Is Dropshipping Legal? Avoid These 10 Common Mistakes in 2021
When it comes to dropshipping as a business model some might ask, “Is dropshipping legal at all?”. The simple and the short answer for this question is “Yes, dropshipping is completely legal.”. Although you will need to familiarize yourself with the legality of several aspects of your online business to make sure all is in line with the law. This article will go through each of them to give you a helping hand when starting your dropshipping business.
Legalities you must ensure
These legalities will not only be relevant to dropshippers but also to other eCommerce and brick-and-mortar store owners. So if you have not yet decided on the business form you will be choosing, these legal aspects will be useful for you to know regardless.
Is a business license needed?
If you are wondering if a business license is needed when you are starting your dropshipping business, the answer is no. Technically, there is no need to have a business license when setting up your online store and begin selling goods to your customers. Although it is not required, it does not mean that it is not a good idea to have one. If you read through this article, you will see the potential benefits of having a business license. With owning one, you can separate your business’ finances and your personal finances and not mention that you will be taken more seriously in the world of business. Depending on the country you are planning to start your dropshipping business in, the laws regarding a business license can warry. Make sure you do your research on all the types of business you can have and which will be the most beneficial for you to register as.
Taxation depends on the country
Taxes bring up a similar problem as business licenses, as the taxation procedure can vary from country to country depending on where you want to conduct your business. It is one of the most important elements when having a business as you will not only be subject to pay the sales tax after the goods you have sold but also income tax on your profits. This way you can legitimize your business not only in the eyes of your customers but also in your country’s jurisdiction. Since this is a location-specific element of your business and laws and regulations are ever-evolving, make sure you speak with a tax lawyer or an accountant.
Liability for any rising issues
It is either you or the business entity you created that is liable for any issues arising while conducting business. If you have a business license, your personal liability will lessen compared to if you don’t have one. In those cases, you are personally accountable for any losses your suppliers or your customers face when doing business with you. When you are running a dropshipping business you have to always factor in where you source your products from and what kind of products you are selling. Speaking of, sourcing low-quality products from AliExpress it’s best to be avoided as the chances for you to end up selling counterfeit products and getting sued are huge.
However, you should be careful when choosing an independent dropshipping supplier as well. You should always be cautious with the ones you come across while doing online research or on social media because you might risk delivering faulty or wrong products to your customers. If you don’t want to leave your customer disappointed with the purchase and potentially with the opportunity to rant on your social media channels that can seriously harm the reputation of your business, you should be very meticulous when choosing your supplier. A very profitable and secure niche you can start with is dropshipping luxury products, but only if your supplier ensures the authenticity of the products. If you want to know the best tips and tricks on high ticket dropshipping, read our article to guide you.
The legitimacy of your business
Your ultimate goal when you are doing business is to not only look legitimate in the eyes of your customers but other business partners alike. When you are holding a Business License, it can be a huge help for you to achieve this. It will ultimately legitimize your business and signal that you are a trustworthy source of products.
Most common dropshipping mistakes to avoid
Now that we have discussed if dropshipping is illegal, which it is not and you have taken care of the legalities of your business that are must-haves, you can further improve your customer experience by avoiding the most common dropshipping mistakes. With the flexibility and ease that the dropshipping business model provides you, come disadvantages as well, namely that you give up some control over your customers’ satisfactions. As you will not be shipping the products yourself you have little control over faulty items, fulfillment mistakes, and shipping times. In the second part of this article, we discuss the dropshipping mistakes that can put your brand or store in jeopardy.
Not picking a niche or not the right one
The first time you start dropshipping it is indeed tempting to offer the widest range of products to your customers possible as the nature of this business model allows you to list products quickly and hustle-free. Although it is good to offer your customers a selection they can choose from, you can easily confuse them about which niche you are trying to serve. In order to best and most cost-efficiently target your marketing, it is inevitable for you to pick a niche and feel passionate about it. There are multiple free tools to identify the best niche to tap into just at your fingertips. Once you establish which niche you want to fit in, you can better understand your customers and tailor your marketing strategy in a way that attracts their attention. You can not only bring people this way to your store but also establish yourself as an expert in the segment. This will automatically positively affect your credibility, increase your customers’ perceived value of your goods, and improve your bottom line.
Not having a marketing plan in place
Another dropshipping mistake that can decide if you succeed or fail in the eCommerce world is not having a marketing plan. Marketing plans are not only about promotions but branding as well. For your customers to associate their purchase with your brand, you need to make it visible in as many places as possible. Many dropshipping suppliers offer the option to include your branded materials into the package which is a great way to make sure your customers remember where they purchased from. Also, following up on a purchase with a thank-you note through email can further expand the lifespan of their experience with you. When it comes to promotion, you need to have a plan in place on how you can reach your target audience. First, you should try testing out different techniques you feel your potential customer will be responsive to. Once you get reactions to these test runs, you can analyze the data and make the necessary tweaks.
Poor website structure
Not only in dropshipping but in eCommerce in general it is vital that you have a great website where your customers can navigate easily and find all the relevant information they need before going through with their purchase. Keep your website neat and clean in order to not confuse your customers and make sure they can find the products they are looking for. There are several free website builder platforms that do not require coding knowledge you can use to easily set up a beautiful and practical website. The most popular ones being Shopify, WordPress, Wix, and Shift4Shop that we have previously written in-depth articles on. Make sure to read this and do your research to be able to choose the most suitable platform for your business.
Choosing the wrong supplier
Picking the right supplier can make or break your dropshipping business as they are the ones that manage multiple aspects of the business that has a direct effect on your customers’ experience. It is crucial that you have reliable suppliers with whom you can establish a long-standing work relationship. This way you can eliminate the uncertainties around product quality and the reliability of the fulfillment and shipping process. Make sure you do your research about a supplier before partnering with them. Trustpilot is a good platform to access information about a potential supplier and read comments and see ratings on their performance. Also, make sure that your supplier offers timely customer service in case of any issue arising during the purchase. Another aspect you have to keep your eyes out for is the return policy they offer to your customers. A flexible return policy will ensure that you can also be flexible with your customers and provide the best possible service.
No authenticity assurance when it comes to branded items
Probably the worst dropshipping mistake you can make when selling branded items is to get a fake in the hands of your customers. This can not only result in disappointed customers and your store’s reputation getting hurt but also in legal action. For this reason, when you are partnering with a supplier that sells branded products you need to make sure that they have an authenticity assurance in place. BrandsGateway is an example of a dropshipping supplier that supplies only authentic branded merchandise from authorized and reputable dealers that are shipped and delivered with original tags and boxes.
Poorly written product pages
When it comes to dropshipping mistakes, one of the biggest ones that could influence your customers’ purchasing decisions is the product page. When you are looking for a supplier, finding one that offers automated integration of product details and images through a plug-in or CSV files will save you a considerable amount of manual work. When you are adding listings to your eCommerce store on any platform ensuring the accuracy of the product information, description and pictures are vital. Make sure you work with a supplier that provides you with a proprietary plug-in that ensures automatic integration of their catalog and your dropshipping store in order to have everything in place for your new product pages.
Not providing the right customer support
A common dropshipping mistake among new entrepreneurs is that they do not pay enough attention to customer service, although this is one of the aspects through which you can really influence your customers’ experience. With strong customer service, you can quickly overtake your competitors and even turn a complaining customer into a returning one. If you are interested in how to achieve this, read our previous article on how to deal with unhappy customers.
Not paying close attention to the order process
It happens quite often that a customer is pressing the wrong button and ordering something by mistake or they just end up changing their mind the next day. For this reason, you have to pay close attention to your order and fulfillment process even if you are not the one handling it. Always make sure to read your emails because a customer might have already contacted you to cancel an order that has not been shipped yet. This way you can avoid having the product shipped by the supplier without the customer wanting it and getting into a return procedure. So, be sure to communicate each change both towards your customer and your supplier to avoid any misunderstanding and potential bad experiences with your store.
Poor returns policy
Before even starting your dropshipping business you need an effective return policy in place that protects your profit margin. First, you want to be completely clear on your suppliers’ policies and build yours around them. If you work with several suppliers you would want to take the stricter return policy as a baseline and work from them. Also, be sure to have your returns policy on your website somewhere where it is easily accessible for your customers, so they can make a more informed decision before going through with the purchase.
Giving up too early
When you are new to the dropshipping world it can all seem sugar and spice. But getting noticed by potential customers and turning them into paying ones is a hard job with all the competition around you. Do not get discouraged if you are not selling as fast as you thought you would be, just keep in mind that dropshipping is a long-term game. The better you know your targeted niche, the better you can market to them and the more sales you will have, but this takes time. Those who do not give up will eventually be the winners and end up with the largest profits.
Table of Content
- Legalities you must ensure
Most common dropshipping mistakes to avoid
- Not picking a niche or not the right one
- Not having a marketing plan in place
- Poor website structure
- Choosing the wrong supplier
- No authenticity assurance when it comes to branded items
- Poorly written product pages
- Not providing the right customer support
- Not paying close attention to the order process
- Poor returns policy
- Giving up too early