First of all, a few concepts about drop shipping. When a retailer does not have the room or desire to purchase, stock, insure or ship a lot of merchandise, they might have a few representative items for the customer to inspect, then have the actual item shipped directly to the purchaser from a wholesaler or from the manufacturer.
This provides the benefits of not having to spend time in getting items shipped, instead allowing for building a customer base. Overhead is reduced, making profits better.
The process is to display and sell the product, sell the product, send the money and order to the source.
The retailer makes a profit on the transaction, which is the difference between the wholesale and the retail price, minus any fees or other costs. Many retailers will never let the customer know who the source is, and will even have shipping and content labels made up that conceal the source. This is because there may be a stigma to drop shipping or the retailer does not want to give up their source.
Drop shipping is done on E-Bay by some vendors, but there are rules on E-Bay that have to be known and complied with.
But, drop shipping works only if the manufacturer, wholesaler, importing firm or other source is of very good reputation and reliability.
Disreputable sources are the first source of drop shipping scams, where the retailer sends the money, but no goods, substandard good, or other problem items are shipped.
Most drop shipping scams are centered around “work from home” schemes where the victim is supposed to be the “retailer”. A middleman works with the wholesaler to actually get the products shipped to the customer. The scam comes into it when the victim invests money and time to make their sales and to set up their business, then finds that they are not making the money that is promised.
The money or profit that is promised in glittering detail never shows up, because the middleman gobbles up the profit, leaving little for the home based “retailing entrepreneur”! Profit gobbling can come from “fees” that are labeled as “initiation fees” or “membership fees”. There may be additional setup costs and other costs that are not clearly identified at the outset.
Some middlemen require that the victim only sell through their website or may have other restrictions, mainly because the middlemen are after the fees and other money that they can get from as many “retailers” as possible. In other words, squeezing the retailers, not product sales, are the profitable operations.
Even worse, the “retailers” work their fingers to the bone to get a good customer base, then the middlemen pass the customer information to the wholesalers or other sources, who turn around and market directly to the customers, cutting out the hardworking retailers.
There are also problems with drop shipping that have to be dealt with, even when dealing directly with a reputable wholesaler, such as knowing every detail and having written detail and contracts that cover back ordering, product return and shipping policies, any hidden charges, shipping times and any other issue that is even slightly disturbing.
Finally, the biggest scams happen when “customers” from other countries scam the drop shipping retailer by sending bogus checks, and using fake credit cards in international transactions. By the time that the retailer is notified that the check or credit card is a fraud, they have rushed and sent money to the source and had the product shipped, with no way to get their money back. Avoiding international transactions involving total strangers might be the key, but that is difficult to get across to those who want more profit as soon as they can get it.
In summary, drop shipping is a possibly profitable and convenient way to sell products without the hassle of having to handle or ship them, but the process is one which requires a skeptical, savvy and experienced mind and approach. Drop shipping is not for the newcomer who does not take time to research and question each and every detail. Drop shipping scams will always go on because there will always be those who think that there really is an easy way to get rich quick while knowing and doing as little as possible.