Dropshipping has become increasingly popular in the last few years. At first, it can be quite confusing to understand and imagine how all of the processes work. As such, one of the first questions new dropshippers have is whether this business model is even ethical, or is it actually morally wrong? Its a fair question, so let us take a look at why this opinion may have surfaced and if this is even fair.
So, is dropshipping unethical? Dropshipping is a legitimate, legal and ethical business model so long as a store is honest with customers, transparent and operate professionally. Refunds will need to be considered, as will the provision of information such as potential extended shipping and delivery times. So long as customers expectations and customers needs are met; dropshipping can be a business model that benefit all involved; from store owner through to manufacturers/suppliers and customers.
Let us know take a closer look at the dropshipping business model; what it is and how it works. This way we can then walk through why it is in fact entirely legal and ethical, but only when certain considerations taken into account.
We will be covering all of the legalities too so be sure to keep on reading to get all the information you need.
What Is Dropshipping?
Perhaps the reason why people question whether dropshipping is “ethical” is due to suspicion; at first it is hard to imagine how it is possible to make money by selling product you never own, stock or hold as inventory.
So, we first need to discuss what dropshipping actually is to ensure these initial doubts can be safely put to rest.
Dropshipping is defined as simply a retail fulfillment method where a store does not stock the products in which they are selling.
The process of dropshipping is as follows.
When the store sells a product, it is then purchased from a third-party supplier (often from China or developing economies), and the delivery address is given as the customers address. As such, a merchant will never see, handle or package any of the products in which they sell.
In many ways, merchants act as the middle man; bridging customer demand with manufacturer supply.
So, as you can imagine, any ethical concerns primarily come from the fact that customers are purchasing products at a mark-up to their original sale price.
However, it must be stated that this is the fundamentals of retail commerce. This is exactly how a lot of retail stores, companies and brands acquire their products for sale.
Dropshipping does not allow people to make money without the work. To be successful, thorough research needs to be undertaken into a niche, reputable suppliers and products need to be identified and then verified for demand,.
From there, effective advertising and marketing campaigns need to be run to acquire customers, and depending on the platforms used, this does not come cheap.
In essence, a dropshippers profit is the difference between the final sale price and all of their sourcing costs.
Is Dropshipping Legal?
Dropshipping is entirely legal; so long as a store owner runs their business in a proper, structured and mindful way.
As a retail fulfillment method, there is nothing in the law that states it is illegal to operate in this way. Furthermore, the biggest eCommerce platforms such as Shopify, actively understand and endorse dropshipping as a model for store owners to use and to consider.
However, with this being said, a number of considerations need to be taken into account to ensure there is no violation of law or policy, even if infringements were to occur entirely unintentional.
When it comes to the products that you sell, you need to ensure that you are not breaching patents of other businesses, not adhering to a countries policies (including customs) and are not breaking acceptable usage policies for the eCommerce platform you are using.
The main product-related legal issues can arise from:
- Selling Trademark or Copyrighted Products
- Selling Counterfeit or Replica Products
- Selling Restricted or Prohibited Products
So, it is essential that you do the due diligence on your suppliers, products and marketplaces ahead of time.
You need to consider what you are selling, where and whom to.
Equally, there are a number of business elements you will need to consider too.
There are a number of legalities that you will need to adhere to, just as you would if you were running any other type of business (be it online or offline). The main ones being:
- Being Business Registered and having required Business Licences
- Paying Taxes (Sales Tax and Income Tax)
- Getting Insurance, including Product Liability Insurance.
From the business perspective, a lot of new sellers can open up without necessarily having to be fully business registered or forming an LLC. Equally, taxes only need to be considered once profits start to be made.
However, these are all good practices, and being business registered will likely help sellers form relationships and collaborations with suppliers and manufacturers. They will prefer working with entities, as it minimizes their risk and also ensures a seller is a a legitimate operation.
Is Dropshipping Morally Wrong?
Whether or not dropshipping is morally wrong is going to be a matter of opinion. However, so long as a store operates legally, fully transparently and customers are not deceived, there is little to argue against the model.
When running a dropshipping business, there are some elements that are not actually required for a store to sell.
That being said, implementing these elements are considered best practices and come recommended. This will ensure your customers have their expectations met, while a seller will also cover themselves if any issue was to arise.
Let us know look at some of these in further detail
Refund Policies are not technically required; but allowing refunds is a must from an ethical perspective. Customers must be able to send their products back if they are not fit for purpose, broken in transit or they never arrive.
Customers need this protection in place; and they also have come to expect it when buying online.
Creating a fair refund policy, and making it easily accessible on the store, therefore ensures customers know exactly what they are and are not entitled to. Legally, it is up to the customer to check these policies ahead of a purchase.
But, you must not abuse or take advantage of your customers through this policy.
Chances are, refund requests should not be expected nor should not occur regularly. They are usually in exceptional circumstances.
But a refund policy will enable you to negotiate with any unhappy customers in a professional manner.
Its also important a store considers the long term vision here, the brand and any potential damages to reputation or credibility. It only takes a few bad reviews and sales can take a turn for the worst.
Refunds are not ideal, but they should be expected with this model to some extent.
Perhaps the most commonly used manufactures, suppliers and marketplaces for sourcing products to dropship, come from developing economies. China for example, is perhaps the most commonly used.
For this reason, shipping times are usually longer than a customer is used to and what they have come to expect.
With the likes of Amazon prime, customers are able to get their items the next day. Retail stores offer the ability to take the item following purchase.
Other online eCommerce outlets typically send their items within 2-3 days of order.
Yet, with dropshipping, items can take anywhere from 1-4 weeks to arrive.
While this is not necessarily bad, wrong, or immoral; it is if customers are not aware of nor expect this to occur.
Its also outwardly wrong to promise faster delivery knowing it will take longer.
Therefore, shipping policies should be firmly in place to ensure customers are aware of the potential shipping times following their purchase.
Otherwise, dropshippers need to consider getting their products from local (same country) suppliers, where faster delivery (and within 2-3 days) becomes possible.
Depending on what a store sells, certain disclaimers should be in place to ensure that customers are aware of certain things ahead of any purchase.
Disclaimers are essentially statements for customers to learn about your store, business practices or even specific products. They are for notice purposes.
Disclaimers are put in place to help reduce the chance of dispute, but they also help to cover you in regards to liability.
Some common examples are:
- Product Safety Warnings,
- Use of External Links,
- Terms and Conditions,
- Copyright Information,
- Use of Personal Data
Not all disclaimers are necessarily required, and business do not want to scare customers off through their use.
But, having this information available and clear is not a bad idea if your customers would otherwise be adversely affected from failure to provide it.
Dropshipping is an entirely legal and legitimate business model – if done right.
Just like any other business opportunity, there are certainly ways to approach it and ways not to.
There are many elements that can make or break the business, and there are also considerations that need to be taken into account to ensure that a store meets both their legal and moral obligations.
While it is true that there are dropshipping scams, horror stories and also illegitimate dropshipping businesses (whether intentionally or not) this is not a fair representation of the model. These are the exceptions rather than the norm.
Moreover, these shady practices occur in almost every industry, so it is not fair to say that a fulfillment method is inherently wrong.
If you are looking to start a dropshipping or eCommerce business, then hopefully this article has given you some light as to some of the things you will want to think about before getting started.
For me, getting on this comprehensive dropshipping course, enabled me to plan properly and set up my business correctly from the outset.
I ensured I was covered from a legal, ethical and moral perspective, whilst learning all the different process steps to make a dropshipping business successful.
I have written a review of the course, breaking it down in much further detail. If you are interested in checking this out, then just click here.
Otherwise, I wish you all the best with your dropshipping venture if you do decide to go ahead. Just make sure you are one of the good guys.
Connect your customers with your suppliers, and ensure that all three of you benefit from the transaction.