Is DropShipping A Scam? Or A Real Business Model?
Dropshipping has become one of the fastest-growing business models in the eCommerce industry. The model has been discussed and championed by intellectuals and is recommended to a lot of people who are just starting out. However, some of the most common questions concern the model’s legitimacy, security, and whether or not you should do it. So, is dropshipping real or is it a scam?
Dropshipping is quite an old business model and over time, people have developed a ton of ways to conduct it. But the increasing number of online scams has made it difficult for people to treat it as a legitimate business model.
Therefore, we must look deeper into the structure of dropshipping to understand it better and learn if you can make real money with it in an ethical fashion.
What is dropshipping?
Before learning about the problems with dropshipping and the customer concerns related to it, we must understand the business model first. There are several ways to conduct dropshipping but the model can loosely be defined as a store owner marketing and selling certain products with no inventory of them.
The store owner needs to place the orders with the supplier, which in turn, ships the products directly to the customer. Here, the profit of the store is dependent on the sale price and the actual price of the product. For example, a customer pays the dropshipping store $60 for an item and the store owner pays the supplier $30 for the cost of the goods and their shipping. This way, the store owner ends up making a profit of $30.
There are several ways in which one can adopt dropshipping. They can either use different suppliers, or manufacturers, promotional strategies or more. Some of the most common dropshipping models are as follows:
- High Ticket Only products’ dropshipping
- Dropshipping with products from China (eg: AliExpress)
- Local Supplier Dropshipping
- Amazon Dropshipping
- eBay Dropshipping
- Shopify Dropshipping
Each method comes with its own set of risks and limitations but when done correctly and safely, it can turn out to be a profitable venture for you. Here’s how the business model of dropshipping works.
- Step 1: The dropshipper/ store owner finds items that they can put up for sale on an online platform like Amazon, Shopify or eBay. The customers can then place orders on these items.
- Step 2: The store owner uses various marketing techniques and campaigns to get customers to place orders on these products.
- Step 3: The customers will then place their orders for the product using the platform.
- Step 4: The dropshipper will then place the order of the chosen products with the respective supplier.
- Step 5: The supplier will then ship the product directly to the customer.
Dropshipping may sound concerning but the world’s biggest online retailer, i.e. Amazon started their business with dropshipping itself. The website still lists products from several suppliers and when any customer places the order, they notify the supplier who ships the product to the customer. Amazon’s success inspired many platforms to adopt the same model, leading to the exponential growth of dropshipping.
Concerns related to dropshipping
Whether it is from the perspective of a business model or whether the business is ethical or not, here is a list of the common concerns related to dropshipping.
- Defrauding customers
Many people believe that they end up paying thirty to forty times the price of the product due to dropshipping, which isn’t an ethical practice. However, these customers don’t understand the practice of finding the right supplier, doing a thorough research of the market and finally, negotiating the price of the product. Apart from that, ordering the products too is a complex process.
Dropshipping, in fact, sells the products in the same way that brick and mortar stores do. Most of the products in these stores also come with a “Made in China” tag. It doesn’t justify the process but this is how most brands and stores make their profit.
Most importantly, the task of a dropshipper is to market these products so that the customers learn about them. The process does require investment and without it, the customers would never learn about the existence of the supplier or the product. Therefore, a dropshipper provides a service to the customers who aren’t aware of platforms like AliExpress, don’t know how to contact the suppliers or build relationships to get products at a cheaper rate.
- Customers won’t receive products
Another fear that most customers have with dropshipping is that the supplier will just take the payment and never deliver the products. Though this is an exception instead of a norm, dropshippers must be aware of these problems as they can prove to be costly.
If you’re getting into a dropshipping business, you must conduct adequate research before settling on a supplier. Do not go just by the word of mouth or give in to promises that seem too good to be true. Make sure that all your communication with your supplier is recorded and happens on the platform alone. Set up legitimate payment methods so you always have a history of what is happening. Getting a supplier through a reputable marketplace and platform may seem a little expensive but will always work in your favor. These platforms tend to award the people with the highest sales, making your suppliers work even harder for you.
- Dropshipping isn’t profitable
One of the most legitimate concerns with dropshipping is that the business model doesn’t seem profitable enough. There are many costs involved with the product, platform, marketing, etc. that may decrease your profit margin or produce negative results too. Therefore, you need to do the math before getting into the business and make sure that you have taken all the associated costs into account before deciding your product prices. You also need to take care of any miscellaneous costs and plan for them ahead of time as well. The main costs associated with a dropshipping business are:
- Product costs
- Platform costs
- Software costs
- Theme/App costs
- Marketing Costs
- Shipping costs
To become a truly profitable business, you will first need to reach a point where you can just break even. Profit may come a little later and take time to give you a good margin but it will be worth it.
- The high cost of learning
To succeed in any business, you need to gain as much knowledge about it as possible. There are several individuals who may help you grow in this business by guiding you through the right steps, outlining a learning curve, and giving a step-by-step approach when you are just starting out. The courses may take a sum of money from you but will help you grow in your career. You need to make sure that you only take the ones with experienced individuals who understand how the business works.
I always only recommend eCom Elites by Franklin Hatchett to anyone beginners or intermediate because it is not only the best dropshipping course from like the 50+ ecommerce courses I have reviewed but, it’s one of the cheapest courses you can find with so much value.
How to build a legit dropshipping store
If you want to build your dropshipping business while making sure that everything you do is ethically correct and leads to profits, here are the things you need to keep in mind.
- Make sure that all your suppliers are verified, have good reviews and have established themselves in the market as credible individuals.
- The products you list must have a demand in the market and should be profitable.
- Factor in all the costs and cash flow that the business needs before jumping into anything.
- Use a reputable platform to market and sell your products. Not only will this build the credibility of your business, but it will also bring in more customers.
- Always conduct market research and test your products before listing them.
- Your business isn’t just a one-time investment and may reap you benefits for a long time. Therefore, always set your short-term and long-term goals to remain profitable even when the demand for your products is low.
Is dropshipping a scam?
As a business model dropshipping is completely legitimate. Whether it’s a scam or not depends on the suppliers you bring in and how you conduct your business. If quick money is your only goal and giving great products to customers isn’t your priority, it will serve as a scam for your customers. But if you are morally right, dropshipping can turn out to be a great business venture for you.