I wish there’d been a Dummy’s Guide to Dropshipping when I first got started. Especially one that covered legal nuances, and not just the store design. I will try to condense as much information as possible below, since it could easily span a whole book. As I mentioned in my last article about making over $600,000 in one year dropshipping–I entered totally green. I hate to admit it, but I looked down on the whole concept. I just didn’t believe that it was possible to earn decent money from a laptop halfway across the world, let alone a six-figure income. That just sounds like the stuff of dreams–doesn’t it?
Side note: If at times I seem abrasive in my explanations, it’s because I don’t want to mislead you or hype you up. I’m a straightforward guy who doesn’t bullsh*t and will tell you the pitfalls without reservation. I want you to get the full picture.
So how did I get started into something I doubted?
I read Tim Ferris’s “The 4-Hour Workweek” for motivation. Admittedly, it’s much harder to start an online business when you don’t have a guide walking you through every step of the process. The book was a great motivator, but it seemed a tad outdated. I eventually tried many roads and ideas, simultaneously; all of them lead to dead ends.
So what I am going to share with you is a shortcut.
This dummy’s guide to dropshipping will assume you have zero experience, like me.
If you do possess any bit of web design knowledge, you’ll be that much further ahead of the game. But first, I need to just get something out of the way:
Dropshipping is hard–but it is also super rewarding!
Okay. I feel better now. I just don’t want to relay the idea its something you can just slap together real fast, and then watch the cash roll in. That’s the stuff of movies. You’ll find there are tons of competitors out there, many not so ethical. You’ll find there are tons of lessons to be learned along the way.
This guide to dropshipping won’t cover the micro-details, such as finding your niche. But I will be pointing you to all the right resources, which I personally use. These will help you create a store from scratch. Some of these resources entail a period of learning.
You’ll have to set time aside to learn.
You’ll have to invest in yourself.
Be original. Take ideas here and there, but don’t copy an entire site, paragraphs, wording, etc. You could open yourself up to a $125,000 infringement of copyright lawsuit. Not only that, the competition could have you shut out of a sales platform for good.
Another piece of advice: if you are looking at selling large, heavy items, be prepared for the additional costs as damage in transit can occur when shipping anything truckline. This means you could be out thousands of dollars while you file insurance claims to recoup your money. All the while a customer may be bitching at you about the damaged item in the background; demanding an immediate replacement or threatening a charge-back.
If you do not have at least $5,000-10,000 in reserves–I recommend against entering any field which requires you to do your own LTL shipping. You will have damages. You will responsible to immediately refund or replace the item, and you will be on the hook for the money until you get your insurance money.
If you even get it back.
Lastly, don’t worry so much about niche selection. If you follow proper procedures, you can compete in almost any niche. If you aren’t getting sales, it may be that you are in a sub-niche and need to elevate the store to a larger niche. So if you’re not getting any sales for your lawnmower shop, you need to add all kinds of gardening equipment/sheds/outdoor lawn machines and trimming equipment. Widen your scope.
Dummy’s Guide to Dropshipping: Set-Up
Learn the Mechanics of Dropshipping
At first, many people told me to search the internet for information. Nothing out there taught me what I needed to know. Meaning, I was someone brand new to this and I needed a dummy’s guide to dropshipping. Everything out there was assumptive. This is why I went for Anton’s Dropshipping Course. His Dropship Lifestyle page looks a bit salesy, I’ll admit, but the gems of knowledge he shares by far outweigh the course’s price. His lessons are very thorough and explain everything as though you were a total novice (which I was!).
He covers everything you need to know in his guide to dropshipping: niche selection, how to set up marketing campaigns, and a support forum that is second to none. Again, if you choose to painstakingly scour the internet for information, that’s fine too. Whatever works for you. But what I’m sharing today is what worked for me–a clueless guy with no web experience. And I never take any shortcuts when investing in myself.
Go 110%, or not at all.
If I’d just browsed articles online, I’d certainly not have made the money I made so far. I needed the support, badly.
Set Up Your Licenses
There is very little said about proper licensing for US dropshippers. The common mistake people make when they open a US dropshipping store is to just do it half-@ss. This is incredibly dangerous and opens you up to all kinds of legal repercussions. There are things you absolutely must have, these are: a registered name in the US, a tax ID number, a reseller’s permit, a city license (unless you are in an unincorporated area of the city), and a county license.
There are no exceptions to the rule, no matter what country you are from. If you are doing business in the US, you need to absolutely make sure you are licensed properly. Do not take the advice of one person on the matter, call the IRS, call your state’s Department of Corporations/Business. Call the right authorities, as everyone’s situation is different.
Failure to have proper business licensing means a competitive advantage for your competitors.
Your social security or Tax ID number could get put on a black list, which will prevent you from conducting business through credit card merchants in the future. The last thing you need is a cease and desist from your state of registration or from Shopify. Make absolutely sure you are fully permitted and legal to operate.
I wrote a full post about licensing here. The fact plenty of people got away with it in the past is just that; they got away with it. They weren’t open long enough, and the authorities simply don’t have the resources to pursue every single John and Jane online.
A competitor could still check the validity of your licenses at any time, and report you. This can shut down a profitable business in less 1 hour.
Set Up Your Banking
Not only does running business transactions through a personal account possibly violate IRS rules, 90%+ percent of the time it also violates your bank’s rules and regulations.
A personal account is defined as an account used for personal transactions and for payroll.
This means that even if you are an artist named Andrew Sigmore and people write check to you in your name, you should not be depositing these in your personal account. Sounds crazy, right? But this is considered self-employment income and that type of income must be deposited in a business account–which can still be in your personal name.
Generally, acceptable deposits (income-wise) into a personal account would be payroll transactions. By payroll, I mean you get paid by W-2. In most cases, 1099 income is considered self-employment income, even if you’re working for someone and they choose to pay you that way. It is always best to clarify with your bank whether or not a specific form of income can be deposited in your account. Be very clear about what kind of business you are running and how you earn your money.
Tip: try not to open your accounts online from abroad. Banking technology can easily detect VPNs and permanently decline your application for a business account. I learned this the hard way–three times. Banks will either decline your application and ask you to open the account stateside, or give you a long list of impossible documents to obtain. What you could have done in 5 minutes stateside may take you a month or more abroad, if possible at all.
Choose The Right Hosting & eCommerce Platform
I use the Shopify e-commerce platform for all of my stores. It is hands down the easiest sales platform to use and allows for beautiful and engaging websites. Not only that, credit card processing is integrated and made ultra-easy. No additional plugins are required to get your store up-and-running, although you do have plenty of plugin options available. Shopify is an all-in-one solution with a phone app to boot. There’s nothing like hearing the sound of the cash register on my phone app as sales ring in! 😀
Just don’t keep the phone next to you at night.
You’ll find yourself constantly waking up to look at it, waiting for sales.
Using the Shopify Platform is fully covered in Anton’s Dropshipping Course, and you will be able to set your store up in less than a week. For hosting, I don’t care so much about price as I do service and reliability. I use SiteGround because of its excellent customer service and speedy issue resolution.
I host my Shopify store on my SiteGround server.
If you’re like me and choose to outsource the technical work, there are tons of great web designers out there who can set things up for you. I personally use Scott Eldo at Eldo Web Design.
Pay Your Taxes
If you are running a store right now and are not paying taxes, you are walking a red line. I really haven’t found a guide to dropshipping out there that covers taxes in detail, so I recommend seeking the advice of a CPA that specifically understands dropshipping. Every state has its own tax code, and even if you are selling out-of-state and are tax exempt, some states don’t honor this tax exemption. Say you are a Wisconsin-registered business dropshipping in California and your supplier is based in California too–guess what—you have to pay California state taxes!
You can get around it by getting a seller’s permit in California, but nuances like these are what’s often ignored. If you are looking at selling your store in the future and don’t have your paperwork in order, your store will be good as worthless. No one wants to buy a store with possible legal liabilities or back-taxes.
I pay a lot of taxes–and a CPA in a renown firm does all my accounting. If I could legally get away by paying nothing at all, trust me I would!
If you are selling in the US and haven’t paid a dime in taxes yet, chances are you’re operating illegally. Call the IRS for information, then your state of registration’s department of business/corporations.
A Word About Analysis Paralysis
In the course of talking about dropshipping, I often get asked questions that delve with hardcore numbers analysis. This ranges from serious number crunching right up to consumer analysis apps, and more. My word of advice is don’t. Just don’t over-analyze stuff.
Launch your dropshipping store.
Don’t get caught up in the details and start analyzing things to death.
Don’t Google Trends. Don’t Google anything.
Just pick a niche you care about, then launch it. Any analysis you do at this point is moot and a gargantuan waste of time.
Because there are variables way outside of measurable parameters that you simply cannot measure.
Here is an example:
A supplier has not allowed any ecommerce stores to sell his goods. You happen to call at the right time. The supplier’s been mulling the idea of selling to dropshipper’s over the past couple of months, and voila you so happen to call. He takes a shot. He lets you sell his goods. Now let’s suppose his goods are high-margin, expensive items. And let’s suppose you start selling these like hot cakes. And let’s assume this supplier’s taken a liking to you and accepts your request to only deal with you, or to limit the number of retailers.
A relationship has nulled and voided what otherwise would seem like a crowded niche.
I mean, this is but one variable of a variable in an endless string of possible variables. Nothing in Keyword Planner or Google Trends will prepare you for the unknown. Granted, they aren’t totally useless, but they may do more damage than good.
I don’t follow data. I sell myself to suppliers and get them to commit to my store’s brand. I will think up ways to better my supplier relationship on a monthly basis, and implement solid retail rules that ensure exceptional customer service, as well as risk mitigation procedures.
Here’s another reason why number crunching is a waste of time:
I convinced several of my suppliers to remove their product lines from competitor websites. How and why? Long story shot, I managed to sell a lot more than them and provided excellent customer service. My suppliers were totally hands off. I handled any issues whatsoever, including shipping, and went above and beyond.
Don’t over-analyze and go with your heart. I know it’s hard; but it’ll put you in a class of your own. We all have it in us to just use our relationship skills to win over numbers.
Dropshipping isn’t rocket science.
Avoid this common failure. Just keep launching stores and hone the stores that are making sales. Launch a new store every 2-4 weeks. Pick any niche, car hub caps, roofing tiles, whatever. Just keep launching!
So, to recap my guide to dropshipping in a nutshell:
- There are licenses you need, at minimum, to launch a store. Many cities/counties will have a home-based/internet business-specific addendum:
- State Reseller’s Permit (or equivalent)
- County License
- City License
- Any home-based/internet business addendum
- Registration of name with your State
- Set up a Business Checking account:
- Open the account stateside, or via a legal person who can do it for you stateside
- Use your existing public record information
- Set up your Store after you are licensed and have a business account:
- Since if you are denied for a bank account or license, you’ll need to find alternatives. Better to set up your store after all the banking and legalities are taken care of
- Use the Shopify ecommerce platform to build your store–it’s simple, it’s easy
- I use SiteGround to host my Shopify store–I choose to pay a few more dollars for service and speed
- Taxes, pay them!
- If you’re not paying US taxes on a federal or state level, you may be in the red
- Consult with a CPA that understands dropshipping
- Not every CPA knows the exact rules of our type of business (although they should)
Lastly, I want to touch on the importance of having a rewards credit card. First of all, as transactions roll in and you start making sales, you’ll likely be paying by credit card. But I recommend you use a 2% cash back rewards card as you can make tons of money back.
Suppose you buy $20,000 of goods in one month from your suppliers–that would net you $400 in cash back! It’s hard to ignore that kind of money. If you’re living in an affordable city in Southeast Asia, that could pay for the rent on a beautiful one bedroom condo.
Whenever I start new stores I always follow the steps above and I never cut any corners. I personally used Anton’s Dropship Lifestyle Course for his indepth, all-in-one spot wealth of information, and support forum. If you feel there are courses out there that better suit your specific needs, then by all means sign up for them. Invest in yourself during this critical stage. Success means following through; discipline is your best friend; education is a must.
Forget over-analysis and just keep launching stores with a basic Adwords campaign.
Enjoy the creative process,
Enjoy the rewards which are bound to come when you play the numbers game.
What guide to dropshipping did you read before getting started? What were your greatest learning lessons throughout the process? Do you feel dropshipping is a lasting business model?
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