Dropshipping: Hot Online Hustle, or the Latest Scam?
By Rachel Puryear
If you’ve browsed ways to make money online lately, you’ve probably heard of dropshipping – and seen ads for online dropshipping courses promising to teach you an easy, lucrative online hustle that doesn’t require much up-front investment of capital.
The sales pitches for these courses are pretty tempting, and they’ve persuaded many people to sign up and part with their hard-earned cash, hoping the investment of time and money will handsomely reward them.
But does dropshipping really live up to all the hype?
That’s a great question to ask before dropping a lot of good dough on courses and seminars, some of which cost hundreds or even into the thousands of dollars.
Therefore, let’s take a closer look at the dropshipping phenomenon:
What is Dropshipping?
Basically, the dropshipper solicits online sales of goods through their own marketing efforts. The dropshipper then refers any orders received to a third-party company.
The third-party company manufactures and stores the goods, and ships them directly to the customer in order to fill the orders.
The dropshipper’s role is marketing and promoting the goods in order to make sales.
The dropshipper’s profit is the difference between the third-party manufacturer’s price and the retail price they charge the consumer, minus costs such as shipping and marketing costs.
On paper, that sounds great – you, as the dropshipper, don’t have to worry about all the manufacturing and storage – things that naturally require a large monetary output to start. So, it seems like a way to start a shop, with a low barrier to entry.
But when we take a closer look at the reality of dropshipping, there’s a lot that can go wrong.
Dropshipping Pitfalls, and More
First, we should talk about dropshipping scams.
Dropshipping is not necessarily an inherent scam – but there are plenty of dropshipping scams out there. Dropshipping scams have perhaps become the new “work from home stuffing envelopes!”.
What happens is that scammers will first advertise for easy ways to earn passive income at home – who doesn’t like that, right?
They then sell their victims lists of supposed dropshipping companies – but these “companies” don’t actually have merchandise; rather, they are middlemen between wholesalers and retailers.
These middlemen charge fees that eat up the profits, so the scam victim doesn’t make much on the deal.
Plus, the middlemen typically charge additional periodic subscription fees for their “services”, and require exclusivity.
Dropshipping is basically being a middleman in and of itself, with the dropshipper’s contribution being marketing.
These scams are basically dropshipping within dropshipping, but mainly the scammer is the one who makes money – and largely because of the subscription fees, rather than because the arrangement is itself profitable.
Even if a dropshipper isn’t falling prey to an outright scam, dropshipping has a lot of pitfalls that might not be readily apparent to the unsuspecting would-be entrepreneur who doesn’t know much about the business of selling goods.
Selling goods is not as easy or risk-free a business as many might think.
Here’s a few big things that can make the business tough, or even go really wrong:
Manufacturers normally have no obligation of exclusivity (unless there’s a specific agreement to such). Accordingly, they can and do sell to many retailers.
For many centuries, lots of retailers have successfully sold goods, even though plenty of other retailers also sold them. However, until recent decades, people normally did their shopping close to home, due to challenges of traveling far from home.
Nowadays, though, the internet gives people worldwide access to merchants who are also worldwide. It’s now relatively easy to have products shipped to just about anywhere, from just about anywhere.
This means that merchants are no longer just competing with other local merchants, but they are also competing with merchants worldwide.
Boy, those subscription fees have to be sweet for those scammers.
Anyway, with lots of people getting into dropshipping, there’s a lot of competition. This pushes prices down for retail sellers everywhere, and eats away at profit margins.
That’s one big reason why few dropshippers ever actually make much money.
In fact, pushing expensive dropshipping courses and dropshipping scams is probably a much better way to make a lot of money online than actually dropshipping.
When Consumers Realize it’s a Bad Deal, it Can Come Back to Bite You
As you’ve probably realized by now, dropshippers make money (what little they do actually make) by being middlemen, and charging more for products than it would cost to buy the goods direct from the manufacturer.
Sometimes, the consumers figure this out. When that happens, they often return the products when they realize they can get it cheaper elsewhere, and buy it directly from the manufacturer (or even a cheaper competitor) for less.
This not only means that the dropshipper has to refund the sale – and hope that the manufacturer will also refund their part, which is a big “if” – but it also puts the dropshipper at risk of large losses, from having to lose the sale but still eat the shipping fees (at the very least).
The consumer might also leave a bad review, feeling that the dropshipper burned them by marking up the price.
As the dropshipper is going through a third party manufacturer, there’s a lot that’s out of their control, and things that can go wrong.
If a product is counterfeit, or defective, or cheaply made; there will be angry consumers wanting their money back, and possibly filing complaints with various regulatory authorities. This kind of manufacturer probably isn’t going to indemnify the dropshipper, or take any kind of responsibility, either.
If the product is illegal, or if the manufacturer has violated any kind of laws – such as not having a necessary license to sell the product; the dropshipper can also face criminal charges and civil lawsuits as a co-conspirator.
Even if the dropshipper ultimately is not found guilty or liable, they will nonetheless incur a lot of costs in defending themselves – not to mention the stress and havoc wreaked on their lives in the meantime.
If you do get into dropshipping, at the very least, have some good liability insurance.
As always, be wary of slick sales pitches, promises of getting rich quick, and big promises from people who want to sell you things.
However, if you do want to make money by promoting products online through a blog or website, there’s a much better way to do that – affiliate marketing.
We’ll discuss affiliate marketing shortly in an upcoming post. So stay tuned!
Thank you, dear readers, for reading, following, and sharing. Here’s to avoiding scams and all-around bad deals.
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Check out my other blog, too – World Class Hugs, at https://worldclasshugs.com. It’s about better understanding relationships, empathic perspectives, and traveling and nature photos.
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