On the surface, dropshipping seems like the ultimate dream business. You sell someone else’s products and take a good cut for yourself without even handling the inventory. But there are very few situations in life where you can have your cake and eat it too. There are some major issues related with dropshipping about which I am going to walk you through today.
But, if you approach it in the right way, you can still make profits with it. No doubt, despite its flaws, dropshipping is still a powerful and impactful business model. So if you tackle these problems strategically, no doubt you will be successful.
Dropshipping requires very less capital to foray into this business. And this means a lot of people do so, thus leading to high competition. Additionally, chances are you don’t have an exclusive deal with your suppliers. This means any number of your competitors could be selling the exact same product that you are selling. So if your customers find the exact same product somewhere else at a lower price, then why will they come to you?
The only solution to this will be that you try to contact your supplier and try to form a relationship with them. This way, you can hope to get better deals on your products, and thus make better profit margins. You should also find such a niche which has lower competition and which hasn’t been explored much. You can use some sites which curates the best finds in AliExpress.
No Chance to Establish as a Brand:
When you dropship, you have to remember that no label or anything like that goes to the customer. Thus, even if a customer likes something, they would focus more on the brand of the product, rather than the store from where they bought it. This is similar to the case of ghostwriting. No one will know who the actual writer was, only the name they see on the print.
One solution is that when you keep a supplier for a long time, in case of AliExpress, a lot of suppliers comply with a dropshipper’s request to white label their products(when they label the products with your store’s name). This will at least make some impact on your customer’s mind.
Legal Liability Issues:
Selling others’ products means you do not have control over the product’s quality. Even if something bursts and harms your customer, that is technically not your fault, but your customer will still sue you.
To save yourself in these cases, it is important to license your business with an LLC license(Limited Liability Company).
Another problem is when your supplier uses any trademarked image or design illegally, which let’s be honest is pretty common with most Chinese suppliers. To save yourself from being accused of being complicit, you can simply solve this problem with a pretty secure Dropshipping Agreement Contract.
Filing Taxes as a Dropshipper:
Filing your taxes as a dropshipper will be quite a big hassle if you do not do your research properly. There’s always doubt on what taxes to pay, whether Income Tax and Sales tax are enough. But to do these, you need to keep your invoices in hand, but the issue is that AliExpress doesn’t provide them.
You need to keep your accounts updated regularly so that you know what amount you need to pay and to keep on top of your bookkeeping work. Otherwise, you might end up making the rookie mistake of spending all your money and having nothing left at the end to pay for your taxes, thus paying way more in penalties.
So, you can use tools to download your AliExpress invoice to help you with this. This will ensure that you are way far from the Feds’ grasp.
Getting your Paypal Account Banned and Getting Chargebacks:
Dropshipping to various parts of the world means having your finances handled by payment gateways like PayPal. But people have this notion that PayPal hates dropshipping. You must have heard about the horror stories of people having their accounts blocked, along with thousands of dollars. Whenever customers will complain against you, your account will be banned by PayPal.
As for chargebacks, these happen when people complain to credit card companies that they have not received the products.
The best way to avoid these situations is, to be honest with your customers right from the start about the shipping time. Declare this in all your pages as well as in the confirmation mail of the orders. This way, the customer cannot say that they have been lied and cheated to. Customers do not mind waiting for a product as long as they know it beforehand. You can provide them the tracking number of your product as well. Having the invoices in hand helps a lot in these situations.
Whatever your business is, it is pretty common to go through some problems. But what matters is how you handle them. The reason most people end up failing is that they get panicked when they face these problems. But if you do your research beforehand and go forward with proper strategies, you will surely succeed. Just be brave and innovative in your ways of handling them. Happy Dropshipping.