Dropshipping & Smart Resale Certificate Management Can Help You Save Money
When you’re navigating the world of eCommerce, the best way to make sure you protect your bottom line is to streamline. Dropshipping can be an effective way to help you maximize your business efforts while taking on less financial risk than traditional business models. But even dropshipping requires careful tracking and analysis to ensure that you are meeting state and federal regulatory requirements without paying unnecessary taxes. Let’s dive into the ins and outs of dropshipping and the ways you can leverage this strategy for your eCommerce business.
What Is Dropshipping?
Dropshipping is an order fulfillment method where the retailer does not maintain stock of their products, but instead, acts as a middleman between the end customer and the wholesale provider. This approach allows dropshippers, or retailers who use the dropshipping method, to accept orders and payment from the customer and then purchase products and inventory as needed from the wholesaler. Since eCommerce customers are used to waiting for their products to ship to them, dropshippers can make the most of this delay in order fulfillment.
In traditional retail business models, you as the retailer would be responsible for maintaining an inventory of products that could keep in pace with your customers’ demands. You take on the financial responsibility of purchasing an appropriate quantity of product, paying for storage, managing inventory, and handling shipping processes. While this is an unavoidable reality for brick-and-mortar retailers, the world of eCommerce opens up the door to an alternative approach.
After a dropshipper has accepted the order and payment from the end consumer, they place an order with the wholesaler for the exact quantity of products needed. The product is shipped directly to the customer by the wholesaler. The retailer has made a sale and a profit without taking on the overhead costs and financial risk of inventory management.
How Does Dropshipping Help You Save Money?
Dropshipping is a simple way to start an eCommerce business with low overhead and less startup costs. But dropshipping also offers business owners the opportunity to run their eCommerce site from anywhere, using eCommerce tools like Shopify. It’s also easier to offer new products, since you can always shift your product lines if one item isn’t performing well. Dropshipping allows you to minimize annoying and time-consuming supply chain issues, since you can rely on your wholesaler to expertly manage higher quantities of product and navigate those challenges on their end.
What Is A Resale Certificate?
While dropshipping is a simple and effective way to operate your eCommerce business, there are still many regulatory boxes to check to ensure that you are operating within state and federal business requirements, paying the appropriate taxes, and protecting yourself from unnecessary fees due to accidental noncompliance. One essential document is a resale certificate.
A resale certificate is a document stating that you, the retailer, intend to resell your products. Most importantly, a resale certificate exempts you, the retailer, from paying sales tax on those products. In the United States, sales tax is a tax paid by the end user. As a business, you should not be paying sales tax on items that you are reselling. That means, if your wholesaler is charging you sales tax, you are paying an unnecessary tax and cutting into your bottom line.
Avoiding these unnecessary tax charges can be as simple as submitting a resale certificate to your wholesaler. But in the world of eCommerce, where transactions often cross state and even national boundaries, it can be a challenge to know which certificates are required. That’s where HOST comes in.
New App Available by HOST
Our team at HOST is excited to launch a new app in February 2023 called Dropshipping Certified that will streamline the way you apply for resale certificates for your eCommerce business. By logging into our app and inputting some simple information about your business and your wholesaler, our app will provide you with the relevant resale certificate applications. Our resale certificate suggestions are backed by industry research. As a subscriber to our app, you will have access to a tool that allows you to avoid unnecessary tax charges and ultimately protect your bottom line.
Ready to dive into dropshipping and maximize your profits? Get in touch with us today!