Is Dropshipping a Pyramid Scheme?
This one of the most important questions you should ask yourself when you receive heavy promotions to buy or start and kind of business, and not only dropshipping.
And you have made the right decision by asking yourself this question today, where I will till you the truth, and will tell you how to stay safe if you want to enter this kind of business.
Check out the last section “Conclusion” at the end of this article for resources on how to succeed with dropshipping!
So, without further ado, let’s start!
Is Dropshipping a Pyramid Scheme?
Dropshipping is a legitimate business model that allows you to make money with commerce, and mainly, e-commerce by selling stuff to people who need it.
The difference between dropshipping and other traditional e-commerce business is that with dropshipping, you don’t have to buy stock in advance, but you find items that are sold at low price, and you list them on your online store for a margin and market it, and when someone purchases from you and pays you money, you then go and pay the original vendor their price and ask them to ship the product directly to the customer, and you enjoy the profit.
As you can see, the dropshipping model is about selling stuff for people who need it, it is not about hiring people to join a scheme, who would then hire others to do the same.
While with pyramid schemes, you don’t need to sell anything, but rather, you need to bring people to join a system and pay money for that without getting anything in return.
Then Why Do People Think That Dropshipping Is a Pyramid Scheme?
There are many reasons why people think that dropshipping is a pyramid scheme, but I will mention here the main two reasons:
1 – The Way Some Existing Pyramid Schemes Work
As mentioned earlier, pyramid schemes invite people to pay money and join the system without getting anything in return, but with the promise of making money if they invite other people to join the same system.
And this is illegal, which made some pyramid schemes try to manipulate the authorities and to give some cheap products (up to $5) to people who join their systems, which cost nothing compared to what people pay (typically hundreds of dollars), but the intention is to make the pyramid scheme look as if it was a legitimate model that is built around selling products, while it is actually only about collecting money from people.
While in dropshipping, you outsource products from retailers at low prices and sell them at a higher price and enjoy the margin, and the intention here is to sell the products themselves and make a reasonable profit, you don’t ask others to join anything or promote anything, but this is where some people confuse dropshipping with pyramid schemes.
2 – The Heavy Promotion to Join a Course or Use a Platform
Another reason why some people think of dropshipping as a pyramid scheme is that you would find many people inviting you to join their courses on dropshipping or would promote others’ courses for you to join, so that they can get a commission.
And sometimes, they would keep inviting you to try a certain software or platform that you can use to build your online dropshipping store, so that they get a commission if you use that platform.
And that’s where you might suspect that dropshipping a pyramid scheme that you are being invited to join.
But again, dropshipping is not a pyramid scheme, but it is a legitimate business model, and it requires tools and skills that you might need to purchase in order to succeed with it.
And therefore, if you purchase a dropshipping training course such as eCom Elites, or if you use a platform like Shopify to build your store, then you are buying them because you need them for building a successful business and not to promote them to others.
If you are confused or if you are still not sure, then here are …
5 Reasons Dropshipping Is Not a Pyramid Scheme
1 – You Don’t Get Hired Nor You Hire People, But You Own a Real Business
As explained earlier, with pyramid schemes, you join a big group of people through someone’s lineage and you pay money just to join it, and then you have to invite others to join the same scheme.
This means that you don’t own any business, you are just a “pawn in the game”.
While with dropshipping, you build a real e-commerce business where the intention is to make money through selling products to people who need it for a profit, which is a traditional commerce model that has been around for hundreds of years.
2 – You Sell Real Products
As explained earlier, the only way to make money with pyramid schemes is to invite others to join the system under you, while with dropshipping, you make money by selling real products to people who need them.
3 – You Make Profit on Every Item Sold
With dropshipping, it doesn’t matter how many customers buy from you, you make money from every order that your store gets.
You get one order, you make money on that order. You get 100 orders, you make money on each one of them.
While with pyramid schemes, you need to invite a minimum number of people and all of them should pay to join the scheme so that you make money.
For example, a certain pyramid scheme might ask you to pay $100 to join them, and then, you are required you to bring 10 paying members to join, and only after they all pay, you might quality for a commission that is dependent on their compensation plan, let’s say $70, which means that you need to bring another 10 people in order to make another $70 and finally become “profitable”.
However, it is impossible to sustain a pyramid scheme because after few levels of referrals/members, there’s not many people left to join the system and pay money so that you finally make money.
4 – You Don’t Ask Your Customers to Sell Anything
With dropshipping, your customers pay to get a certain product and that’s it.
They pay, and you send them the product through the vendor.
They don’t have to ask others to join anything or to buy anything from you.
While with pyramid schemes, people who join under you will not get anything after they pay to join, but they need to go and invite others to join the same scheme in order for them to finally make some money.
5 – Amazon, eBay, Etsy & Others Do Dropshipping
You might not know that yet, but many of the sellers on big online retailers such as Amazon and eBay are actually dropshippers, which means that they don’t own the products they have listed on those marketplaces, but they will buy them from the original vendor once someone pays them to get something.
And this has been around for many years, and it is legal.
However, doing dropshipping on Amazon, eBay and other marketplaces might be a bit hard and very competitive, and you don’t build a long-term, strong business, and that’s why, it is recommended that you do dropshipping by building your own store on a domain name that you own using one of the many e-commerce store building services such as Shopify.
Conclusion & Next Step – Want to Become a Successful Dropshipper This Year?
Now after I have explained the difference between dropshipping and pyramid schemes, you should now realize that dropshipping is a real business that you can make money with, if you put the consistent time and effort into learning and applying what you learn.
However, like any other real business, online or offline, you need the knowledge, skills and tools in order to succeed with dropshipping and make money.
And for the tools, as a start you only need a platform that allows you to easily build your own online store without a prior experience, technical knowledge or coding, which is why I recommend Shopify, as starting a dropshipping business is only one of the many ways of making money with Shopify.
And in order to be able to make your store convert visitors into buyers, you need to learn some skills that are related to organizing your store, finding good products from reliable suppliers to list on your store, marketing your store in order to bring potential customers to see what you sell, and many other stuff.
And that’s why, if you want to start a dropshipping business, then I recommend that you join a good training program that doesn’t cost a thousand dollars to get, which is why I recommend that you join my top recommended dropshipping course, eCom Elites by Franklin Hatchett.
This training is one of the best in the industry and it is a very comprehensive one that leaves almost nothing without explaining, and it will teach you how to build your store from the scratch, how to find and add products properly, and the different ways to promote your dropshipping business such as Facebook, Instagram, SEO, Google Ads, Chatbots, email campaigns, and many other ways.
And Franklin has been successful himself and he has even created his own Shopfiy theme, eCom Turbo.
So, if you are serious about starting a successful dropshipping business away from the scams and the fake gurus, then this is the way to go.
And if you have any question about this article, or you still think that dropshipping is a pyramid scheme, then please, let me know in the comments’ section below, and I will be happy to come back to you asap 🙂