Dropshipping has been a popular online business model in the eCommerce space over the past few years. Dropshipping is a way for people to earn money while they sleep, and their online business can sell on autopilot.
Dropshipping looked like a pipe dream at first. Dropshipping became so popular that many felt it was a dying art. Dropshipping is dead in Australia
Let’s look at the pros and cons to dropshipping.
The Promise of Passive Income
According to 2020 data from Statista, the Australian eCommerce industry is growing at a rate of approximately A$40million in revenue.
It seems that online shopping habits will continue to evolve with a steady 6% increase each year. Is this the same projection that will translate to dropshipping in Australia
What is Dropshipping in Australia?
It’s tempting to think that you can start an online business with minimal investment and earn a substantial return on products that you don’t even need to stock.
It’s easier than ever to create a website, list your products and then start selling by using fulfilment platforms such as Oberlo and AliExpress.
A startup owner needs to create an online shop, list products, promote, and then get sales. The third-party supplier then delivers the product directly to the customer and eliminates the middleman.
Most often, the fulfilment business is an enormous offshore warehouse that ships mass-produced products from overseas factories.
Is it possible? Dropshipping is dead in Australia, even if it worked at one time.
Dropshipping’s Lifespan
Dropshipping sounds almost too good to be true. Dropshipping sounds too good to be true for many. Dropshipping was a digital gift that arrived as a surprise when it first entered the eCommerce market.
People could finally start an online business and make passive income with low startup costs. Unfortunately, many people were not able to take advantage of the trend by the time it spread. Why?
Because Tech Trends Change At Lightspeed
Dropshipping’s entire model is built upon the reliability of technology, which is one of the most unpredictable provinces.
It’s usually too late to join the trend once it becomes popular. The initial strategies to build a dropshipping company are no longer relevant as tech trends change so quickly.
Dropshipping in Australia is difficult due to the changing nature of Search Engine Optimization (SEO), patterns in consumerism, Google Advertising, and competition from Amazon.
Success stories such as the uni dropout earning a six-figure income prove that it is possible.
Dropshipping is a great way to succeed, but it requires you to go beyond the false promises of easy dropshipping.
Dropshipping in Australia: Challenges
There are many dropshipping businesses that are owned by Australians. The challenges that come with dropshipping are too great to ignore.
Long Postage
Expect long shipping times if the majority of your product line comes from overseas. This is especially true if you are trying to compete against Amazon Australia or eBay.
Zero Quality Check
Traditional business models allow sellers to supervise all products personally. Dropshipping makes quality control impossible. You can order samples to guarantee quality, but it is not guaranteed that fulfilled orders will be of the same quality.
You can’t trust your suppliers overseas to deliver the products you want, and that’s often what happens.
Very Little Profits
It is amazing how much work goes into building a store and adding products to it, as well as advertising, fulfilling orders, and growing the business. The profit margin can be too small to cover all the effort involved by the time payouts arrive. Fit Small Business reports that dropshipping stores have an average profit margin of 20%.
Although this is less than half of the eCommerce 40 average gross margin it still requires a lot of work.
Dropshippers’ false claims of making millions fool eager shop owners who believe that they can open a store and see the sales flow in. Although the business model may be different, the foundations of a successful business are the same.
You can’t sell anything if you don’t trust quality and provide good customer service.
It’s difficult to build credibility
Dropshipping is difficult to get noticed in a sea of competition. It takes a lot of effort to make profit through advertising and online awareness.
Communication with foreign suppliers can also delay communication with customers. These are all challenges, but not as serious as dropshipping.
Where is the money really going?
Dropshipping has been used by large Australian retailers for many years. The dropshipping model has only become mainstream over the past few years. Dropshipping is possible for anyone. However, it doesn’t guarantee that it will succeed.
The struggle of Aussie retailers to survive makes the concept even more complex.
Local businesses are already competing with retail giants like Amazon Australia. With everyone wanting to be a part of dropshipping, it seems that all roads lead towards Chinese warehouses.
While it sounds great to have an Australian-owned dropshipping business, the real problem is that the money is leaving the country. The government intervened to stop imports and encourage consumers to purchase Australian.
Dropshipping was banned in Australia
The Australian government imposed a 10% GST tax on all imports of foreign suppliers in 2018 to protect the economy.
It was unclear whether dropshipping was banned. Dropshipping is not banned. To protect local retailers, the government imposed stricter restrictions on foreign imports.
Dropshipping is dead in Australia
Let’s now answer the question everyone is asking: Is dropshipping dead here in Australia?
Yes, yes. Dropshipping has become so saturated that it is almost impossible to keep up with dropshipping shops. Dropshipping is hard work.
New stores are often unsuccessful because they don’t have a business plan or invested capital. The owner is often distant from the product they sell. Dropshipping is a successful business model. The business model can be profitable if it is done correctly.
To succeed online, every business must prioritize the basics of good business.
- High quality products
- Excellent customer service
- Marketing strategy
- Trust and brand recognition
- Buyer assurance
These are essential for dropshipping businesses to be successful, whether in Australia or anywhere else.
Is dropshipping legal in Australia?
Yes. It is as long as you adhere to the Australian Consumer Law, Corporations Act (if your company is a corporation) and other relevant legislation. The laws that retail businesses must comply with are the same as those of other retailers.
Dropshipping is legal and a popular online business model. Dropshipping does not require much capital, such as the purchase of inventory. It is also quick and easy to establish. There are some things you must do.
Below are some dropshipping legal issues entrepreneurs should consider when starting a business or operating it.
Which business structure is best for dropshipping?
Select your business structure
Establishing a business structure is the first step to running a legal dropshipping company.
Although any of these structures are possible, we recommend trusts and companies only if you intend to sell your business. A company structure is our starting point. However, each option has its benefits and costs.
These are the 4 most popular business structures:
- sole trader
- Partnership
- Company
- Trust
Supplier contracts
Many products are sourced via web platform plugins that have informal contracts.
Many dropshippers start by using platforms like Shopify and BigCommerce. They then source products via plugins such as Aliexpress or Oberlo. Dropshipping contracts can be very loose when using these tools. It would be difficult to enforce the contract in China even if it were a formal one, as China is where your supplier is located. You should be cautious when forming contracts with clients. Below are some examples.
Your transaction value will increase and more formal contracts between your company, the supplier, and you can put in place. Dropshipping and the contracts that facilitate it are not new. Technology has made it possible to expand this business rapidly. Dropshipping is another form of distribution agreements. Dropshipping contracts are unique in that the supplier ships directly to your client.
These are your terms of sale
Dropshippers will most likely need to get a lawyer to draft this agreement.
You should be very careful when you enter into loose agreements with suppliers. The timing of contract formation is an important consideration. You are responsible for the fulfillment of any agreement you have made with your client.
We don’t recommend that dropshippers attempt to create the terms of sales for their business by themselves. Dropshippers will most likely need to hire a lawyer to draft this agreement.
Three key requirements are required for a legally binding contract to be valid:
- Consideration – This could be a payment of money for the delivery or purchase of a product.
- Intention – This is the intention to enter into legally binding agreements. If you offer to sell goods, this is presumptive.
- Acceptance and Offer – Dropshippers must accept and offer their services. You should not sign a contract until your supplier can fulfill your promises. This is dependent on the supplier.
Australian Consumer Law
The consumer guarantees cannot be excluded
The Australian Consumer Law provides guarantees that cannot be excluded. You are still liable even if you say in capital letters that “WE ARE not liable for anything ever”. This statement is likely to be a violation of section 29 of Australia’s Consumer Law. It states:
29 False and misleading representations of goods or services
(1) No person may engage in commerce or trade in relation to the supply or potential supply of goods and services, or the promotion through any means of the supply, use, or promotion of goods and services.
(m), make a false representation about the existence, exclusion, or effect of any condition or warranty, guarantee or right (including a guarantee under Section 1 of Part 23-2).
If the Australian Competition and Consumer Commission finds out you are misleading, they will penalize you. Another reason to have your terms and conditions of sale written by a lawyer who is familiar with both dropshipping law and consumer law is because you are not able to accurately describe what you mean.
Dropshippers must ensure that the supplier delivers the products to their customers. Ozdirect and its director were sued by the Australian Competition and Consumer Commission for deceptive and misleading conduct in selling goods it didn’t have the ability to deliver.
Copyright issues
Where did the images come from
You are reliant on images provided by the supplier for plugins such as Oberlo. Copyright to these images is owned by someone. It is not clear who owns the copyright to those images. It is common to assume that a supplier of a product is licensing your use of the image for the purpose selling the product. This assumes that the supplier has the right to sub-licence the image to you.
Dropshippers may have received threats of copyright infringement from suppliers for using images they have received. For advice, contact a lawyer if you are subject to such threats. Sometimes, this is simply another dropshipper trying to take out their competition. False allegations of copyright infringement are forbidden and could result in damages being awarded against the accusers.
Privacy
Privacy policies and GDPR
Your business must have a current privacy policy if you aren’t exempt from the PrivacyAct 1988 (Cth). Customers expect one, even if you’re exempt. A privacy policy can also be helpful if your business is involved in data breaches.
The EU General Data Protection Regulation ( EU) could apply to your business, even if it is located in Australia. There is a lot overlap between the GDPR (and the Australian Privacy Principles).
Service contracts offshore
Take into account privacy, confidentiality, and intellectual property ownership
You should also consider including confidentiality obligations and privacy obligations in any service agreement if you plan to outsource business processes overseas. These provisions were almost never included in service agreements that we have seen from small-scale outsourcing companies, especially those who provide administration services out of the Philippines. These outsourcing agencies should sign a simple service agreement that you give to them.
When freelancers are hired to create website content, logos, or graphic design, it is important that a services agreement with Intellectual property ( IP) assign provisions be signed. Our clients frequently state that they wouldn’t enforce a contract of low value with offshore providers because of the cost involved.
But, it is important to remember:
- To be effective, copyright assignment (including graphics or copy) must be signed and formalized in writing. This will make it clear that the copyright has been assigned to Australia and not to a foreign jurisdiction.
- It is important to include clauses in service agreements that require the service provider deliver original work and not infringe any other parties copyright. This contract will prove that the infringement was not flagrant if your business is served with an infringement notice. Flagrant copyright infringement is usually subject to harsher penalties.
Dropshipping Taxes Australia
If applicable, the buyer will pay local VAT
If applicable, the buyer must also pay duty to their country.
You can declare your income from selling, and you will pay Australian income tax.
Dropshipping means that your supplier will provide pictures, descriptions, packaging and shipping information.
These images, descriptions, packaging and shipping are your responsibility.
You will refund your buyer if anything goes wrong with the pictures, descriptions, packaging and shipping.
It was not your supplier who provided insufficient pictures, descriptions, packaging and shipping.
Dropshipping businesses that operate out of Australia will need to pay tax on the goods they sell. GST is an additional 10% tax on the sale of goods. Import costs in Australia are so high that you will need to add GST to any products you sell if you have $75,000 or more of Australian customers.
