Does dropshipping create a viable home-based income?

martin cross By martin cross, 26th Oct 2011 | Follow this author | RSS Feed
Posted in Wikinut>Business>Starting A Business

Dropshipping companies claim you can earn a high income with their products; is this realistic?

What is dropshipping?

Dropshipping is when an order is dispatched from the manufacturer or a warehouse directly to the customer and has been around for a long time. It is the method of choice of the TV infomercial. Catalogue companies such as Littlewoods and Sears also dropship directly to the customer or to their ‘agents’.

The dropshipping industry

MLM companies such as Avon, Amway and Tupperware have established a tightly controlled pyramidal structure based on dropshipping their products to their ‘agents’ or directly to the customer. More recently, however, dropshipping has been employed in a new marketing stream, developed from the MLM industry and promoting a so-called ‘home-based business opportunity’. This is what is termed the ‘Dropshipping Industry’.

The products sold by MLM companies are usually produced or purchased very cheaply and then sold at a high price too cover the cost of the sales pyramid, which can frequently take up 75% or more of the sales price. The administration of this sales pyramid can also be complicated and costly so the products are often sold at 10 times their actual cost price.

Dropshippers also purchase their products very cheaply and set a very high retail price but do not sell direct; instead, they sell to subscribers to their programme at so-called ‘wholesale price’ or ‘less than wholesale price’. To gain access to the programme, subscribers must pay an upfront fee and/or a monthly subscription. Other chargeable services may be offered, such as a maintained website and subscribers are actively encouraged to utilise the Web as their selling medium. They are sold the idea that the Internet will sell the products for them and all they have to do is check their inbox regularly to count the orders. Marketing channels such as E-bay and other on-line stores and auction sites, Amazon, social media and any sites where comments can be left are recommended; this is why e-zines are now suffering from a polluting rash of unauthorised spam advertising for dropshipped goods.

The situation for subscribers to dropshippers’ services

Unlike traditional marketing channels, dropshippers do not allocate specific territories to their subscribers, who effectively compete with each other, especially on the Web, where the market becomes increasingly saturated. Product sales on the Web tend go to those whose discounts allow them to offer the lowest prices – usually the earliest subscribers or the dropshipper’s employees. Consumers can shop around and also are wary of purchasing products sight unseen from unknown sellers who may have little Internet reputation. Like many agents for MLM products, once sales have been made to friends and family, subscribers find that their revenue dries up. Hence the desperate splattering of adverts in the Comments sections of on-line magazines and blogs, which just demonstrates to any potential customer that the comment poster is too cheap or unsuccessful to advertise through legitimate channels.

To generate revenue, subscribers generally have to fall back on selecting products to purchase and selling them through traditional channels at booths in flea markets, boutiques, etc; not the ‘retire and watch the money roll in’ dream that they expected.

The advantages for the dropshippers

From the dropshippers’ point of view, the system is a ‘win-win’ situation. They receive regular funds from new subscribers, continually pick-up new sales to subscribers’ friends and family and expand their market attack from the competitive activities of an increasing number of subscribers. Unlike an MLM structure, there is no extensive sales administration, advertising is kept at a constant level to provide a regular stream of new ‘get rich quick’ subscribers and some dropshippers do not even hold extensive stocks in warehouses, simply passing on orders to the manufacturers who then dispatch them direct to the end customer. It is a long way past market saturation point that they will run out of new hopeful subscribers.

Dropshippers – deal or dud?

For the dropshippers, it is a deal; for the subscribers to the service, far from good. There are no “Do nothing and get rich quick” schemes that work, just as there is no such thing as a free lunch. You just end up getting screwed in the end. For the end customer, faced with products from a rash of small pop-up-overnight stores, how good are products likely to be if they are being sold at ‘retail’ prices up to ten times or more the price that the dropshipper is paying to the actual manufacturer? The facts speak for themselves. Caveat emptor.

Tags

Dropshipper, Dropshipping, Get Rich Quick Scheme, High Income Potential, Home-Based Business, Internet Sales, Internet Scams, Spam Advertising

Meet the author

author avatar martin cross
I am a technical translator and writer, a former chef and marketeer, currently disabled. I write articles on food,, travel, politics, religion and technology among other topics.

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Comments

author avatar martin cross
27th Oct 2011 (#)

It is said that there is one born every minute and whole industries of con artists rely on that. Only someone already conned into a dropshipping scheme would be oblivious enough to try to advertise their junk under an article warning against being taken in by the dropshippers' 'get rich quick' schemes.

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