With the cost of living constantly rising, people are turning to new and innovative ways to generate income. Dropshipping is a form of an eCommerce business that allows you to sell online without having to worry about manufacturing, storing or shipping products. While it can be a creative way of making passive income, it can also become quite complicated. This Legal Kitz blog will take you through what dropshipping is, and the potential risks associated.
What is dropshipping and how does it work?
Dropshipping is a completely remote business model that doesn’t require you to manufacture, store or ship any of the products you sell. Instead, it connects you to a third-party supplier that sells items at a wholesale cost. When you make a sale, the manufacturer ships that product directly to customers on your behalf. This means that you never actually handle the product and are essentially just selling products on behalf of the manufacturer and receiving a portion of the profits. As these shop fronts exist exclusively online and usually do not require any investment in manufacturing processes, it is an affordable option for starting a business with little investment.
Is dropshipping legal in Australia?
Yes, dropshipping is legal in Australia. Just like any other business, you must only sell and offer products that can legally be sold in Australia. Dropshipping is still governed by the Competition and Consumer Act and the Australian Consumer Law and therefore must comply with the relevant regulations. To ensure that you comply with these aforementioned acts, it is recommended that you engage a law firm for documentation preparation, of which are available at both Legal Kitz and Business Kitz!
Is dropshipping worth it?
To determine whether dropshipping is a viable option for your next business venture, you’re going to need to do some research. Although dropshipping sounds like an easy and simple way of making money, there is a lot to consider before diving in. We recommend working through these steps to make an informed decision:
Research the market
To decide what products you are going to sell, you’re going to have to research the current market to find a gap that you can target. Researching your competitors is also crucial as it’s going to determine your price point, as well as effective marketing strategies.
Crunch the numbers
Before jumping in and committing to dropshipping, it’s important to have a look at the numbers to understand the costs required and the potential profits. Calculating the predicted income, considering overhead costs and the time required to successfully run the business, are all necessary things to contemplate before deciding if the investment of your time will be worth it.
Find a good supplier
Arguably, the most important element of running a dropshipping business is finding a good supplier. This is essential as the whole business model revolves around the manufacturer. You want to be able to find a reliable supplier to be able to ensure that there is good communication, that products are going to be sent out on time, packaged appropriately and that the item fits the advertised description. If you don’t do sufficient research into your supplier, it may cause various issues and problems down the track. Also, look for suppliers that uphold ethical workplace standards.
Will the benefits outweigh the risks?
Still not sure if dropshipping is for you? We have created a pros and cons list to assist you in weighing your options:
Pros
1. No need for investment making it easy to start up
There’s no pressure to invest a large amount of money into the business. This means you don’t have to worry about purchasing inventory, renting a storage space or worrying about packaging or shipping. By not having to have their initial funds, there is little holding you back from starting up a dropshipping business. With the money you have saved, combined with your profits, you can reinvest your funds into expanding your business and product range. If after doing research and you are confident in your abilities, starting up your dropship business is easy, and may just require some time to find the right suppliers. Once you’re all set up with supplies or manufacturers, it’s pretty straightforward.
2. Flexibility and wide array of products
With a dropshipping business being a completely remote business model, this makes it very flexible when it comes to where you can work from. It gives people the opportunity to not have to work from the office and instead work from anywhere they desire. With this business model, you also have the flexibility of including a wide array of products.
3. Easy to grow
In a dropship business, you are only required manage the website and the sales, so you can process and sell as many products as you like. There is no hindrance for yourself as the supplier is responsible for everything else such as hiring staff, ordering packaging and products. This allows a lot of opportunity for business growth and focus on marketing.
Cons
1. Very reliant on the manufacturer
As the dropship business model highly relies on the manufacturer, if you don’t do your research well, this can be the downfall of your business. If you work with a manufacturer that doesn’t have your business as a high priority, if they’re working with too many other people, if their communication skills are poor or if they are unorganised, this can cause a lot of issues and headaches.
2. Limited control of quality, shipping and branding
Since you work completely remotely and may never see the product you are selling, some complexities may occur as there is very limited control in both the branding, shipping and quality of the products you are selling. You must have full trust and confidence in your supplier, that they are going to produce and supply quality products that maintain your brand standards. If customers are unsatisfied with your products, this can cause a lot of problems and seriously damage your business’ reputation.
3. Low-profit margins
With the business model of dropshipping, there may be low profits involved if not enough research is done. Since you are only essentially listing and selling the product online, your percentage from the sale may be low depending on how much you have negotiated. This just reiterates the importance of researching to be able to find a high-demand product, that you’re able to sell high numbers off whilst producing at a low cost. In saying this, make sure you are using an ethical supplier, as quality and workplace standards should not be compromised for a high profit margin.
Legal advice
While it is legal to operate a dropshipping business in Australia, you must comply with the related regulations. If you require assistance in acquiring documentation for your dropshipping business, Legal Kitz can assist you.
Does your business need legal help?
Request a free 30-minute consult with one of our Legal Kitz Business Specialists to get advice on your concerns.
Our sister company Business Kitz also offers a subscription for high-quality and cost-effective legal, employment and commercial document templates which you may find valuable when setting up your dropshipping business.