Is Dropshipping a Pyramid Scheme?

Is Dropshipping a Pyramid Scheme or MLM

So many people are inviting you everywhere to start your own dropshipping business, that you are wondering if dropshipping was a pyramid scheme or MLM.

I was also confused when I first didn’t understand how dropshipping works few years ago, but now that I know the answer, I can help you and save you the time before risking your time and money in something you don’t understand well.

Is Dropshipping a Pyramid Scheme?

No, dropshipping is not a pyramid scheme, but rather, it is a commerce-based business model where the dropshipper owns and runs their own business without joining, or inviting others to join a certain scheme.

The main purpose of a dropshipping business is to make profit from selling real products to people who would benefit from them, and not from making others pay to recruit them into some pyramid structure.

Pyramid Schemes Vs. Dropshipping
Courtesy of Wikipedia.org

Is Dropshipping an MLM Scheme?

No, dropshipping is not an MLM scheme, because in dropshipping, you have your own business, you choose the products you want to sell, you don’t need to make a minimum volume, and you don’t need to hire others to sell the same products you sell.

MLM Vs. Dropshipping
Courtesy of Wikipedia.org

If you are still confused about the difference between dropshipping, pyramid schemes, and MLM companies, then the following section will help you understand.

6 Reasons Dropshipping Is Legit and Not a Pyramid Scheme

The Business Is Completely Yours

This is the easiest difference to spot between the pyramid scheme and the dropshipping business model.

With pyramid schemes and even MLM companies, you are fully dependent on the company or the system itself, once it’s gone, you lose everything.

It’s like joining a cult, literally.

You are just an overworked, underpaid employee that can be, and will be for sure, left alone in the near future when the scheme is shut down by the FTC or because it cannot sustain itself anymore.

While when you do dropshipping the right way, you own a real business that you can control, expand, limit, or even sell to another person.

Pyramid Recruit Vs. Dropshipper

If a product that you sell from some supplier goes out of stock, or deteriorates in quality, you replace it with another product.

Also, you can choose to sell at the price you want, you create the bundles, upsells, cross-sells, ….etc. in order to increase the AOV and customer LTV.

And best, of all, you can create your dropshipping business on a platform that you own with the domain that you want, in the industry you choose to work in.

While with MLM and pyramid scheme, if the give you any online presence, it will be on their own website, as a subdomain or subfolder, which they can delete anytime they want, or it might get shut down by the FTC, and you lose everything overnight.

You Don’t Recruit Others to Sell

Pyramid schemes are actually sustained by their current members ability to bring others to join the schemes, and pay for the sake of joining and then recruiting others to do the same.

Sometimes this involves selling cheap products for a high price in order to make it look like a legitimate model, but the fact that members need to continuously bring a minimum number of new members every while, usually monthly, in order to get paid, this makes the pyramid scheme a model where you just hire for the sake of taking money out of the new recruits, and not from conducting real business operations that bring value.

Finally, the pyramid scheme will exhaust all the potential recruits, and there would be no more revenue generated since the model relies mainly on getting money from recruits, and it collapses after the people on the top of the pyramid got all the money, while members down the line didn’t even get enough to cover their initial membership fees.

While with dropshipping, it is completely different, as you start a business that you own and sell the products that you want to sell to people who would benefit from them.

And different from pyramid schemes, with dropshipping, you don’t have to pay fees to any entity, and you don’t need to hire anyone to join the scheme and start selling to others.

You simply start an online store, choose the products you want to sell from the supplier you want choose to work with, and you market them to your target audience for a profit.

Just like if you have a physical store, but the difference here is that with dropshipping, you don’t need to risk your money buying in bulk and you don’t need a big budget to pay for rent, operation, warehousing, …etc.

All what you need to do is to market the products to your audience, and when you make any sale, you then buy the item from the supplier at their price, ask them to ship it directly to the customer, and you keep the profit.

You Don’t Have to Buy for Yourself in Order to Sell

In pyramid schemes and MLM networks, you are required to buy a minimum volume or a package of products for yourself in order to join the scheme, otherwise, you can’t operate with them.

If they were confident of their products, then they would only ask you to sell to others as a marketer, and not to buy for yourself even if you don’t really need these products.

But they know that their products are useless, which is why they force you to buy them for yourself so that they guarantee to make money from you, and from everyone who joins their sales force.

But with dropshipping, you don’t need to do that, as you only buy products for the sake of selling them to others, and most important, you only buy from the supplier after you get the order and receive your own price that includes your profit in addition to the fulfillment cost.

You Sell Something Useful

As I explained earlier, since the main intent of pyramid schemes is to make money from the recruits, they don’t want to spend any money, but rather keep all what they get for the top members.

But they try to make their company legitimate by providing some products in exchange for the money paid so that they don’t get caught.

And this is why they choose to buy very cheap products like the energy bracelets that cost a couple of dollars on AliExpress, and sell them as if they were worth $39-$49.

While with dropshipping, you sell products that people really will benefit from, and for a reasonable markup that covers the supplier’s cost, transaction fees, marketing costs, and your profit.

You could sell products that solve problems, like home and garden tools, or stuff that make people proud such as apparel or jewelry.

Dropshipping Vs. Pyramid Scheme Products

You Make Money on Every Item You Sell

Different from pyramid schemes, in dropshipping, you make profit on every single item that you sell, and you are not required to bring a minimum volume of sales every month or quarter.

You sell one item, you get its profit, you sell a thousand items, you get their profits.

No minimum, no maximum.

While with pyramid schemes and most MLM opportunities, you need to bring a minimum number of new recruits or sales volume every month or quarter in order to qualify for commissions during that period.

And if you don’t reach the minimum, you don’t get paid anything!

Imagine putting in all the work, spending time and money into promoting products or recruiting others to the scheme, and then, because you missed the minimum, you don’t get anything in return, while the people at the top of the pyramid get everything.

Dropshipping Happens on Popular Marketplaces

That’s true.

Although the most popular way of doing dropshipping these days is through building your own store on a platform like Shopify, but you can still do this model without your own website or store.

Many sellers on big online marketplaces such as: Amazon and eBay are actually dropshippers who find products from suppliers at low prices, list them on the popular marketplace, add their margin to the total cost of the original supplier, and sell them to the users of that marketplace.

And when they get an order, they go and pay the supplier the low price, send them the address of the customer so that it is shipped directly, and they keep the profit.

And this doesn’t apply only to Amazon and eBay, but also to many people who sell their own merchandise online with print on demand companies.

The way this happens is that a POD company like Spreadshirt or TeePublic allows anyone to create designs and upload them to certain products like hoodies, t-shirts, mugs, hats, bags, …etc., and list the product at the price they want to sell it at, and then market it to their own audience through the different online platforms.

And when someone of their followers buys a merch product, let’s say a hoodie and pays the full price that the merchant has listed (let’s say $45), the print on demand company will deduct their cost of around $30, print the design on the hoodie, ship it to the end customer, and then will send the profit to the merch designer.

Conclusion – Start Your Successful Dropshipping Journey

As you can see, these where just six reasons that make you realize that dropshipping is not a pyramid scheme at all.

The most important thing is that with dropshipping you own a real business, which you can modify or expand as you want, while you don’t have these benefits with pyramid scheme as you are part of a cult in essence.

And the nice thing about dropshipping is that the low barrier of entry is low, since you don’t need a capital to invest in buy products in advance.

But remember that it is still a work to build a business, and you need to learn some skills, invest some time and a little money and take consistent action for a couple of months before making a dime.

And you better do it on your own store and domain name using a reputable and robust platform like Shopify, which is very easy to use for beginners and non-techie people.

This way, you can build your business away from the competition on marketplaces like Amazon and eBay, and you can increase your margins.

If you are interested in pursuing the legitimate model of dropshipping, then you can check out this guide on selling without inventory on Shopify, and you will see how Shopify is good for dropshipping businesses.

And if you want a full step-by-step, comprehensive video training, then Ecom Elites by Franklin might be one of the best courses out there since it is offered at a reasonable cost compared to other inferior dropshipping courses.

I hope that this article has answered your question and showed you the difference between the dropshipping model and pyramid and MLM schemes.

If you still have any question, or if you need any help, please, feel free to ask me in the comments’ section below, and I will do my best to answer you asap 🙂

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