Small businesses have recently seen a height in product sales ever since the start of the pandemic. This new trend of forming your own business has catered to those struggling financially due to the pandemic, and large corporations have struggled to regain their audience due to high inflation prices. In the U.S., there are over 31 million small businesses, all actively promoting their products and/or services. But within these businesses, there are certain ones looking to scam you out of your money. And it’s not about the product itself, but the price of the product.

What is Drop Shipping?

Drop shipping itself is not a scam. Rather the price the seller marks a product from its original price. Drop shipping is used to fuel the easy money-making scheme that businesses use in order to bypass any real effort to produce a product and still make profit. The first step towards a drop shipping business is establishing connections with suppliers. Manufacturers from China or Taiwan are typically used due to their relatively low prices. When an order is placed, drop shippers order the product and ship it out. They act as the middleman between the supplier and the customer. They don’t keep the stock with them, rather, they order supply to fulfill orders. The scam typically comes with the mark up of the product. If a product costs $10 to manufacture, the mark up in a drop shipping business is typically 15%-20%. That would make the product $12. Making 2 dollars in profit. But this markup wouldn’t be enough to sustain the business considering the drop shipper has to pay shipping fees. So, anything above a 20% markup is common.

Drop shipping is a business model that’s been used time and time again. Serving as a side hustle business for future entrepreneurs. The idea of drop shipping is not inherently bad, rather the wise decision of the customer and the products they chose to buy that should be perceived with caution. Anyone can start a drop shipping business. If you set your mind to it, you can create a business in under an hour. And there have been successful ones before. But there is a slippery slope in every drop shipping business and falling down that slope can cause your business to fail. It’s important not to walk into drop shipping expecting to make easy money.

How Do You Avoid it?

This applies to everyone, but most importantly teenagers who are at a point in their lives were spending your hard-earned money is super tempting. You should have the right to know when something is just a cash grab or when something is a real genuine product.

1. Familiarize yourself with online marketplaces

Sites such as AliExpress and Wish serve as the biggest drop shipping suppliers ever. Online stores like these allow for drop shippers to run a business without having to keep stock. If you see a business selling a pair of wireless headphones for $40 (Assuming they don’t advertise their products as original), don’t give in. If you’re looking to save money, look for that product on online marketplaces. You are likely to find the exact product for 1/10 of the cost. The ethics of buying from these suppliers is questionable but goes to show the difference of revenue prices.

2. Notice the way the seller advertises the product

In social platforms like TikTok, drop shippers advertise their products to appeal to teenagers. Often making up obscure stories to capture the attention of viewers. These stories are mostly recycled stories of people dropping out of school or large corporations looking to buy their product idea for millions of dollars. Or distasteful jokes. More often than not, they are drop shippers.

3. Calculate the Markup

The true teller of the story is the price of the product. If you’re curious as to how much the original price was marked up, you can calculate it or you can use this Markup Calculator and simply input the prices. A product that is marked up 500-1000% on a genuine product is reasonable for a product that is expensive to make. Laptops can cost $200-$500 to manufacture each which is why they are often listed at $1,000-$1,500. That would be a markup of 500%.  But when that markup is done on a cheaply produced product, it is only hurting consumers. Let’s say box of colored pencils takes .50c to produce each. If a seller lists it for 30$, that would be a 5,900% markup. The quality of the product affects the revenue price significantly, so a pricing like this would be a waste of money to the consumer. A pattern to look out for when browsing through drop shipping stores is almost every item listed is on sale. And whether intentionally or not, the idea of an item that was originally expensive being on sale triggers consumers to buy it because they think they’re getting a good deal.

4. Make Informed Decisions

Ultimately, the decision is up to you. If you care about how you use your money, navigate different prices and choose one that fits you the best. If you want to shop more ethical, consider supporting local small businesses rather than mass produced online marketplaces.

As we teenagers grow into the world of economics, it’s important to be wise with our money and how we chose to spend it. And it’s especially important to understand businesses like this and how to approach them. But whether you choose to buy from them or not, what matters is that the product is what you want.