Is Dropshipping A Pyramid Scheme? Plus 3 Things You Need To Know Now

May 22, 2024

No, dropshipping is not a pyramid scheme. Dropshipping is a legitimate business model where a retailer sells products directly to customers without holding inventory. Instead, you purchase the product from a third-party supplier who ships it directly to the customer. Unlike pyramid schemes, which rely on recruiting members to invest and profit primarily from their fees, dropshipping generates revenue through actual product sales.

Pyramid schemes are illegal investment scams based on a hierarchal setup of network marketing. Pyramid schemes rarely revolve around the sale of products. Instead, they rely solely on recruiting new members to make money. So not only are they not sustainable long term. But investors stand to lose a ton of money. Dropshipping is a retail fulfillment method. The premise is that you sell physical products for profit. So not only is it legal, but it can generate hefty profit margins. Dropshipping isn't a pyramid scheme. 

In this article, we take a closer look at the differences between a pyramid scheme and dropshipping. Plus, reasons why dropshipping is legit. But we'll also uncover why buyers think it's a scam. Plus, disclose three things you need to know about dropshipping. (Like the lack of perceived value and psychological games the gurus like to play). 

3 Obvious Reasons Why Dropshipping Is Not a Pyramid Scheme

1. Dropshipping Is Product-Based Business Model

Dropshipping differs from pyramid schemes because of its product-based business model. In dropshipping, entrepreneurs generate income by selling tangible products to customers who genuinely need or desire them. This model involves no entry fees or recruitment pressures. Instead, store owners establish relationships with suppliers, who ship products directly to customers upon purchase. This transparent supply chain ensures that customers receive the items they pay for, focusing on legitimate retail transactions.

For example, a dropshipping business might sell home goods, electronics, or clothing, relying on effective marketing and customer service to drive sales. In contrast, pyramid schemes generate income primarily through the continuous recruitment of new members who pay entry or membership fees, often with no actual product being sold or delivered.

2. Dropshopping's Profit from Sales, Not Recruitment

Dropshipping is not a pyramid scheme because it generates profits through product sales rather than recruitment. In a pyramid scheme, participants earn money primarily by recruiting new members, who often pay entry fees or buy expensive inventory, driven by promises of high returns. This model is unsustainable and illegal, relying on continuous recruitment to generate revenue.

In contrast, dropshipping involves selling products through an online store without requiring participants to recruit others. Income comes from customer purchases, not from new member fees. Dropshipping businesses typically have no entry fees and require minimal initial investment, focusing on setting up an online store, marketing, and purchasing products to fulfill orders. For example, the average monthly income of a successful dropshipper ranges from $1,000 to $3,000, with profit margins typically around 20 to 30% per sale. It reflects its viability and profitability through legitimate product sales. 

3. Dropshipping Has No Emphasis on Referrals

Dropshipping differs from pyramid schemes because it focuses on selling products directly to customers, not on recruiting new members. Pyramid schemes rely heavily on recruitment to make money, often creating a hierarchy of distributors. In contrast, dropshipping is a retail method where businesses sell products to consumers with no need for a network of recruits.

Success in dropshipping comes from offering quality products, effective marketing, and excellent customer service. Unlike pyramid schemes that use high-pressure tactics and promise unrealistic returns, dropshipping thrives by building genuine customer relationships and focusing on product quality. This customer-centric approach makes dropshipping a legitimate and sustainable business model, emphasizing transparency and real product offerings over recruitment.

How Dropshipping Is Not a Pyramid Scheme?

Dropshipping is not a pyramid scheme because it focuses on selling actual products to customers rather than recruiting new members for income. Dropshipping generates revenue from product sales, with suppliers shipping items directly to customers. There are no entry fees or recruitment pressures. The business model is based on legitimate retail practices. It ensures customer satisfaction through genuine product offerings, fair pricing, and transparent order fulfillment. Consider sites like Wayfair, Amazon, or Home Depot, which offer many things sold by dropshippers. However, pyramid schemes which rely on continuous recruitment and often lack actual products.

Pyramid schemes and an MLM company like Amway make money selling products. But they also continue to encourage new members to join. Then their top members earn a portion of sales made by people on their 'teams.' But there are other differences between the two business models. They include things like:

Pyramid Schemes

Not an entity and can't be sold for profit.

Requires a constant stream of new members to grow and remain profitable.

Uses hard-core sales tactics and manipulation techniques to convince people to join.

Illegal in most countries.


You own your Shopify dropshipping store and can sell it in the future for a profit.

A drop shipper makes money based solely on sales. And based on a legit ecommerce business model that is 100% legal.

No pressure sales tactics. (Customers willingly purchase items). 

3 Unseen Things Why Dropshipping Looks Like A Pyramid Scheme

Dropshipping isn't a pyramid scheme or a gimmick to make fast money online. It's an order fulfillment business model. But if you want to make money, you need to create dropshipping ads so the product can sell itself. Focus on viral trends and land quick wins. Go fast and always be hunting for the next big product.

But you're looking at high levels of competition. So you'll lose leverage as more dropshippers get in on the action. You also have zero longevity. But there are other issues with the business model. Including three things you need to know about drop shipping right now. So let's check it out:

1. Zero Product Uniqueness

There is zero product uniqueness with dropshipping. First, consider that there are millions of people entering the industry. Plus, according to Google Trends, the business model is only getting more popular. But because anyone can sell your product, platforms like Facebook and TikTok get saturated with the same stock and the same ads.

So, for example, when dropshippers find a winning product, they post a ton of ads to drive traffic to their store. (This is how they capitalize on the trend before the market becomes saturated). But other dropshippers use third-party spy tools like BigSpy and check out Facebook ads. So when they find ads that are going up in likes. Or have a ton of social engagement and are scaling well. Then competing dropshippers look for something similar. 

But they source their products from sites like Alibaba and AliExpress. (So they can buy them for less money). Then they copy the winning dropshipping ads, so the platform becomes inundated with the same product and ads. But they offer a lower price. So now you're in a price war if you want to make sales from the winning product you found.

The end result? A fast race to the bottom with sub-par inventory and unhappy customers. Plus, with already razor-thin profit margins, you will either lose money or get outsold from your own market. Also, most dropshipping products are trend-based, with a short shelf life. So you need constantly be on the hustle for the next big-ticket item. Or you need to be a better marketer. Know how to create drop shipping ads that get people to stop the endless scroll and buy your product.

"60% of Millennials have left an eCommerce store without purchasing because the site didn’t have customer reviews or photos." Stackla Report 2021

You also need to have the skills to create a unique angle. (One that isn't easy to copy. And offers more value for your customer than your competition). Build trust with your target market and provide stellar customer service. Then, be ready to shift gears when things aren't working. And stay ahead of the curve if you want to win with dropshipping in 2024

2. Platforms & No Repeat Customers

Dropshippers rely on platforms like Facebook, TikTok, and Google to promote products and drive traffic to their online store. But these platforms have total control over key aspects of your business. For example, social media now offer customer feedback scores and other strategies to measure fraud. The platforms also control your ads, and account bans are frequent. (In 2021, Google suspended 5.6 million ad accounts).

Add that market saturation results in low-quality inventory. Or there are issues with an unreliable supplier who can't fulfill the promise of fast shipping times. And you have a ton of unhappy customers. People who give a bad product review on sites like TrustPilot or Facebook. But negative reviews are the fastest way to kill your dropshipping store. Plus, you won't get any repeat customers.

So if you want to succeed, you need to become obsessed with customer service. Take Amazon, for example. Amazon Prime had a 93% repeat customer rate in 2020. Why? Because they're focused on the customer journey. Not only do they promise the best price and fast shipping. But they provide stellar customer service. 

They get a ton of new and repeat traffic because people trust their brand. So if you want to drive online traffic to your small business, you must become an authority in your niche. Develop a trusted online presence that is committed to your customer. So you need to adopt things like:

How To Build Trust With Your Dropshipping Store

  • Fast response times
  • Chatbots and instant messaging options
  • Tracking numbers and contact information
  • A clear return/refund policy

But if you lead with value and put the customer's needs first. Then you'll have a better chance of winning with drop shipping in 2024

3. Psychological Guru Games 

Dropshipping has issues. But a lot of the so-called gurus you see on YouTube and Instagram don't talk about them. However, it's not all Lambos and influencer marketing on platforms like Instagram and TikTok. So you need to research and be aware that some gurus have no idea what they're talking about.

They've never owned a profitable store. So they don't know how to develop a content marketing strategy. Or how to create high-converting ads. These are individuals who have never had success with the business model. So instead, they sell a prepackaged PDF with no ongoing support and predatory pricing.

But the information they're selling isn't a result of their hard work. Instead, they've stolen other YouTubers' content and are now reselling it as their own. But this is one of the industry's biggest scams. Psychological games that prey on people's desire for a quick win.

But drop shipping isn't easy. And it's not a guaranteed way to make fast money. But, of course, there are experts in the market that have had success—people who are willing to help and offer ongoing training and support. So do your research before you invest in a dropshipping course.

Is Dropshipping Legit?

Dropshipping is legit. Consider that nearly 2.14 billion people shop online. That's 27% of the world's population. But if you can find a winning product and have the skills to get a ton of eyeballs on your store. Then you can make money with this online business model. So you need to do your market research. Find a product that:

  • Solves a problem

  • Saves people time or money
  • Fills a gap in the market

  • Is hard to find

Of course, you need to provide the best customer service and shopping journey possible. Then it's a legit business, and it’s not a pyramid or Ponzi scheme. But you still have zero control over major aspects of your business. So as a dropshipper, you're leaving a lot to chance. So local lead gen is a better option if you want to make money online in 2024

Not only do you have complete control over every part of your business. But you don't need to worry about product quality, unreliable suppliers, or slow shipping times. Your only job is to rank and rent websites that get to the top of Google search engines. But once they're at the top, they're like a digital billboard. Then they produce leads you can sell to a local business owner for profit and secure a steady cash flow. 

Why Do Buyers Think Dropshipping Is A Scam?

Buyers think dropshipping is a scam because most people are concerned about fraud. In addition, 58% of individuals feel uncomfortable entering their financial data online to pay for products. Not to mention that there are over 9.1 million online global retailers, so the market is competitive. Unfortunately, this competition drives certain drop shippers to employ unsavory tactics to make sales.

But these methods can create distrust in a business. So if you want to make direct sales and capitalize on consumer behavior like impulse buys, you need to develop a trusted brand. First, you need an actual website with social proof. Include testimonials and reviews from real buyers. Next, focus on engaging your target audience and more about the customer journey.

Dropshipping isn't a cash grab or a way to make a fast buck. But 47% of social media users report being victims of an online or drop shipping scam. So you have a lot of people who don't trust the business model. So if you want to make money, you need to build trust. You need a website with things like:

Dropshipping Website Checklist:

  • SSL Certificate & A Clear Return Policy

  • FAQs & Detailed Product Descriptions

  • Third-Party Reviews & Trust Badges

  • Customer Support Contact Information & About Us Page

You also need to offer next-level customer service. Put a face to your brand and tell your story. Connect with people on a more personal level. But if you're willing to do the extras. (Which most dropshippers won't). Then you build trust and lead with value. But if you can prove that your dropshipping store isn't a scam. You'll make more sales and more money.

Conclusion: Why Lead Generation Is a Better Business Option Than Dropshipping in 2024?

Lead generation isn't a pyramid scheme. But it's not like the dropshipping model, either. You don't sell products and don't need to recruit new members. Instead, you build and rank generic websites that launch to the top of the SERPs. But once you're at the top, you own prime real estate. (That's where you'll find the money). Plus, because you focus on the local market and offer services that people actively search for online.

As a result, you can get to the top of Google fast. Once your site starts producing leads, find a local business owner hungry to grow and sell your leads. Then you can land a hefty profit margin. (As high as 80%-95%). Plus, unlike drop shipping, the market isn't overly competitive. (Natural barriers like location and a learned skill set minimize saturation). Not to mention that there are over 41,683 ZIP codes in the USA alone, and each one represents a market full of untapped opportunities. You don't need a ton of money to start a lead generation business


Take this site above, for example. I built this lead gen site in 2015 for about $500. But this site has been making me $2000/month for seven years. That's a passive income I get on autopilot. Plus, once you're sites are at the top of Google, they're almost 100% hands-off. So you can build an empire. Then you can harness time freedom or live the digital nomad lifestyle.

(Without worrying about shipping times, unreliable suppliers, or finding your next recruit). With local lead gen, you're in total control over every aspect of your business. You own the website, the tracking number, and the leads. So not only is local lead generation the best business to start. But it's the best way to secure a passive income in 2024

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Ippei Kanehara

$52K per month providing lead generation services to small businesses is for digital hustlers, industry leaders and online business owners.

His #1 online business recommendation in 2024, is to build your own lead generation business.

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