Dropshipping Scams: How to Identify & Avoid for Your Business
The dropshipping business model has become a popular option for aspiring entrepreneurs, opening doors to entrepreneurial success with easy profits and minimal upfront costs. Although some may associate it with get-rich-quick schemes, dropshipping actually requires careful planning and consistent effort; it’s not one of the typical get-rich-quick schemes. Dropshipping is a legitimate business model, however, it can sometimes be viewed as a scam due to its association with various fraudulent activities.
Starting a dropshipping business can be a game-changer. However, the dream of running a successful dropshipping store can quickly turn into a nightmare if your online store falls victim to dropshipping scams. Falling for a dropshipping scam can not only result in financial loss but also damage your reputation as a business owner.
Are you ready to uncover the hidden traps that could sabotage your dropshipping business before it even takes off? In this blog, we’ll expose the most common dropshipping scams and red flags to watch out for and teach you how to spot and avoid dropshipping scams. This guide is essential for anyone looking to protect their own online store from scams and build a legitimate, thriving ecommerce business.
How dropshipping scams can impact your ecommerce store
Dropshipping is attractive because it’s convenient, efficient, and scalable. Unfortunately, this also makes dropshippers a target for fake suppliers. Some unsuspecting entrepreneurs are so eager to dive into the dropshipping industry that they’re easily deceived by fake suppliers. Even worse, many dropshippers are small businesses dealing with small profit margins, which means these businesses have a lot to lose from even a single fraudulent order.
Dropshipping scams pose significant threats to dropshipping stores, affecting not only their finances but also their reputation and operational integrity. Let's delve into how dropshipping scams can impact your dropshipping stores.
Financial losses
Retailers may suffer substantial financial setbacks from upfront payments to fake suppliers and subsequent chargebacks due to undelivered goods. If an order turns out to be fraudulent, it’s the retailer, not the dropshipping supplier, who bears the financial burden. When this happens, a retailer may lose chargeback fees, the entire amount of the transaction, shipping costs, the entire amount already paid to the supplier for the shipped product, and the retailer’s positive reputation.
Reputation damage
Reputation plays a crucial role as it directly impacts the success and overall value of a business. A positive reputation can enhance trust, which is essential for building long-term relationships and fostering customer loyalty. Additionally, when customers perceive a business as reputable, reliable, and trustworthy, they are more likely to choose its products or services over competitors. So, building trust and a positive reputation with customers is crucial to the success of dropshipping businesses.
Reputation damage from dropshipping scams can have long-lasting effects on an ecommerce retailer. When customers experience undelivered or missing shipments, significant delays or counterfeit products, their trust in the retailer diminishes. Negative reviews and complaints start to spread quickly online, impacting the dropshipping store’s brand image and deterring potential new customers. A single bad experience can lead to a ripple effect, where dissatisfied customers share their grievances on social media, review sites, and forums, reaching a wide audience. Recovering from such damage is challenging, as rebuilding trust requires time, consistent positive experiences, and often effective marketing skills.
Legal complications
Dropshipping is a legitimate business model and a cost-effective way to run an online store. It's a widely used business model where a retailer is not required to keep the dropshipping products it sells in stock. Instead, when a customer places an order, the supplier ships the customer's order. Like any other business, there are a few compliance laws that dropshipping businesses need to be aware of. As long as the regulations are followed, dropshipping is a low-risk business model.
Retailers are required to comply with consumer protection laws, ensuring that products are delivered as advertised to customers. Failure to meet these obligations can result in legal actions from customers, leading to fines, penalties, and potential lawsuits. Additionally, a supplier's legitimacy plays a crucial role. Partnering with a fraudulent supplier can entangle retailers in illegal activities such as selling counterfeit products. These associations expose retailers to criminal investigations and substantial legal repercussions. Beyond fines, legal issues can result in court orders to cease operations or pay damages to affected customers. This not only incurs significant legal costs but also diverts time and resources away from core business activities.
Operational disruptions
Dropshipping scams can severely disrupt the operational efficiency of ecommerce retailers, primarily through supply chain and inventory management. Scammers often provide fake tracking information or fail to update order statuses, causing confusion and delays in the supply chain. This lack of reliable tracking data disrupts the entire supply chain, making it challenging for retailers to manage and fulfil orders on time. Ultimately, these disruptions harm customer satisfaction and trust, making it difficult for retailers to maintain smooth and reliable business operations, which are essential for sustaining growth and competitiveness in the ecommerce market.
As a dropshipper, you’ll need to perform regular audits to identify and address irregularities, vet suppliers, perform customer verification for high-value orders to ensure customer legitimacy and reduce the likelihood of consumer fraud, and obtain business insurance that covers fraud and other financial risks.
Customer service challenges
Undelivered or missing shipments or delayed delivery of products due to dropshipping scams lead to a significant increase in customer complaints. This surge in dissatisfaction among customers overwhelms customer service teams, causing longer response times and potentially leading to further frustration among customers. Handling these complaints requires additional resources, increasing operational costs and straining the business's capacity to manage other essential tasks.
Moreover, processing refunds and managing returns for undelivered or unsatisfactory products can be resource-intensive. It affects cash flow and requires efficient logistics to handle returned items. Poor handling of these issues can further damage the retailer's reputation. Effective and responsive customer service is crucial for mitigating these impacts and maintaining a positive relationship with customers.
Emotional and psychological stress
Getting scammed is an anxiety-inducing experience. Dealing with the fallout of dropshipping scams can be incredibly taxing on ecommerce retailers' mental and emotional well-being. The constant stress of financial losses, managing customer complaints, and handling legal issues can lead to entrepreneurial burnout. This relentless pressure often results in anxiety and fatigue, diminishing the retailer's motivation and ability to effectively run their business.
Repeated encounters with scams can erode confidence in their business acumen, leading to second-guessing decisions and a lack of innovation. The emotional toll of these experiences can also affect personal life, as the stress and disappointment seep beyond professional boundaries. Over time, this strain can hinder overall business performance and make it challenging to maintain the resilience and optimism needed for long-term success.
What scams should you look out for and how do you avoid them?
The internet is swarming with suppliers. However, not all suppliers have a clear goal of serving customers. Some are out in the market to make quick money, cutting corners or making shoddy deals to pocket that extra buck. And, these dropshipping fraudulent suppliers might deliver substandard products, or they might ship orders late or not fulfil them at all.
Even the sharpest retailers can fall prey to dropshipping scams. It can be troublesome if your supplier is unreliable. So let’s learn some of the most common dropshipping scams, and equip you with some handy tips to help you identify and avoid them.
Poor product quality
As a dropshipping retailer, quality control is out of your hands as you never handle the inventory. Taking advantage of this situation, fake suppliers may offer products to your customers that differ significantly from the online description, leading to dissatisfied and angry customers.
For instance, a supplier markets a mixing bowl as thick and durable that’s made with stainless steel material. They even share close-up shots of the product and go to the extent of striking the item to demonstrate its quality and highlight its durability. However, when your customers receive the product, they discover it doesn’t meet its advertised specifications. The product appears to be merely coated with glossy paint to create the appearance of stainless steel, and in reality, it’s thin and lacks the promised durability.
When a supplier doesn’t deliver the promised quality, a retailer not only loses a sale but also the brand's reputation and customer trust. Your dissatisfied customers won’t revisit your online store, refer your business to their friends and family, and, in most cases, leave negative reviews.
How to spot dropshipping scams
Unrealistic prices
If the prices offered by a supplier are significantly lower than the average market range, it may be too good to be true. Unrealistically low prices often signal potential dropshipping scams. Fake suppliers often try to lure customers with incredibly low prices to attract quick sales. Wholesale prices guarantee a higher profit margin for retailers. However, delivering inferior quality products or counterfeit products in exchange for low prices could result in negative feedback and chargebacks, which can result in lost sales and damaged brand reputation.
Shoddy dropshipping sites with negative reviews
A legitimate business will usually have a professional and well-maintained website. low-quality websites with broken links, low-quality images, shoddy or fake reviews, or missing information are red flags. A reputable supplier will have clear and accessible contact information and positive feedback. If you find that there are consistent quality issues, it could be a warning sign.
Payment methods
Be wary of suppliers who only accept untraceable payment methods like wire transfers or cryptocurrencies. Legitimate suppliers offer secure and traceable payment options such as credit cards or PayPal, which offer buyer protection and fraud detection.
How to avoid dropshipping scams
Research thoroughly
Investigate potential suppliers thoroughly before engaging in any business transactions. Check their reviews, ratings, and overall reputation on various platforms. Look for any history of scams or fraudulent activities. This will help you know if the supplier is reliable or not. Stick to reputable platforms such as Dropshipzone, Oberlo, or SaleHoo, as these platforms help you connect with pre-vetted and reliable suppliers for your business, thereby providing you with a certain level of security and reliability.
Order samples
Always order product samples before committing to a supplier. This helps you verify the quality firsthand. Legitimate suppliers are usually willing to provide samples. Refusal to do so can indicate a potential scam.
Check business credentials
You can ask for the supplier’s business credentials, including their business license number, registration details, certifications, or any affiliations with any industry organisations. This helps ensure that they are a legitimate and credible business. Scammers won’t give such basic registration information online to avoid the risk of being tracked.
Misleading samples
Providing phony product samples is one of the common dropshipping scams. This scheme can damage your business reputation and lead to customer complaints, dissatisfied customers, and financial losses. Being able to identify and avoid these scams is essential for a dropshipper looking to build a reliable and successful business.
Let’s dive into the key indicators of misleading sample scams and strategies to protect yourself and your customers from falling victim to them.
How to spot dropshipping scams
Superior quality products at lower prices
When you get a surprisingly low wholesale price on a superior quality product, do you always assume that you got a really good deal? Some suppliers may provide high-quality samples to make you believe that you got a really good deal. However, when you place orders, they may deliver low-quality products. Conduct a thorough check to ensure you have a reliable supplier to rely on for your dropshipping business. If the sample's quality is noticeably superior to the products delivered to customers, this discrepancy is a major red flag.
Inconsistent branding
As a dropshipper, pay attention to the branding and packaging of the samples. If the sample arrives in professional packaging with branded labels but reviews or subsequent orders show generic or poor packaging, this inconsistency can indicate a potential scam.
Expensive product samples
Watch out for suppliers who ask to purchase samples or charge excessively for samples. Many suppliers provide samples for free or charge a minimum fee. Fraudulent suppliers might use high fees to deter sample requests or profit from the sample stage itself.
How to avoid dropshipping scams
Order multiple samples
Request multiple samples of different products or the same product at different times to assess consistency in quality and packaging. This helps identify any discrepancies over several instances. Make sure to order a sample to an address that’s not your business. This ensures the supplier sends you a product they’d send to a customer.
Check customer reviews
Look for detailed customer reviews focusing on product quality, packaging, and consistency. Short, generic one-liners often signal fake reviews. Pay close attention to customer feedback mentioning discrepancies between the advertised products and actual products, as these are warning signs.
Use trusted suppliers
Stick to suppliers with proven track records and positive reputations on trusted dropshipping platforms like Dropshipzone. Check for how long they have been in the business, verify company license and business credentials, check for certifications, and look for any history of complaints or scams. Business Australia has created a guide to help Australian retailers find reputable suppliers with a proven track record for their business. Read on to find out more. For more information on how to find the right dropshipping supplier, read our blog.
Hidden fees
Hidden fees are additional costs that are not disclosed upfront by the supplier and can significantly eat into your profit margins. These fees might include unexpected shipping charges, handling fees, restocking fees, or miscellaneous charges. Scammers use hidden fees to mislead dropshippers into believing they are getting a great deal, only to reveal the true costs after the orders are placed. Knowing how to identify and avoid hidden fees is crucial for maintaining profitability and ensuring a transparent relationship with your wholesale supplier.
How to spot dropshipping scams
Incomplete pricing information
If a supplier has a complex fee structure or incomplete pricing information, it’s a potential red flag. Lack of clarity about what is included in the price often suggests there might be hidden fees that will surface later. Watch out for additional charges that appear after you’ve placed an order with the supplier or during checkout. This can include unexpected shipping fees, processing fees, handling charges, or fees for using certain payment methods.
Unusually low product pricing
Extremely low product prices can be a bait to attract customers, only to surprise them with high hidden fees during checkout. Compare the overall costs with other suppliers to see if the low price is offset by additional charges.
How to avoid dropshipping scams
Request detailed quotes
Don’t hesitate to ask for a comprehensive quote that includes all potential fees before making any commitments. Ensure that the supplier provides a breakdown of all costs involved.
Thoroughly check business agreements
Carefully read all terms and conditions associated with the supplier’s services. Look for any mention of additional fees, including those for restocking, handling, or any other special services. Negotiate and establish clear agreements regarding all costs upfront. Make sure these agreements are documented and signed to avoid any surprises later.
Use reliable platforms
Engage with suppliers through reputable dropshipping platforms that have clear policies and customer protection measures. These platforms often have reviews and ratings that can help you identify trustworthy suppliers. Most platforms carefully vet suppliers to ensure they are a legitimate business.
Fake companies/wholesalers
Dropshipping is a popular business model, but it is also common with scams, particularly involving fake dropshipping companies and wholesalers. These fraudulent businesses often lure retailers with attractive deals, only to deliver substandard or non-existent products. This scheme can severely impact your business reputation and customer satisfaction.
How to spot dropshipping scams
Unrealistically low product pricing
Extremely low prices than the market average can indicate a scam. Scammers use these prices to attract quick sales before disappearing with your hard-earned money.
Flawed online presence and poor communication
A legitimate dropshipping company or wholesaler will have a professional and well-designed website and active social media profiles. Poorly maintained websites, fake reviews, or missing or vague company contact information, and inconsistent communication are red flags.
Negative reviews and complaints
Consistent negative feedback or unresolved complaints from other customers indicate potential scams. Check multiple review sites and forums to get a clear picture of the company’s reputation.
How to avoid dropshipping scams
Conduct thorough research
Investigate potential suppliers by checking their reviews, ratings, certifications or affiliations, and reputation on trusted platforms such as Google Business or Trustpilot. Verify their business credentials and look for any history of scams or complaints. Additionally, develop clear agreements regarding product quality standards, packaging, and delivery information.
Order product samples
Before placing large orders, request product samples to verify quality. If the supplier charges excessive fees for samples or is reluctant to provide them, it can be a potential scam.
Use secure payment methods
Utilise secure and traceable payment methods like credit cards or PayPal, which offer buyer protection and fraud protection.
Data and customer information theft
Dropshipping scams involving customer information and data theft are on the rise. Protecting customer data is crucial for maintaining trust and compliance with regulations. Scammers may pose as legitimate suppliers to access sensitive information such as credit card details, personal addresses, and purchase histories, or they may exploit dropshipping platforms. This stolen data can be sold on the black market or used for fraudulent activities, which can cause significant financial and reputational damage to both businesses and customers. Understanding how to spot and avoid customer data theft scams is essential for safeguarding your business and customer trust.
How to spot dropshipping scams
Unsecured websites
If a supplier’s website lacks HTTPS encryption, your data may not be secure. It indicates that the page doesn’t have Transport Layer Security (TLS) or a Secure Sockets Layer (SSL). Unsecured pages are vulnerable to having their data stolen by cybercriminals. When a page lacks encryption, it makes it easy for cybercriminals to see all the data, including passwords and sensitive information. Always ensure that any site you interact with has proper security measures in place.
Suspicious requests
If a supplier asks for personal or financial information that is not typically required for a business transaction, it can be a sign of a potential scam. Scammers may use this tactic to harvest sensitive data. Additionally, avoid suppliers who insist on untraceable payment methods such as wire transfers or cryptocurrencies. These methods can make it difficult to track or recover funds in the event of a scam.
Inconsistent contact information
If a supplier's contact information is inconsistent, it could be a sign of a scam. Scammers often use fake or untraceable contact details to avoid detection.
How to avoid dropshipping scams
Choose reliable platforms
Stick to well-known and reputable dropshipping platforms that have strong security measures and vet their suppliers by checking their business credentials and reading reviews. Avoid suppliers with a history of data breaches or complaints. Platforms like Shopify, Dropshipzone, and Oberlo offer additional layers of protection.
Implement strong security practices
Ensure that your website and any tools you use for dropshipping are secure. Use HTTPS, strong passwords, two-factor authentication, and regularly update your security protocols. Furthermore, avoid sharing unnecessary personal or financial information and use secure, traceable payment methods like credit cards or PayPal, which offer additional protection.
Monitor transactions
Regularly monitor your transactions and customer data for any unusual activity. Set up alerts for suspicious transactions and be prepared to act quickly if you detect any signs of data theft.
Chargeback scams
Chargeback scams occur when a customer disputes a transaction after receiving the product, leading to the reversal of the payment made to the seller. Chargeback scammers exploit the system by falsely claiming non-receipt of goods or dissatisfaction with the product, intending to receive a refund while keeping the item. When dropshipping, chargebacks scams can be particularly damaging as the seller often has already paid the supplier and may be left with financial losses.
How to spot dropshipping scams
Frequent disputes from the same customer
If a customer frequently files disputes or requests chargebacks, it can be an indicator of fraudulent behaviour. Consistent patterns of disputes can suggest that the customer is taking advantage of the chargeback process to get the products for free.
High-value orders from new customers
Scammers often target high-value items to maximise their gain. Keep track of the prior purchase history of customers. If you receive unusually large orders from new customers, it is a strong indicator of a scam. In such cases, you should conduct further investigation to prevent getting scammed.
How to avoid dropshipping scams
Implement strong order verification processes
Use address verification systems (AVS) and require CVV codes for credit card transactions to ensure the legitimacy of the purchase. Consider additional verification steps for high-value orders, such as confirming the order details via phone or email.
Maintain detailed records
Keep detailed records of all transactions, including order confirmations, shipping details, and customer communications. Having comprehensive documentation can help you dispute chargebacks effectively by providing evidence that the product was delivered and met the described quality.
Fake payment gateways or offline payment requests
Fake payment gateways or offline payment requests are common tactics used by scammers. They set up fraudulent payment gateways that mimic legitimate ones or ask for offline payment methods like wire transfers and cryptocurrencies, which are hard to trace and recover. Such scams can result in significant financial losses and compromised sensitive information for both retailers and customers.
How to spot dropshipping scams
Unsecured websites
Check for secure website indicators, such as HTTPS and a padlock icon in the address bar. Fake payment gateways often lack these security features. Additionally, websites with poor design, broken links, unprofessional layouts or lack of contact information can be a potential scam.
Unusual payment methods
If a supplier insists on using untraceable payment methods like wire transfers, cryptocurrencies, or personal checks, it can be a potential scam. Legitimate suppliers typically offer secure and traceable payment options like credit cards or PayPal.
How to avoid dropshipping scams
Unsecured websites
Check for secure website indicators, such as HTTPS and a padlock icon in the address bar. Fake payment gateways often lack these security features. Additionally, websites with poor design, broken links, unprofessional layouts or lack of contact information can be a potential scam.
Unusual payment methods
If a supplier insists on using untraceable payment methods like wire transfers, cryptocurrencies, or personal checks, it can be a potential scam. Legitimate suppliers typically offer secure and traceable payment options like credit cards or PayPal.
What to do if you and your customers are impacted by a scam?
Based on the quarterly update (October to December 2023) from the National Anti-Scam Centre, there has been a notable decline in scam losses reported to Scamwatch over the quarter. However, many Australians continue to suffer devastating losses, with many scams going unreported.
Scammers are becoming increasingly innovative and agile as consumers become warier. They make use of technology and social media to promote dropshipping products with high-pressure sales tactics for targeting victims. Scammers have become so good at tricking consumers and businesses that 50 per cent of their targets engage with them without being suspicious.
While no business can be 100 per cent safe from dropshipping, having a strategy in place can help protect your customers and provide them with the resources they need if they fall victim to a scam. It’ll also help address the issue early with calm and patience and save your business’s reputation from adverse public relations. Here are the steps you must take when you or your customers are impacted by a scam.
Gather relevant documentation
Gathering relevant documentation and staying organised when impacted by a dropshipping scam can help retailers and their customers deal with the issue efficiently. By documenting transactions, communications with the fraudulent supplier, and all pertinent evidence, retailers can substantiate their claims when disputing transactions with payment processors or banks. Collect all evidence of the scam, including emails, invoices, payment receipts, and any correspondence that can help prove the scam. This organised approach helps in the recovery of funds and strengthens the retailer’s case in legal proceedings or when reporting the scam to legal authorities.
Furthermore, transparent communication backed by comprehensive documentation instils trust in customers and reassures them during such challenging times. It also allows retailers to promptly inform customers about the scam, provide clear explanations, and offer viable solutions such as refunds and replacements.
Staying organised at all times ensures that affected customers receive timely assistance and support, mitigating potential negative impacts on customer loyalty and satisfaction.
Report the scam
Reporting a scam can help others from falling victim to the scam. Report the scam to local law enforcement and provide all gathered evidence to help in any potential investigation. Submit a complaint to consumer protection agencies like the Federal Trade Commission (FTC) or similar organisations in your country.
The Federal Trade Commission (FTC) sues scammers and works to shut them down. When you report a scam to the FTC, investigators use your information to identify patterns and build cases against scammers. When you report a scam, it can also help in the recovery of funds for victims and deter scammers by increasing the risk of detection and legal actions.
Contact the payment processor
Many banks and cards cover scams and return lost money. Reach out to your payment processor or bank to file a dispute or chargeback for the transactions made with the scammer. They may reverse the transaction if possible. Submit all collected evidence to support your claim and increase the likelihood of recovering your funds.
Dropshipping scams can also impact your creditworthiness. If you or your customer has had financial data stolen, contact the credit reporting bodies and the Social Security Administration and notify them of the incident. This can help freeze the accounts and set monitoring practices in place to prevent further damages.
Inform your customers
Breaking the news to your customer about a scam is undoubtedly challenging, but it's essential for maintaining trust and transparency. Notify affected customers promptly about the situation, explaining the scam and the steps you are taking to resolve it. Provide options such as refunds, replacements, or store credit to maintain customer trust and satisfaction.
If you’re notifying your customers via email, use a headline that creates urgency to ensure it gets noticed. Additionally, you could also add a banner or pop-up on your dropshipping sites to keep your site visitors informed. Creating a dedicated page with detailed information or addressing the concerns in your FAQs can help navigate this situation effectively. You can even update your customers via social media platforms. However, make sure your communication is consistent across all channels. Finally, keep your customers thoroughly informed about the situation at all times.
Alert the fellow dropshippers
If you were scammed, talk to your family member, friend, or neighbour first. Tell them your story. Your story makes a difference. Then, post about the scam on dropshipping forums, social media groups, and review platforms to warn other business owners and entrepreneurs. This can greatly help in preventing further incidents. Additionally, make sure to provide details of the fraudulent wholesale supplier to help others avoid falling victim to the same scam. It also serves to raise awareness among the public and other businesses, alerting them to potential risks and enabling proactive measures to safeguard against similar scams in the future.
Review and strengthen your security measures
Reassess your supplier vetting procedures to ensure they are robust and effective in identifying legitimate dropshipping partners. Use secure payment methods, perform regular audits, and use fraud detection tools to safeguard against future scams. Reflect on the circumstances that led to the scam to identify any weaknesses in your processes or decision-making. With the insights gained, strengthen your business practices, improve supplier vetting processes, and enhance customer communication and support to deal with such crises.
Seek legal advice
You’re not alone. Anyone can be a target of an online scam. If the financial loss is significant or you need assistance navigating the legal aspects of the scam, you could seek advice from a lawyer specialising in ecommerce or consumer protection.
By taking these steps, you can effectively manage the situation, protect your customers, and minimise the impact on your business.
Choose Dropshipzone for your dropshipping business
Dropshipzone is Australia’s trusted B2B2C marketplace. We’re helping Aussie entrepreneurs build their own business of their dreams by connecting them with reliable Suppliers. All of our Suppliers are pre-vetted, ensuring that you’re only dealing with a legitimate and trustworthy business. We offer quality products from diverse profitable niches with competitive pricing.
With no minimum order quantities, no monthly costs, and no processing fees, Dropshipzone is your go-to solution to sell products online. Sell more, stress less. We’ve got your back. Make ship happen, and become a Dropshipzone Retailer today!
Summary
With the rising popularity of dropshipping as a business model, the prevalence of dropshipping scams has also surged. The rapid increase in these scams over recent years is truly alarming. Dropshipping scams pose significant threats to dropshipping stores, so entrepreneurs need to have a better understanding of how to spot and avoid specific dropshipping scams. To protect your dropshipping store from fraudulent suppliers, you need to adopt multilayered strategies. Make sure you thoroughly vet your suppliers before deciding to work with them, check for verified customer testimonials, and avoid upfront payments to unverified sources. It’s also crucial to secure payment methods and to start with small test orders to ensure reliability. Additionally, leveraging trusted dropshipping platforms and conducting regular audits can further protect against fraudulent activities.
