One of the more recent opportunities for starting an online business has been dropshipping. If you’ve heard about it, there’s a good chance you’ve considered doing it on Amazon. 

Through my years of reviewing various business models, I found dropshipping is one of the good options that require only minimum capital injection at the start. 

My aim in this article is to walk you through how dropshipping works, the pros and cons, and, importantly, to answer the poignant question, ‘Is dropshipping illegal on Amazon?’.

Is Dropshipping Illegal on Amazon?

No, dropshipping is not illegal on Amazon. If you are thinking of starting dropshipping on Amazon, you have nothing to fear about the legitimacy of the business model. If anything, dropshipping offers several benefits for entrepreneurs, especially in terms of initial capital and yield. 

Amazon logo wallpaper featuring the iconic smiling arrow logo on a dark background

However, while the rewards of dropshipping can be quite enticing, Amazon sellers need to be aware of the rules of dropshipping on Amazon before getting into it.   

What Is Amazon Dropshipping?

Amazon dropshipping is an order fulfillment method where sellers list and sell products on the Amazon marketplace without actually holding inventory. When a seller receives an order, they purchase the product from a third-party supplier or wholesaler and have it shipped directly to the customer. 

Here are the rules that sellers must adhere to when dropshipping on Amazon. 

If, at any point, you run into an issue regarding trademarks or patents, you would likely need a qualified patent attorney on your side. 

How to Dropship on Amazon 

Dropshipping on Amazon isn’t an entirely difficult process to begin. You have to follow a few steps to have your own dropshipping business up and running.   

Create an Amazon Seller Account

The first step to dropshipping on Amazon is setting up your seller account on the platform. Once your store is set up, you can begin arrangements for dropshipping. 

Research Products and Niches

Conduct market research to identify profitable products and niches to sell on Amazon. Select products with high demand, low competition, and healthy profit margins.

Find Reliable Suppliers

Establish relationships with reliable suppliers -wholesalers or manufacturers- who offer dropshipping services. Assure they can promptly fulfill orders, maintain product quality, and provide competitive pricing.

List Products on Amazon

List the products you want to sell on Amazon, including detailed product descriptions, high-quality images, and competitive pricing to attract customers. Ensure that your pricing covers the product cost, shipping, and any other fees associated with the transaction.

Receive Orders

Customers begin to place orders for products listed in your store, and you receive payment at the retail price. 

A man wearing a mask putting a tape on a box at a warehouse

Forward Orders to Your Supplier

Forward any orders for products you receive to your supplier. Assure you provide the supplier with the customer’s shipping information so they can fulfill the order directly. Your supplier prepares and ships the order, and your customer receives the product. 

What Are the Various Obligations of Amazon Dropshippers?

Drop shippers on Amazon are bound by various laws and policies, most of which typically apply to the average Amazon seller. Here are some of the cogent ones:

Tax Obligations

As a business, you are responsible for collecting and remitting sales tax on taxable sales. The specific requirements vary by state, so it’s important to understand the tax laws in your state.

Contractual Agreements

You may enter into contractual agreements with suppliers and customers when dropshipping on Amazon. It’s important to review these agreements carefully to understand your rights and obligations.

Consumer Protection Laws

Dropshippers must comply with federal and state consumer protection laws, including laws related to product safety, advertising, and marketing practices.

Intellectual Property Laws

Dropshippers must ensure that they have the right to sell the products they are dropshipping and that they are not infringing on any patents, copyrights, or trademarks. If you get mixed up in any issues regarding this, it’s advisable to contact a patent lawyer

What Are the Pros of Dropshipping?

Naturally, dropshipping offers quite a number of benefits to aspiring entrepreneurs. They include: 

Low Startup Costs

Since you don’t need to invest in storage facilities or shipping resources upfront, you can start a dropshipping business with minimal capital. 

A man tying a box in an office setting

No Inventory Management

With dropshipping, you don’t have to handle, store, or manage inventory, which reduces overhead costs and frees up resources that can be allocated to other aspects of your business.

Location Freedom

Since dropshipping is primarily an online business model, you can operate your business from anywhere, as long as you have an internet connection.

Related Questions

How Is Dropshipping Different from Retail Arbitrage?

Dropshipping involves selling products without holding inventory and relying on third-party suppliers to fulfill orders. In contrast, retail arbitrage entails purchasing discounted products from retail stores or online marketplaces and reselling them at a higher price for profit. While both models offer opportunities for profit, they may be challenging to pull off when combined. 

Can I Get Banned For Dropshipping on Amazon? 

No, you will not get banned for dropshipping on Amazon. However, you can get banned if you do not follow Amazon’s drop shipping policy. This implies that you must be the seller of record, and your name must be present on product items and packaging.  

Is Dropshipping Right for My Business?

To determine whether dropshipping is right for your business, you need to consider certain factors, such as the kind of image you want to build for your brand, the amount of control you want over product quality, how much capital you can get, and your target profit margin, among other things. 

Conclusion 

While dropshipping itself is not illegal, operating a dropshipping business on Amazon requires adherence to the platform’s policies. Remember, however, that success in dropshipping on Amazon requires careful planning and effective execution, among other things.