Is Dropshipping A Lucrative Opportunity Or A Pyramid Scheme?

Dropshipping has become a popular method of selling and buying goods online recently, but it has also sparked a lot of debate around whether it is a legitimate form of business. In particular, there has been a lot of talk about whether dropshipping is a pyramid scheme.

You are here because you are likely interested in dropshipping, you have engaged in a product that is teaching this (and you are unsure), and/or you are looking to make money online and this seemed like a viable direction.

There are definitely some good things about running a dropshipping program, but there are some drawbacks and also MUCH BETTER alternatives. I am going to be helping you understand all of this as you move forward through this article. I am also going to be covering whether or not dropshipping is actually an “illegal” pyramid scheme, which is a concern by many getting into that space.

First, What is Dropshipping?

Dropshipping is an online retail business model where a seller does not actually own the products they are selling. Instead, the seller partners with a third party supplier who provides the products and ships them to the customer. The seller earns a profit on each sale by charging the customer more than what the seller paid for.

Dropshipping has become increasingly popular due to its low overhead costs and the ability to quickly start up an online business. Many entrepreneurs have found success using dropshipping as a way to make money online.

Here is a look at the business model.

You can see as the store owner, you are going to be able to retain the profit difference between the price you charge a customer, and the price that you are able to ship that product to them for.

As a drop shipper, you don’t typically have any inventory, you are simply “portraying” that you have products, and then you are sending off the shipping details to the wholesaler behind the scenes after your get the order.

There are some good things about dropshipping, and actually quite a few drawbacks and I want to help you understand both of these.

Find a SUPERIOR business model to dropshipping

Some of the Good Things About Dropshipping

There are several pros to using dropshipping as a business model.

(1) Low Cost. The first pro is the low overhead costs associated with dropshipping. As the seller does not have to purchase any inventory upfront, they can start their business without investing a large amount of money. Additionally, the seller does not have to worry about shipping and fulfillment, as this is taken care of by the third party supplier.

(2) No inventory. Another pro of dropshipping is the ability to quickly start up a business, as the seller does not need to purchase any inventory. They can start selling almost immediately. Additionally, the seller can offer a wide range of products without needing to worry about storage space or shipping.

(3) Lowered Risk (as no ownership of products). Finally, dropshipping is a great way to test out new products and markets without needing to invest a large amount of money. As the seller does not need to purchase any inventory, they can quickly switch to different products or markets without needing to worry about inventory costs.

Now let’s jump into some of the drawbacks of running a dropshipping business. They are more obvious than the benefits.

6 MAJOR Drawbacks of Running a Dropshipping Business

Although there are several pros to dropshipping, there are also some cons that should be taken into consideration before you jump into this “online business model.” Sometimes when things sound too good to be true, they are. I have actually worked with FAR MORE struggling within the dropshipping business model, versus those that experience any success at all and there are reasons for this.

Let me help you understand six of the risks to starting a drop shipping business.

(1) High competition: Starting an online dropshipping business means competing with countless other businesses offering similar products, which can make it difficult to stand out from the crowd and make a profit. Remember, anyone can access these same products as you so it becomes a “dog eat dog” sort of environment as to who can offer the lowest prices on the same thing.

(2) Low margins: Dropshipping businesses typically have to pay a wholesale price for the products they are selling, which can lead to low profit margins. This makes it even more difficult when you take into consideration that you will have to pay to market your store, which is where 99% of people fail.

(3) Quality control issues: When you don’t control the quality of the products that you’re selling, it can be difficult to guarantee consistent quality. The wholesale platforms tend to ship products that are from China, so they are “knock offs” of the actual brands that people want to buy and tend to be rife with quality issues.

(4) Poor customer service: Without a physical presence, it can be hard to provide your customers with the same level of service as a traditional shop. This leads to lower end customer service, and the inability to control the quality of your product naturally will lead to some level of negative reviews.

(5) Lack of control: Dropshipping businesses don’t have much control over the products they are selling, as they are reliant on the supplier to provide them. This can make it difficult to respond to customer demands or ensure product availability.

(6) Shipping delays: Shipping times from suppliers can be unpredictable, which can lead to delays in orders being delivered to customers. It isn’t uncommon for your customers to be waiting 4-6 weeks for shipping as these products are coming from overseas (usually China), with a high rate of damage happening during these travels. This can lead to frustrated customers, and returns which you are going to be responsible for carrying those costs.

Find a SUPERIOR business model to dropshipping

Is Dropshipping a Pyramid Scheme?

The answer to this question is no. Dropshipping is not a pyramid scheme. A pyramid scheme is an illegal business model where participants are promised returns based on the number of people they recruit, rather than based on the sale of products.

Dropshipping, on the other hand, is a legitimate business model where the seller earns a profit based on the sale of the products, though they are not the ones holding inventory those products.

The problems are less about it being a pyramid schemes, and more about being a low-margin, competitive, and over saturated market place. The result of that, is a much lower opportunity than another online business model which I want to discuss here.

It certainly is NOT an “ideal” model if you are looking to start a business online, and I want to introduce you to a much superior alternative and one you can get started with right away called Affiliate Marketing.

Let’s look at a comparison between the two.

Dropshipping vs. Affiliate Marketing – There is a CLEAR Winner

Dropshipping is a business model where you don’t have to own or store inventory. You simply partner with a dropshipping supplier and list their products for sale. While dropshipping is an attractive business model for its convenience and low startup costs, affiliate marketing offers much more potential for profitability.

Find a SUPERIOR business model to dropshipping

With affiliate marketing, you don’t need to worry about stocking, shipping, or tracking inventory. Instead, you simply promote another company’s products and earn a commission for each sale you make. Additionally, the potential for earning more money is much greater with affiliate marketing since you can earn a percentage of each sale, rather than just a flat fee for each product. Furthermore, as an affiliate marketer, you have the potential to earn residual income from each sale, as well as from recurring customer purchases.

As you can see from the table, affiliate marketing can be a better business model for those who are looking for a low-cost, low-risk, and low-maintenance business venture. With affiliate marketing, you don’t need to invest in inventory, manage orders, or provide customer service. Additionally, you have the flexibility to promote a wide variety of products without being limited to a specific supplier’s inventory.

I want to take a few minutes here to tell you about how some family members have worked hard on creating a dropshipping business. It’s absolutely a legitimate and viable business model, but from what you have already read above, there are some serious challenges. I can tell you from their first hand experience and my experience with Wealthy Affiliate that I much prefer to create an online business model based on the Wealthy Affiliate training.

There are thousands of success stories you will find encouraging at Wealthy Affiliate. Here are a few of those stories you can read about at Wealthy Affiliate.

Dropshipping can be a good option for those who are willing to invest in building a brand and want higher profit margins. Ultimately, the choice between affiliate marketing and dropshipping will depend on your specific business goals and preferences.

If you want to learn how to become an expert within the affiliate marketing world, and how to harness this “preferred” business model, I highly recommend that you get a free test-drive account over at Wealthy Affiliate. You will be able to get up and running in a matter of a few lessons with you own niche, and affiliate marketing website.

I will be there at Wealthy Affiliate to personally help you out.

Find a SUPERIOR business model to dropshipping

Conclusion

Dropshipping has become an increasingly popular business model due to its low overhead costs and the ability to quickly start up an online business. Although there are several pros to dropshipping, there are also some cons that should be taken into consideration.

Despite what some people may think, dropshipping is not a pyramid scheme and is a legitimate way to make money online. However, there are much more viable and lucrative business models within the online world that are also much more cost efficient to implement. Affiliate marketing is one of those opportunities.

If you want to start a business online, I highly recommend affiliate marketing with Wealthy Affiliate. You can get started for free, and no experience is necessary, plus the training and community is in the top of it’s class.

If you have any questions about any thing discussed in this article, please leave your questions below and I will be happy to help you out.