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Dropshipping has fast become one of the most discussed, marketed and recommended online business models, but a common question seems to constantly come up regarding its safety and whether not you should begin. Is Dropshipping a Scam?
Dropshipping is not new, and there are various ways to set up and ways to go about doing it. It’s often difficult to understand if it is a legitimate business model, considering the wealth of online scams that routinely find their way into the market.
Therefore, to help dissect this question, keep reading to learn more about the business model and view my suggestions to ensure that if you do proceed with it, you conduct your business in a safe, ethical way.
What Is Dropshipping?
Before we begin, we must first understand what dropshipping actually is. While it can be done in a number of different ways for the most part dropshipping is defined as follows:
Dropshipping = Retailer (Store Owner) does not hold any inventory. Instead, they market products, obtain sales from customers and then use the customers money to make an order at a supplier, shipping the order directly to the customer.
Profit is made on the difference of the sale price and the customer order price. It usually looks as follows:
Profit = Sale Price – (Cost of Goods + Shipping Cost + Taxes)
Now, as dropshipping is a model and a concept, you’ll often find numerous ways to go about doing it. This often involves different suppliers, manufacturers, platforms and promotional strategy. Here are just some of them:
- Dropshipping High Ticket Only Products
- Fulfilling Orders from China (e.g. AliExpress)
- Local Supplier Dropshipping
- Amazon Dropshipping
- eBay Dropshipping
- Shopify Dropshipping
There are many advantages and disadvantages to each, and each method will come with certain limitations and risks. However, for the most part when applied safely and correctly, dropshipping via any one of these models has proven very profitable for a number of startups and entrepreneurs.
Here are the main principles and stages of any dropshipping business model:
- Step 1: The ‘Dropshipper’ (Store Owner) identifies product(s) and lists them for sale on an online storefront (or platform – Shopify/Amazon/Ebay) where customers can place orders.
- Step 2: The ‘Dropshipper’ advertises/markets products, obtains customers from various initiatives and channels.
- Step 3: The customer purchases product(s) from the Dropshipper’s store/via the used platform.
- Step 4: The Dropshipper then places an order from the supplier of identified product(s)
- Step 5: Supplier sends item directly to the customer. The customer receives the item that they’ve ordered from the Dropshipper.
If you are still concerned whether dropshipping is a legitimate business model, consider that Amazon (the worlds largest retailer) was the first company to dropship.
Amazon started, and still, lists thousands of products from suppliers. When a customer orders on their platform, they send suppliers notifications and the suppliers ship product(s) to the customer.
Due to their huge level of success, the model has been copied and adapted to what dropshipping is today. With so much money to be made, its an industry that continues to grow year by year.
So now we know what dropshipping is, lets now take a look at the common concerns that people have. Whether it is from a dropshipping or customer perspective, we hope to cover the main ones here.
Whether you want to get started using this online business model or you just have some concerns whether or not it is legal and ethical, the responses below will help to address these concepts.
- Dropshipping is defrauding vulnerable customers
- Suppliers can take and steal payment without sending customers your products
- There’s no money to be made in dropshipping with all the associated costs
- You need to spend thousands on a course to be able to do it
Let’s get started:
#1 Dropshipping Is Defrauding Vulnerable Customers
Some people are of the opinion that selling a product for double/triple sometimes four times the price of what you paid for it, is ethically wrong.
The belief is that customers are being tricked into paying for products that they could have got for a fraction of the price themselves.
There are a couple of problems with this way of thinking.
The first is that the majority of customers are not aware of the platforms to source the products. They do not know how to conduct the research, negotiate with suppliers, nor are they able or willing to navigate these supplier platforms and work through the complexity that can arise wit placing orders.
Secondly, the majority of businesses, particularly brick and mortar stores and established brands, do this. Have you ever seen a ‘made in China’ logo on a product? I’m sure you have. Now, just because the worlds biggest retailers do this doesn’t mean we should but this does give us a clear insight that this is how global brands and business profit. And have done for years.
Lastly, it is important to note that the dropshipper invests and markets products from manufacturers and suppliers. Its expensive, and without this products would not be able to be brought to market. Customers would not know products exist, would not buy them, suppliers would stop making products etc. The entire process chain collapses.
For the most part, customers do not know about platforms like AliExpress, how to contact suppliers, how to build relationships etc. As a dropshipper, you are providing a service by getting products in front of customers who would otherwise not know about them.
#2 Suppliers Can Take/Steal Payment Without Sending Customers Your Products
Sure, this is a huge concern and it is something a dropshipper needs to be aware of. It does happen, and it can be immensely costly if it does.
The truth is, this is the exception rather than the norm. Its usually the result of a dropshipper not conducting the required due diligence and research – not working with reputable suppliers and sticking with accredited and safe platforms and marketplaces.
In order to overcome this dropshippers must work within safe parameters and be aware of any extravagant claims that seem to good to be true. Communications should occur directly on platforms and payments should be made using legitimate methods.
One of the major benefits of working through reputable marketplaces and platforms is that they are designed to reward the best suppliers. Reviews, ratings etc are all a part of this. Moreover, you can see how many orders a supplier has processed and successfulyl fulfilled.
At the end of the day this boils down to using common sense and remaining mindful throughout the process .
#3 There’s No Money To Be Made In Dropshipping With All The Associated Costs
Again a legitimate concern because there are costs involved and low profits or negative results with dropshipping can occur.
This time, this is all about ensuring that the math is conducted ahead of products are sold. The dropshipper needs to ensure that they have taken into account all of the associated costs before they get started.
Here are just some of the main ones:
- Product Costs
- Platform Costs e.g. Shopify
- Software Costs
- Theme Costs/App Costs
- Marketing Costs
- Shipping Costs
In order to be truly profitable with dropshipping these costs need to be considered. Its important to understand how many units need to be sold to break-even and to also have some cash-flow. This way costs can be managed, handled and will not cause concern.
#4 You Need To Spend Thousands On A Course To Be Able To Do It
Like any business venture, acquiring and leveraging information, knowledge and experience from individuals who have succeeded is an ideal and excellent way to get started.
It can help cut the learning curve, ensure you take the right actionable steps and ultimately succeed. You know what to look out for, when and why. It gives you the right perspective, mindset and accountability.
The problem is, with any business venture that can be profitable, you are going to find “experts” who claim to teach you exactly how to replicate your success. Some of these will not have the required experience, others will be outright scam artists.
Spending thousands on a course is not necessary nor is it optimal. It’s going to set you back and you’ll likely need to invent a lot more to get the business going, market product etc.
The best dropshipping courses are content rich at a fair price, give you the A-Z walk-through of how to build, manage and scale and will give you numerous avenues to explore with your business (like online marketing strategies and methods – both free and paid).
How To Build a Profitable, Successful, Legit Dropshipping Store
If by now you are interested in starting dropshipping, and you want to do so in a profitable and morally correct way. Here are some points you should follow:
- Make sure you use established suppliers, marketplaces. Ensure suppliers have been verified, have positive reviews and you can contact them at any time.
- Ensure you sell in demand and profitable products
- Do the math – make sure you are profitable on each sale – factoring in shipping costs and any potential product refunds.
- Use a reputable eCommerce platform. For example Shopify has an in-built Fraud Analysis feature that prevents fraudulent buyers from placing orders on your store.
- Learn how to dropship from proven, reputable dropshippers. Franklin Hatchett offers his program for just $197 which will teach you the entire A-Z process. My full review outlines what is included.
- Be willing to put in the work required to research, build your store/create product listing, test products and market.
- Think in the long-term. Be willing to spend time and money to invest in yourself and the business. Remember, its a business that needs nurturing.
Is Dropshipping a Scam?
Whether or not dropshipping is a scam will entirely depend on how one goes about it. As a business concept and from a customer/business perspective, its a completely legitimate and legal business model that you can get set up and started with.
With low startups costs, low barriers to entry, low time investment and the ability to start dropshipping quickly, you can see why it has become one of the most popular and recommended ways to make money online.
The Steps Required To Build A Successful Dropshipping Business
- Build a professional, high-converting store to showcase your products and accept customer payments
- Conduct extensive Niche/Product research to find in-demand and highly desired products.
- Advertise products through highly effective, targeted marketing to acquire customers and sales.
- Build loyalty, an audience and repeat customers by keeping your customers interested and informed.