Dropshipping isn't a pyramid scheme. Pyramid schemes are illegal investment scams based on a hierarchal setup of network marketing. Pyramid schemes don't typically 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.
By contrast, drop shipping 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. But is it the best way to make money? Or is there a better option, like local lead generation? A business model that doesn't require products or recruits?
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). Finally, we'll give you some industry tips on how to succeed with dropshipping. (Hacks that might help you make money in 2023).
What Is A Pyramid Scheme?
Pyramid schemes are a cash-based recruitment-style business model. They leverage misleading marketing strategies by boasting high returns and the promise of a quick way to make easy money. However, in 2023 pyramid schemes are illegal in most countries. As a result, the business model has shifted to product-based. (But the key factors remain the same).
Recruits make the base of the pyramid and provide the funding or returns for investors. Then they're expected to recruit new members. So, every time a new member joins, their investment is divided among members. But, of course, this depends on the level (tier) at which each member sits. So the end result is that the top members (the scheme perpetrator) make a ton of money.
- One person recruits 4 other people to participate in a new business venture
- The 4 recruits each pay the recruiter $100
- Then they're told to recruit 5 new members
- If they each recruit a member, they earn $400 from their $100 initial investment
So, if new people are continuously recruited, everyone can make money with pyramid schemes. But because the world's population is finite, there are only so many people to ask. So it becomes challenging to find new people to join. Therefore, the scheme can't sustain itself long-term. And they will eventually collapse. As a result, most members will lose the money they invested.
Pro Tip: Pyramid schemes should not be confused with MLM (multilevel marketing). MLMs earn money by selling products coupled with recruiting people. (99% of recruited sellers lose money in MLM ventures).
What Is Dropshipping?
Dropshipping is a retail fulfillment business model. It's an industry worth over $196.78 billion. But you don't need to own products or house inventory. Instead of buying stock, you connect with a supplier who ships the product to your customer. You're like the middleman between a customer and a wholesaler.
So your only job is to sell your products. You don't need a ton of money to start a dropshipping business. Plus, the business model can be insanely profitable. But with an overwhelming number of people coming into the space, it takes some high-level skill. So you need to be ready to hustle hard. And be prepared to do the work if you want to make money.
The Difference Between Dropshipping & A Pyramid Scheme
Drop shipping and pyramid schemes are two ways to make money. Dropshipping is a type of ecommerce business model. But it's not a pyramid scheme or MLM (multi level marketing). Consider sites like Wayfair, Amazon, or Home Depot, which offer numerous things sold by dropshippers.
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:
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 Things You Need To Know About Dropshipping In 2023
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 on the hunt 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:
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 2023.
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
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 2023.
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:
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 2023.
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:
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.
How To Succeed With Dropshipping
To succeed with drop shipping in 2023, you need to develop your perspective. Shift from the broke mindset and focus on how to harness success. Dropshipping takes effort and hard work. It's not a get-rich-quick scheme, and it's not easy. Issues arise, and accounts get banned.
Consistency is the game, so don't give up too early. You need to adopt new industry changes to make money with the business model. Be ready to test and fail and test again. But see failure as a stepping stone to success with your drop shipping store. You also need to assess things like:
Tips On How To Increase Your Dropshipping Success
First, analyze your online business: the good, the bad, and the ugly. Then you can iron out the weaknesses. Next, look into your digital marketing strategy and make the right changes. Finally, you need to be able to pivot fast when things aren't working. So use third-party tools like AdSpy and see where the competition is lacking and determine:
- Where do they fall short?
- How can you do better?
- How can you add value and provide the best customer experience?
Stop being worried about failing. Instead, take massive action and do something better. For example, stay on top of new strategies and find new categories. Or unique products that sell well.
Then once you have a working recipe, you can scale. Dropshipping is about repetition. So you won't see results after day one. But if you do the basics and commit to doing the hard work. Then you give yourself a better chance to increase your dropshipping success rate.
Why Lead Generation Is A Better Business Option In 2023
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 2023.
Dropshipping isn't a pyramid scheme, and it's not an MLM business. It's a legit business model that sells products to purchase-ready consumers. You don't need to own stock or invest a ton of cash. But drop shipping is challenging, and it will only get more complex. As more people enter the space, the competition will continue to escalate. Plus, because you rely solely on third-party wholesalers. You have zero control over things like shipping times, supply chain issues, or product quality.
So you need to adopt new ways if you want to achieve success. Of course, ecommerce is growing and will reach $8.1 trillion by 2026. So if you can be a better marketer. Or you can find a gap in the market. Then you can make money with drop shipping. But if you'd prefer to invest in a proven concept. Or, if you want full control over every aspect of your company, you need to consider the local lead gen business model. Not only can you scale fast. But once you understand the process, you can earn a passive income and make real money in 2023.