YouTube abounds with influencers promoting dropshipping, a method of buying cheap products and selling them at inflated prices. Dropshippers usually purchase items from China, sight unseen, and ship them to buyers under the guise of a fake storefront. They then keep the profit. The get-rich-quick scheme promises a passive income without handling merchandise or even shipping it, but what’s the catch?

An Explanation of Dropshipping

You’ve probably fallen for it yourself. If you’ve ever bought something from a dubious store on Amazon — the type whose name is a jumble of letters, with their products placed in obviously Photoshopped backgrounds — then you likely could have found it for a fraction of the price on a wholesale site. If you searched for the product online, you’d probably have seen it in multiple stores, though it would be named and priced differently. What’s going on?

AliExpress is the Chinese equivalent of Amazon. The company often sells very cheap products, both in terms of quality and price. These items might take weeks to ship internationally, but because of their low cost, a strange phenomenon in an ethical gray area has popped up. It goes something like this:

• A person sets up an online storefront, usually through Shopify. They sometimes include a photo of a building on the site to imply that they own a brick-and-mortar store.

• They copy and paste images of products from a wholesale company, often AliExpress, onto their site. For example, if AliExpress is selling a necklace, the person setting up the Shopify storefront — called a dropshipper — will copy the photo and description of the necklace onto their own website.

• They raise the price substantially and give the product a different name. So, if the necklace was one dollar on AliExpress, it might be $20 on the Shopify site.

• They advertise the necklace on Facebook or other social media sites.

• When a customer buys the necklace for $20, the dropshipper purchases it on AliExpress for one dollar — assuming free shipping — and forwards it to the customer. This is called dropshipping. In 2022, Shopify dropshipped 1.9 million items in North, South and Central America.

• Weeks later, the customer receives the necklace from AliExpress, but the dropshipper earns $19 in profit.

Or so the theory goes.

Does Dropshipping Work?

Here’s where it gets murky. Most dropshippers don’t make much money with this technique, but actually rake in the cash by selling courses explaining how to be an entrepreneur. Dropshipping is the guise under which many influencers pretend to make a living.

Like selling timeshares, dropshipping may work for a lucky few, but most people earn the big bucks through smoke and mirrors. Just watch any YouTube video explaining how to be a dropshipper. Odds are you won’t make it through without someone telling you to buy an app or attend a $1,000 seminar. So, why doesn’t this business model work as promised?

The Reality

It may sound good in theory, but in practice, dropshipping runs into several snags.

For one, many customers get frustrated with the inordinately long shipping times. The dropshipping site might not have informed them when an item would arrive, so when it doesn’t show up for three weeks, they may demand a refund. The dropshipper has to eat the shipping cost.

Second, because dropshippers don’t actually handle or even see the items they’re selling, they might inadvertently send the customer a cheap or broken product. The product is completely different than the picture in some cases. Although the customer didn’t buy from them directly, the person running the dropshipping business has to pay the customer back, and the customer might also leave a negative review.

Third, the competition is tough. Who doesn’t want to get rich without any effort? With so many people trying to start their own online store or side hustle, dropshippers must be prolific marketers and set very low prices to stay in the game. But selling cheap products and running ad campaigns cuts into profits.

Additionally, since dropshippers don’t stock any of their own items, there’s a chance a customer will order something that’s out of stock on the wholesaler's site. The dropshipper then has to decide either not to fulfill the customer’s order, or to take the money but potentially wait months to ship the item.

Finally, if customers find out that a company has swindled them, they usually aren’t happy. Buyers who realize how cheap an item is on wholesale sites often demand a refund and rate the dropshipper poorly.

A Drop in the Bucket

Ultimately, most dropshippers earn very little by selling items. The real money is in seminars and online courses that promote dropshipping, enticing hopeful entrepreneurs who want to get rich from the comfort of their own homes.

Potential profits aside, dropshipping is a parasitic business practice — dropshippers don’t make the products themselves, store them in their own space or even ship them, unlike many other retailers. They simply exploit a loophole in the buying process. It’s legal, yes, but so are spam calls.

The verdict? Dropshipping is too good to be true. If you’re looking to start a side hustle, there are many other options that both make money and provide something of value to the world.