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How to Successfully (and Legally) Set Up a Dropshipping Business on Shopify

By Catherine Hodder, Esq. | Last updated on

Ecommerce is a huge business. Anyone with a computer has the potential to start their own company. With the rise of ecommerce platforms, launching and growing your business is even easier. One of the more popular innovations is dropshipping.

What Is Dropshipping?

Dropshipping is a popular ecommerce tool where you can advertise and market a product online, sell to a customer, and use a dropshipping company to fulfill and ship the order to your customer. A huge advantage of this business model is that you do not have to manufacture items or carry inventory. And it is easy to set up an ecommerce store.

Shopify is an ecommerce platform that provides business owners an ecommerce website to start their online business. It is through this platform that you can create your store and connect to dropshipping products. Popular business ideas for a Shopify store include fashion, electronics, home goods, and beauty products.

How Do I Set up an Account With Shopify?

Follow this step-by-step guide to dropship on Shopify:

1. Go to Shopify's website to get started with Shopify.

2. Create an online store. Enter your email to start. Enter the business name and location of your store. Enter your email and password to receive a Shopify ID. Now you have a store!

3. Connect your store to dropship suppliers such as DSersAlibaba, or AliExpress. At these websites you will find products to sell, and the dropshippers will fill your customer orders and send tracking information to your customers.

4. Follow the instructions to add to install the dropshipping store's app. Then connect the app to your store by adding the HTML to add the store. You will then see your store name in the top left corner.

5. Create a product page that is easy for your potential customers to read and navigate.

6. Import products to your Shopify dropshipping store. Choosing products that are in demand, solve a problem, or are high quality is a good idea. Click 'import,' and the item is added to a draft where you can work on the product name, product descriptions, and price.

7. Do your market research in choosing and pricing products. You can use Google Trends to identify what people search for to identify products to sell. Additionally, you may want to research:

  • Quality: Look for the same product on another website, such as Amazon, and look at the low ratings to see customers' issues with the product.
  • Price: Search on Google to see what your competitors charge for the same product.

8. Set up a theme for your storefront. Shopify has a theme library of free templates. Customize your theme. You may add logos and images, but make sure you are not using anyone else's copyrighted image.

9. Now your store is ready! Start advertising by email marketing, social media, or through Facebook ads.

Many YouTube tutorials and websites help you refine your store, find the types of products you want to sell, and develop a strategy to sell online.

What Are the Benefits of a Dropshipping Business?

As stated above, you do not have to manufacture items or keep inventory to operate a Shopify dropshipping business. You can focus on marketing strategies to drive traffic to your store. There are some other advantages:

  • You don't have to be a tech expert. Your Shopify account handles generating your website, which includes security features and search engine optimization (SEO) enhancements. And it handles checkout, payment, shipping costs, and order fulfillment.
  • You have little startup costs. Because you manage the store from your Shopify dashboard, you don't have to invest in an actual storefront, materials, or inventory. For example, you could operate a print-on-demand t-shirt company where you outsource to a company that takes the customer's order and prints and ships the t-shirts. You do not have to keep shirts on hand.
  • You can operate it yourself. Because so much of your business is handled by others, store owners can focus on advertising, marketing, and customer support.

What Are the Drawbacks of a Dropshipping Business?

However, you should be aware of some disadvantages of dropshipping:

  • Competition. Because it is so easy to set up a Shopify account for your ecommerce business, you will have a lot of competition from other small businesses. However, you can craft your advertising and marketing to your target audience.
  • Low-Profit Margins. The profit margins are slim if many websites sell the same products at a lower price.
  • Quality Control. Because you are sourcing products manufactured by another company, you do not have control over the items' quality. You may want to look at reviews about the product to know if there are issues with poor quality.
  • Shipping Delays. Many items come directly from China, which may be prone to supply chain issues and affect shipping times.

If you have any business, you should know what legal issues may affect your business. However, there are particular issues to deal with when running a dropshipping business.

Liability Protection

Many entrepreneurs form limited liability companies (LLCs) to protect themselves from lawsuits or claims reaching their personal assets. An LLC is a separate business entity in that you run all your business income and expenses through it, but you can include any profit or loss on your personal tax return. LLCs are an excellent option for an individual running an online business because there is minimal paperwork and requirements for an LLC.

Business License

A business license is your authorization to operate your business, even if it is online. Generally, your local city or county has a business license division where you apply for a general license. You should also check local zoning laws and your homeowner's association rules to see any prohibitions on your business.

Sales Tax

Sales tax laws for online orders are constantly evolving so do your research regarding if and when you have to collect and pay sales tax. If your state charges sales tax, you must charge sales tax to your customers that live in your state. If the customer lives in another state, you do not have to pay sales tax if you do not have a business presence there. However, it gets complicated due to nexus laws and third-party dropshippers. If the dropshipper has a nexus in the state where the buyer is located, they may have to charge you sales tax. If you have a resale certificate, you can present it to the dropshipper and buy products from them without paying sales tax.

When advertising new products, you can use images you find on the internet. However, you may be liable for intellectual property infringement if you use copyrighted material or images.

An online business is a great opportunity to create revenue with little upfront costs. Especially with Spotify and dropshipping apps, you can get started quickly and easily. However, you should be aware of some drawbacks and legal issues to make sure you run a successful and profitable business.

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