshipping vendor, many of which can be purchased for just a little over the wholesale price. You can then sell these products to your customers for market value.
- No need to source materials. When you partner with a dropshipping manufacturer, you don’t have to worry about raw materials or supply chains. Your partner handles things like price changes on materials and shipping logistics.
- No warehousing or inventory management. Traditional retail stores, and even online stores, need space to stock inventory. When you outsource manufacturing and order fulfillment to a dropshipping partner, you offload these responsibilities.
- No shipping headaches. Shipping comes with a lot of logistical challenges. A partner handles the dropshipping order fulfillment when you send them your customer orders.
- Easier to develop products and change formulas. If you get into private label dropshipping, where an outside company makes a custom product on your behalf, you can save money on product development. You can also test multiple suppliers to see whose product best meets your standards. And if the existing product isn’t working out, it may be easier to switch dropshipping suppliers than develop a new product from scratch.
- Ability to focus on what you do best. With manufacturing and order fulfillment off your plate, you can focus your online business on three crucial professional elements: marketing, the sales experience, and customer service. Your job is to do market research and attract customers. Once shoppers find your website, you can give them a great buying and checkout experience, and support them with great customer service.
How to get started dropshipping with Shopify
If you’d like to learn how to build a successful business around dropshipping, explore Shopify’s ultimate guide to dropshipping and a how-to guide for how to start a dropshipping store. You can then get more specific with tutorials on:
- The 13 best dropshipping suppliers
- The 9 best dropshipping websites
- Private label dropshipping
- Dropshipping coffee
- Dropshipping on eBay
- Dropshipping on Amazon
- Dropshipping on Etsy
- Automated dropshipping
Dropshipping lends itself to a wide range of products. These include pet supplies, phone accessories, car accessories, beauty products, apparel, coffee, cannabis products, and baby supplies. These markets are filled with potential customers accustomed to buying products online, and vendors who know how to make and dropship these products.