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Is dropshipping legal?
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Is dropshipping profitable?
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Is dropshipping allowed on eBay?
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Is dropshipping worth it?
These are the results that appear on Google when you start to type about dropshipping. For all the content pumped out that explains dropshipping, potential sellers are still nervous about entering the space. There are some real concerns about the legality, safety, and profitability of dropshipping. Are these fears totally unfounded? Not exactly. But the risks of dropshipping are far outweighed by the potential benefits.
I’ll start out with some straight up answers.
Yes, dropshipping is legal. At its simplest definition, it’s just a form of order fulfillment where the supplier handles shipping. Most big box stores do some dropshipping to supplement their online stores with additional low overhead products. Nothing illegal about it.
Yes, dropshipping is profitable. The supplier handles fulfillment only for orders received, which means you don’t have to invest in a bunch of inventory up front. You only pay for the products you sell. Profits can be thin (we’ll talk more about that later), but it’s definitely easier to turn a profit on a one-man dropshipping operation than a more traditional business.
Yes, dropshipping is allowed on eBay, and Amazon, and most online marketplaces. Etsy spent a long time as a major exception. They insisted all products be handmade, vintage, or otherwise one-of-a-kind. They’ve since introduced manufacturer standards that can be interpreted as dropshipper friendly.
Now, is dropshipping worth it? Well, that’s for you to decide. It’s not all puppy dogs and rainbows. There are some real risks of dropshipping involved, but each risk can be mitigated with proper education. Consider this your pro/con list for dropshipping. Here are the real risks of dropshipping and the remedies you need to know beforehand.
Risk: Getting Swindled by Suppliers
Contacting suppliers is the first part of getting your dropshipping business off the ground. Many people who start dropshipping aren’t seasoned ecommerce sellers, so there are plenty of scammers out there willing to take advantage of the naivete which is one of the major risks of dropshipping. The dropshipping horror stories you can find online are the result of inexperienced sellers getting scammed by fake suppliers.
Remedy: Know the Supplier Red Flags
Safety when finding your supplier is the same as any other place online. You need to know the red flags to look for. Don’t just pick anyone off the Google results and start giving them your credit card number. If a supplier you’re talking to demonstrates any of these red flags, avoid them:
- Asking for subscription fees.
- Slow to communicate.
- They run a retail establishment alongside dropshipping.
- They require bulk orders in advance.
There are enough suppliers out there that you don’t have to take a risk with any supplier who gives you bad vibes. Know the red flags and don’t bend on them.
Risk: Thin Profit Margins
Because suppliers only fulfill orders already paid for, they essentially take no risk in allowing anyone and everyone to list from their catalog. So, how do two retailers selling the same product differentiate themselves from each other? It’s in price. Imagine a scenario where you and another seller are both listing the same purse for $10. If you lower your price to $9, you’ll get more sales than the other seller. In response, they could lower their price to $8. Suddenly, you’re the one losing. To fight back, you lower your price to $7.50. This cycle continues until you and the other seller have priced yourselves out of profits. The thin profit margins in dropshipping pose a significant drawback to this selling method.
Remedy: Sell Only Products with MAPs
MAP stands for minimum advertised price. It’s a way for suppliers to make sure sellers don’t undercut each other to the point it hurts the brand. This is what happens when retailers selling the same product constantly lower their prices to compete against each other. Eventually the price hits a basement. MAPs prevent this by forcing sellers to never advertise a price below a certain threshold. If you only sell products with MAPs, your chances of making a significant profit are higher. Check out these additional tips on finding the best products to dropship.
Risk: Expensive Fulfillment Errors
One of the most attractive parts of dropshipping is that you only pay for products you’ve sold. This keeps your monetary investment low. Fulfillment errors erase this benefit. When you list a product, how can you know for sure that your supplier has it in stock? What if a customer places an order for a higher quantity than your supplier has? Since you don’t handle the inventory yourself, you might not know until you’ve already spent the money the customer paid. You’re then on the hook to repay them.
Remedy: Use Accurate Product Tracking
Product tracking software can mitigate most of your fears for stock outs and oversells. These systems are great at managing dropshipping for ecommere businesses. They can scan the marketplaces or websites you sell on, and when they find sales, they update your inventory quantity on all your other channels. They’ll automatically make an item unavailable if your supplier is sold out. This also helps keep your profits high, as letting a software system handle product tracking and monitoring allows you to sell more without more mistakes.
Risk: Getting Overwhelmed
There’s a lot that goes into successful dropshipping. We’ve already talked about how thin the profits are. You’ll need to make a lot of sales to produce a significant profit. That’s a lot of orders to route to your supplier, a lot of website updating to do, and a lot of account and reporting required. Before you know it, you’re knee deep in responsibilities you don’t know much about. One of the risks of dropshipping is getting overwhelmed and is common for new sellers. It’s what causes many of them to quit. If that happens to you, all that money and time is wasted.
Remedy: Let Software Handle the Load
Don’t try and handle everything on your own. Let expert software systems handle it. For example, you can automatically route your sales to your supplier with the same dropship management software you used for product tracking. Need help with web design? Shopify and BigCommerce both offer tons of clean, modern templates you can use to take the pressure off the design pressure. Whatever your issue, a computer program is likely able to automate it for you and eliminate some major risks of dropshipping.
Good article, Dion. Thanks mate! 🙂
good list, helps newbies out a lot to manage pros and cons keep helping people for free please we need more people like that in the world
Thanks Austin! We try to provide the best tips to ecommerce sellers out there. If you’re looking for more tips, feel free to subscribe to our blog! We’ll send ecommerce tips right to your mailbox.
Thank you so much. Just downloaded free guide. This world needs more people like yourselves, willing to help others.♥️♥️
Thank you, Helen! We’re very proud of this post. Dropshipping can be a frustrating process, so we aim to give ecommerce sellers the best information possible. Check out the Ecommerce Tips category of our blog, and you will find more quick tips and lists!
Great information! I’m still worried but not as much! Thank you!
Thanks Samantha! It can sometimes be uneasy putting many aspects of your business in the hands of a dropship supplier. But the more you know, the more prepared you are! We’re always posting new information about dropshipping, so the next time you’re worried, check out this page.
Hi..Nice article. Thanks a lot.
Furthermore, could you please let me know how to handle return request and refund request effectively.
Hi Prageeth, thank you! We’re glad you found the article helpful.
Sure – here is a guest post from Shippo about how to turn returns and refunds into a positive customer experience. We hope this helps!
Great write-up. Thanks 🙂
Thanks Chris! You can find more dropshipping resources here.
Great article, but can you tell me about how one can get invoices from AliExpress? Since they do not give us that, it causes really big problems during filing of taxes.
Hi Hailey,
A lot of ecommerce sellers have this same issue. There is a way to get invoices from AliExpress – try using the Ali Invoice extension from the Google Chrome Web Store. It allows you to generate an invoice with one click! Click here for their post with more information.
Good luck!
Haley
Great article about dropshipping much appreciated. Learning a lot on your blog buddy.
Thanks Rahul! If you’d like more info on dropshipping, check out our eBook – How to Start a Dropshipping Business.
Good luck and happy selling!
Haley
What is the difference between Affiliate program and dropshipping program.
Which one is better to follow.
Hi Ahmad, great question. An ecommerce seller who is using the dropshipping method connects with a supplier with a catalogue of products. Then, they create listings on channels under their storefront name. They sell the products, and the supplier ships the product to the customer. An affiliate is not necessarily an ecommerce seller. An affiliate is a partner to an ecommerce seller, who then promotes that seller’s products using links on a blog or social media post. Whenever a product is purchased with that link, the affiliate gets a certain percentage of the purchase. Here are two blog posts that have more detail on both:
How To Start A Dropshipping Business
7 Reasons Why Ecommerce Sites Need Affiliate Marketing
If we are using several suppliers or same supplier , the customer who is buying will pay for each product the delivery charge, am I right.? If yes then this will be too expensive for him which will reflect negative impact on dropshipping concept versus buying product from the sites who are having the stock in same warehouse like eBay and amazon who can offer frees delivery if customer will buy certain amount from them.
Any idea how to solve the above issue..?
Wonderful blog post. This is absolute magic from you! I have never seen a more wonderful post than this one. You’ve really made my day today with this. I hope you keep this up!
Thanks Jenny! If you need any more dropshipping tips, check out our dropshipping blog page. Good luck and happy selling!
Thank you for the information provided great guide to start off getting ideas. I did have a question, about marketing any ideas how to promote your e-commerce dropshipping store ? Also, do you have to list somewhere in the store that your a dropshipping store ?
Hi Nathali! No, you do not have to disclose that you are a dropshipper on your storefront. Promoting a dropshipping storefront is similiar to how you would promote a traditional storefront! Here are some articles you may find helpful:
SEO Best Practices for Ecommerce Product Pages
Best Tips for Making Effective Facebook Ads for Retargeting Customers
13 Tips for Marketing Your Ecommerce Website