You might have heard about the wonders of dropshipping for entrepreneurs and big-chain businesses alike by now.
In fact, dropshipping boasts a significant percentage of business models used by e-commerce stores compared to the traditional ‘buy and store’ method. It’s profitable, saves up assets, and cuts back unnecessary costs – overall, more efficient, with fewer risks.
Even the most experienced entrepreneurs can fall victim, so how do you avoid the red flags? This guide can help you identify and avoid the most common scams in the dropshipping industry.
Is Dropshipping a Scam?
While dropshipping has had its fair share of a negative reputation, it’s far from being a scam itself.
So, the next question automatically is, why does it get cast as a villain in the first place? Well, the industry, like any other, isn’t safe from scammers waiting right around the corner, either.
With the exponential growth of dropshipping in recent years, the number of fraudulent drop shippers has increased. For this reason, it’s better to go for well-reputed drop shippers and pay a little extra money than shady dealers.
Besides that, dropshipping is as legal as it comes. Most businesses have already hopped onto this bandwagon. Meanwhile, websites like Aliexpress, Shopify, and even Amazon have recently seen an influx of entrepreneurs adopting the dropshipping model.
Then why is my dropshipping business not kicking off?
If you’ve seen businesses that fell into a pit after going dropshipping, it’s not because of the model. In fact, most beginners expect 6-figures within weeks of starting.
That’s unrealistic, but staying consistent over a few months could mean hitting a jackpot. If you haven’t, the reasons your business isn’t taking off could be wrong products, the wrong target market, lack of branding, a saturated product market, or an unreliable dropshipper.
All it takes for your business to start making a profit is smart decisions and a solid business model.
Common Dropshipping Scams and What to Do
Dropshipping scammers don’t always give away signs that you can recognize immediately. In fact, most scammers are experienced, which is why they get away with drying out even old hands in business. It’s tricky, but the following list will help you know the most common scams to stay cautious of and their solutions.
Low-Grade Products
Most suppliers will take their chance on wooing you off your feet with their products. Whether their products’ descriptions are too good to be true for the price or the imagery seems edited, it’s definitely a bad sign.
Furthermore, some drop shippers even go as far as sending exceptional products to entrepreneurs during sampling. However, the product quality usually reverts when it’s time to start sending them to customers.
Solution
A common solution to this scam is to sample each product before finalizing the deal. Alternatively, a better approach is to regularly request samples from the supplier and pay attention to your customers’ reviews. A proper quality standard agreement and consistent product monitoring are also helpful strategies to stand by.
Copyright Issues
Ever seen cheap copies of Apple’s AirPods or Louis Vuitton bags around? That’s an ideal example of counterfeit products that suppliers sometimes trick new entrepreneurs into adding to their stores.
If you fall for this trap, it doesn’t just mean inferior quality products, but could also lead to legal issues for your business. Whether you’re a business getting on its feet or an established one, it’s best to stay away from unlicensed products.
Solution
To save yourself from a legal mess and a brand reputation at stake, always remember to ask the supplier for authentication certificates.
If they’re distributors for another manufacturer, they will still be able to provide proof of authorized distribution. In case a supplier hesitates or can’t provide the required evidence, run!
Fake Suppliers
Your business is technically a middleman between wholesalers and customers. This model brings in significant profits without the assets, investment and labor required. However, those advantages can go down the drain if you’re dealing with another middleman instead of a wholesaler.
Fake suppliers have started setting up fabricated websites and information to portray as wholesalers. As a result, your profit margins will suffer.
Plus, where wholesalers are novices in providing quality standards and efficient shipping, fake suppliers will either run away with your money or offer poor services.
Solution
Often, knowing if the supplier you’re about to go for is a genuine wholesaler is a Google click away. On the other hand, you won’t be able to catch experienced fake suppliers. In this case, do your research and compare suppliers.
Ensure that the details and certifications are genuine before settling on a supplier.
Stockouts
Stockouts can mean lost customers and a negative brand image for your business, which is why it’s essential to avoid them.
Stockouts are more common with fake suppliers, but even actual wholesalers can occasionally face stockouts. So, how do you differentiate one from the other?
Solution
It’s important to note whether stockouts are a common occurrence at the supplier’s end. Another thing you should check is whether the supplier informs about stockouts readily or only once an order is placed.
Routine stockouts are rare if it’s a reliable supplier you’re looking at. The reason is that professional suppliers have ERP software, like Globallyfulfill’s cutting-edge ERP solution, in place to avoid such situations and keep their inventory in check at all times.
And again, even if it happens, they make sure to inform their clients as soon as possible.
Upfront Payments
Upfront payments through fraudulent suppliers are one of the most detrimental scenarios you could land yourself in, especially if you’re new to the business world.
You’re losing all your money in hindsight, and the supplier can get away with it. However, many suppliers do require upfront payment to mitigate their risks as well.
Solution
An ideal solution for this issue is to place orders through reliable websites like Alibaba. Not only does this ensure the buyer’s safety, but it also provides secure payment options like escrow.
If that’s not possible, take any measures possible, including vetting the company and its financial details, before making any payments. As an alternative, you can also research and opt for suppliers that offer payment on delivery.
No Return/Refund Policy
If you’ve ever faced a no-return/refund policy as a customer, it gets worse when you’re an e-commerce store sourcing through drop shippers.
Besides losing your hard-earned money, dealing with a supplier that has no such policy in place can mean unsatisfactory reviews for your business. After all, the customers are buying from your store, and your business is accountable for damaged low-quality, or substitute products.
But that’s not all. Customers anywhere hesitate to make purchases from a business that doesn’t offer a return and/or refund policy in the first place. So if your store doesn’t have that in place because your supplier doesn’t provide it, you’re in for some trouble.
Solution
To tackle this problem, verify if your supplier has a return and/or refund policy set. Prefer suppliers that have clear and transparent policies. Even if they do, consider including these policies in a binding contract to avoid later conflicts.
Shipping Issues
As an e-commerce seller in today’s market, you need to offer maximum benefits to your customers, including shipping. Nowadays, customers look for quick shipping times, real-time tracking, and low or free shipping costs.
Shipping issues from suppliers encompass multiple factors that can harm your business, such as delayed shipping times, lack of tracking details, and overcharged shipping costs. Consequently, customers can shift to competing sellers and can lose trust in your business.
Solution
While there are several solutions to this problem, the first is to choose a reputable supplier. Review their shipping track record in detail. If you can find supplier’s reviews, go through them as well.
Communicate with the supplier concerning your expected shipping times, tracking details, and charges and make sure the policies are transparent and in writing. Even after you’ve selected a supplier, keep an eye on the shipping service and durations.
Tips to Avoid Dropshipping Scams
Dropshipping is one of the most successful business models for any business size, but especially small-scale sellers. But, as mentioned above, there isn’t a shortage of scammers in this industry either.
While we’ve highlighted solutions for some of the most common scams, here are some general tips that can help you out if you’re starting or shifting to a dropshipping model:
Do Your Research
Research takes time and effort, and spending hours on it is the last thing an entrepreneur needs. However, it’s necessary for keeping your business afloat.
In fact, rushing through a supplier selection will only lead to more troubles than business profits for you. Besides comparing pricing, check the shortlisted suppliers’ reviews, policies, licences and certifications.
Don’t Skip on Samples
Once again, ordering samples of each product from a supplier can be a hurdle. If you want to get it over with and skip the sampling process, we suggest you don’t.
The initial samples, especially from multiple suppliers, can help test the product’s quality. It’s also recommended to opt for routine samples so you can verify that your customers are getting the same quality that you saw in the first samples.
Select Secure Platforms
Dealing with a supplier via secure platforms brings a range of benefits. Dropshipping platforms, such as Shopify, Aliexpress, Woocommerce, etc., have industry-standard security measures.
Some of the primary advantages include data encryption, secure online and/or escrow payments, and fraud detection features.
Maintain Legal Consult
It takes the blink of an eye to land yourself in legal disputes as a business. Even if you think you have everything covered on your end, the supplier could cause issues at any point. Better safe than sorry, right?
Legal protection isn’t just important for issues that escalate to courts, but also for drafting contracts, reviewing policies, and advising on legal issues. Ideally, you should keep a lawyer specialized in e-commerce as a backup at all times.
Open Communication
Issues can arise even if you’re dealing with the best supplier in the industry. The cause is a lack of communication between both parties. Since you’re relying on a third party for your business’s success, it’s critical to maintain effective communication.
When you’re starting, be sure to set out your expectations for the supplier clearly. After establishing a contract, remain responsive and proactive in communicating with the supplier.
Manage Documentation
If you’re hiring a lawyer, they will be responsible for managing the documentation. If you don’t have legal protection for any reason, don’t overlook documentation.
Keep a record of everything, preferably in hard and soft copy. Important documentation includes contracts, order confirmations, payment records, and customer complaints. This helps in resolving any future disputes and storing evidence.
Final Verdict
Dropshipping is undoubtedly a tremendous resource for businesses. The benefits compared to traditional sourcing and inventory are the reason a large number of online sellers are moving towards it.
Despite that, even dropshipping isn’t all rainbows and sunshine. With the increase of dropshipping scammers, it’s important to be wary of fraudulent suppliers. The common scams and tips in this blog will prepare you beforehand.
