Dropshipping Scams & How to Avoid Them as a Beginner

As someone who ran a dropshipping store, I’ve come close to falling victim to various dropshipping scams. I want to help you avoid these scams entirely to have a smooth dropshipping experience.

I’ll talk about common dropshipping scams, how to detect them, and how to avoid them. Then, we’ll cover dropshipping scams commonly done through social media. Afterward, what to do if you’re a victim to a scam.

Then finally, ways to avoid scams entirely (in general).

Here we go.

Key Takeaways

• Always verify a supplier's legitimacy before placing large orders.
• Order product samples to protect yourself from counterfeit goods.
• Scrutinize contracts and invoices to avoid hidden fees.
• Question drastically inflated shipping costs to protect your profit margins.
• Minimize shared customer data to prevent security breaches and fraud.

12 Dropshipping Scams to Watch Out For

Keep an eye out for these dropshipping scams:

• Unlicensed Products: Dropshippers unknowingly sell counterfeit goods, facing potential legal trouble.
• Hidden Fees Applied by the Wholesaler: Wholesalers add unexpected fees after orders are placed.
• Wholesalers Sending Different Items Than What's Ordered: Customers receive the wrong items, leading to returns and chargebacks.
• Fake Wholesalers: Scammers pose as wholesalers, collecting money without shipping products.
• Out-of-Stock Scams: Wholesalers advertise products they don't have, leading to delays and cancellations.
• Customer Data Theft: Fraudulent operations steal customer credit card and personal information.
• Inflated Shipping Costs: Dropshippers are charged huge shipping fees.
• Chargeback Scams: Customers fraudulently claim they didn't receive products.

These apply to folks who are starting dropshipping stores (not customers). I’ll explain these scams in detail while providing ways to detect and avoid them.

Here we go.

1. Unlicensed Products

How to Detect:

• Identify whether it’s fake: This will vary by product. Find tutorials on how to find counterfeit products.
• Does it have reviews: Zero reviews for a popular brand should raise suspicion.

How to Avoid: 

• Scrutinize suppliers: Request documentation proving their relationship with the brand or manufacturer.
• Validate authenticity: If dealing with branded products, get proof of licensing agreements and verify the supplier's claims.
• Purchase samples: Before bulk orders, buy samples to inspect quality and check for inconsistencies with the real brand.
• Prioritize reputable suppliers: Seek out suppliers with positive track records, strong customer reviews, and clear transparency about their sources.

Suppliers offer popular, branded items at low prices, tempting you with the potential for high profit margins. These products are almost always counterfeit knock-offs.

Selling them violates intellectual property laws, potentially leading to lawsuits, hefty fines, and significant damage to your business's reputation. Or jail time. I’ll provide an example of that later.

The easiest way to determine whether a product is fake is to look at the reviews or request documentation.

Here’s an example:

I don’t see any reviews in the sample image. A potential red flag.

If both categories pass the test, order a sample to an address that’s not your business. This test ensures the supplier sends you a product they’d send to a customer.

From there, check the product for signs that it could be fake. Inspection will vary by product. For instance, fake Nike shoes often have sloppy stitching and incorrect logos.

Summary: Ask for documentation and order product samples to ensure you’re not selling fake brand-name products.

2. Hidden Fees Applied by the Wholesaler

How to Detect:

• Scrutinize the fine print: Read all contract terms for mentions of additional charges that may not be immediately obvious.
• Watch for vague language: Look out for terms like "service charges" or "processing fees" that lack clear definitions.

How to Avoid: 

• Negotiate upfront: Discuss all potential fees before signing any agreements, and push back if something seems unreasonable.
• Ask detailed questions: Ask your supplier for a complete breakdown of all costs associated with each product.
• Monitor statements: Review your invoices and dispute any unexplained fees with your supplier immediately.

After placing orders with your dropshipping supplier, you may discover unexpected charges tacked onto your bill. These hidden fees can include things like handling charges, packaging costs, or extra shipping expenses, which eat away at your profit margins.

Review your contracts and ask about all fees to avoid losing money on a business that already has razor thin margins.

Summary: Read contracts and ask questions to avoid hidden fees the supplier could collect.

3. Wholesalers Sending Different Items Than What's Ordered

How to Detect:

• Order incognito: Place test orders under different names or addresses to see if the quality matches your initial sample.
• Scrutinize reviews: Search online for complaints about the supplier switching products or declining quality.
• Inspect samples: Compare small details of the sample to the items your customers receive. Look for discrepancies in materials, construction, and overall quality.

How to Avoid: 

• Vet suppliers carefully: Choose suppliers with established reputations, verifiable reviews, and a history of consistent quality.
• Document everything: Keep detailed records, photos, and descriptions of the samples you receive. This is leverage if the shipped products differ.
• Test consistency: Order multiple samples over time to ensure the supplier maintains quality standards.
• Consider a QA agent: If feasible, hire a third-party quality assurance (QA) agent in the supplier's region to inspect products before shipment.

Dishonest suppliers may send you high-quality samples to win your business, but then ship inferior or different items to your customers. This bait-and-switch tactic will ruin your reputation and lead to angry customers, chargebacks, and potential losses.

Summary: Order samples of products using different names and addresses to ensure your supplier isn’t sending lower-quality variations of samples you’ve received to customers.

4. Fake Wholesalers

How to Detect:

• Inconsistent information: Look for mismatches between the company's claimed location and their contact information.
• Lack of business registration: Scammers rarely provide verifiable registration details or necessary business licensing.
• Unrealistic pricing: Be wary of prices significantly lower than market standards for a specific product.
• Poor reviews or lack thereof: Check for genuine negative reviews and patterns in customer complaints.

How to Avoid: 

• Verify, verify, verify: Request business registration documents, tax IDs, and references. Cross-check information; I’ll explain where later.
• Use trusted directories: Platforms like Worldwide Brands curate lists of legitimate wholesalers.
• Compare prices: Understand the standard wholesale price range for your products to spot unusually low offers.
• Order samples: Before committing to larger orders, assess product quality and verify the supplier's reliability with a small sample order.
• Use plugins/add-ons: Download (free) Chrome extensions like Up Assistant to find a supplier’s history on sites like AliExpress.

Fake wholesalers often create professional-looking websites and may offer phony product samples to appear legitimate. Once you place orders, they may disappear with your money, send the wrong items to your customers, or increase prices.

Avoid falling prey to these fakers by following the tips above.

Summary: Scrutinize business information and check for inconsistencies to ensure you’re ordering from a legitimate supplier.

5. Out-of-Stock Scams

How to Detect:

• Inconsistent stock availability: If products are frequently listed as out-of-stock, it's a red flag.
• Long lead times: Be wary of unusually long shipping delays stated upfront.
• Customer complaints: Negative reviews about unfulfilled orders are a major warning sign.

How to Avoid:

•  Robust inventory systems: Partner with suppliers who have transparent, real-time inventory management. Or use automation tools.
• Communication is key: Establish clear communication channels to be immediately notified about stock issues.
• Vet suppliers thoroughly: Prioritize suppliers with positive track records and customer reviews.
• Sample before selling: Always order product samples to verify quality and ensure availability before promoting items to customers.

Suppliers lure you in by advertising products they don't actually have in stock. After you take orders, they delay indefinitely or disappear entirely, leaving you with angry customers and potential chargebacks.

These scammers prey on dropshippers eager to expand their product offerings without thoroughly vetting suppliers. They rely on you not having real-time access to their inventory levels.

Summary: Use real-time inventory management systems to ensure suppliers don’t take your money while not sending products to customers.

6. Customer Data Theft

How to Detect:

• Customer complaints: Monitor customer communication for any reports of fraudulent charges, identity theft, or spam associated with their order from your store.
• Supplier security issues: Stay alert for news of data breaches or security lapses connected to your suppliers.

How to Avoid: 

• Thorough supplier vetting: Before partnering, investigate a supplier's reputation, privacy policies, and security protocols. Look for those with a proven track record of data protection.
• Minimize data sharing: If possible, provide the supplier with the bare minimum of customer information needed for shipping.
• Secure payment options: Use payment gateways that prioritize customer data protection and minimize the amount of information stored by the supplier.
• Customer communication: Be transparent with your customers about how their data is used. Offer them options to opt-out of non-essential data sharing.

When you place an order with a dropshipping supplier, you provide them with sensitive customer data (name, address, often credit card information) for order fulfillment.

Shady suppliers might retain and misuse this data, selling it or using it for their own fraudulent activities.

You’ll need to be proactive in prevention of this scam. Because you can get in a lot of trouble with data protection laws (e.g., GDPR) if you’re not careful.

Summary: Minimize the amount of data you share with your supplier and let the customers know what data you’ll share in your website’s privacy policy.

7. Inflated Shipping Costs

How to Detect:

• Lack of transparency: Suppliers avoid providing clear shipping quotes or have vague terms and conditions.
• Inconsistent rates: Shipping costs fluctuate wildly or seem significantly higher than average market rates.

How to Avoid: 

• Get pre-order quotes: Before placing a bulk order, request shipping quotes with exact item quantities and destinations.
• Compare carriers: Use various shipping calculators and compare provider rates to assess if your supplier's costs are reasonable.
• Negotiate and document: Discuss and agree on shipping terms upfront. Get everything in writing, including estimated rates and any possible additional fees.
• Regularly review: Monitor actual shipping costs and compare them against the agreed-upon rates. Address any discrepancies promptly.

Suppliers claim to offer great deals on products, but when it comes time to ship, they inflate shipping costs. This eats into your profit margins and makes your final product prices less competitive, hurting sales.

Summary: Monitor actual shipping costs to ensure your supplier isn’t inflating your shipping costs.

8. Chargeback Scams

How to Detect:

• Spike in chargebacks: Monitor your accounts for any unusual increase in chargeback requests.
• Customer communication: Pay attention to complaints or issues raised by customers, as these might precede a chargeback.

How to Avoid: 

• Choose suppliers carefully: Partner with suppliers who ship promptly to minimize customer disputes.
• Clear product descriptions: Ensure your website has accurate descriptions and images to avoid discrepancies.
• Excellent customer service: Address customer concerns proactively to prevent them from escalating into chargebacks.
• Maintain documentation: Keep records of orders, shipping, and customer communications to help contest fraudulent chargebacks.
• Chargeback automation tools: Consider using chargeback automation tools that can help monitor, manage, and fight invalid chargebacks.

A customer places an order, but after receiving the product, they file a fraudulent chargeback with their bank. They might claim the item never arrived, was vastly different from the description, or even that the charge was unauthorized.

This results in you losing the money and the product. And too many chargebacks can lead to your account being suspended by payment processors.

However…

Sometimes, customers file chargebacks without malicious intent, because they don't remember the purchase or are confused. But it’s often scammers exploiting the chargeback system, knowing that banks or payment processors often side with the customer, leaving you little recourse.

Summary: Chargebacks are a reality, but proactive measures and the right tools can help your business minimize losses.

TikTok & Instagram Dropshipping Scams

If you’re opening a dropshipping store, the first scam on the list is the only one you’ll need to worry about. But you should also read the other scams to ensure you don’t accidentally use these scams on customers. Because some have resulted in prison time.

We’ll cover these social media scams:

• Fake "Gurus": Individuals portray themselves as experts, promising unrealistic income with minimal effort.
• Misleading Product Demonstrations: Showcasing deceptively positive experiences, failing to disclose product flaws.
• Influencer Promotions Without Transparency: Influencers receive payment to endorse dropshipping stores without revealing the sponsorship.
• Dodgy Websites Linked in Profiles: Gurus promote low-quality websites with counterfeit goods or non-existent order fulfillment.

Let’s get into these scams.

1. Fake "Gurus" (Get-Rich-Quick Schemes)

• How to Detect: Be wary of anyone showcasing extravagant lifestyles and guaranteeing unrealistic income levels.
• How to Avoid: Look for reviews from sources outside of the guru's immediate sphere (their website, social media, etc.). Search for unbiased opinions and experiences.

TikTok and Instagram have become a breeding ground for self-proclaimed dropshipping gurus who lure unsuspecting victims with promises of overnight riches. Several names come to mind, but I’d get in trouble if I named and shamed.

These scammers use a common playbook:

• False narratives: They flaunt lavish lifestyles, often with rented cars and houses, claiming to have achieved success through their secret dropshipping methods.
• High-pressure sales tactics: They push expensive courses or mentorship programs, claiming that this is the only "real" way to become financially free. These resources often contain outdated or readily available information.
• Pre-made stores and saturated niches: Many of these gurus sell cookie-cutter stores in oversaturated markets.
• Lack of ongoing support: Once you've purchased the course, the guru often disappears, leaving you stranded with a generic store and no guidance on how to make it succeed in a competitive environment.

Be wary of anyone on any social media platform who claims to have a foolproof system for easy dropshipping riches. Instead of being tempted by these "gurus," recognize the red flags: extravagant lifestyle displays, unrealistic income promises, and pressure to buy expensive courses.

To avoid getting scammed, focus on building your own dropshipping knowledge. There are plenty of free and credible resources (like our site) that offer the necessary strategies for building a legitimate ecommerce business.

Summary: It’s a red flag when social media influencers make claims that dropshipping will result in lavish lifestyles.

2. Misleading Product Demonstrations

How to Detect:

• Too-good-to-be-true product demonstrations: Look out for videos that make a product seem revolutionary or vastly superior to anything on the market. Scrutinize whether the product's benefits are realistic.
• Lack of independent reviews: If you can't find reviews from sources outside the seller's website or social media, it's a major red flag.

How to Avoid: Use tools like Google Image Search to see if the product photos or videos appeared elsewhere before. This can uncover if the seller is using stock images or misleadingly reusing footage.

This scam is more-so relevant if you’re buying dropshipped products.

Scammers often source cheap, generic products from sites like AliExpress and present them as groundbreaking innovations. They use deceptive editing, camera tricks, or paid actors to create demos that exaggerate the product's features and usefulness.

The goal is to generate hype and a sense of urgency, making people believe "this is the next big thing" and pushing them to buy impulsively. Let’s use Souja Boy’s video game consoles as an example. Souja Boy (yes, the rapper) bought knockoff game consoles from AliExpress and rebranded them as his own.

From there, he sold them for hundreds.

The website doesn’t exist anymore. I can't show you what I mean. But I can present a video comparing the Souja Boy consoles to the same consoles bought by other dropshippers and sold on Amazon:

In the end, Nintendo sued Souja Boy and the rapper was sentenced to a prison sentence [1].

Anyway.

Always prioritize research and seek out unbiased reviews before succumbing to the hype.

Summary: If you’re buying dropshipped products, reverse image search to see if it appeared elsewhere before.

3. Influencer Promotions Without Transparency

• How to Detect: Be suspicious of influencers heavily promoting a product without disclosing if it's a paid partnership or if they have any financial stake in the brand. Legitimate promotions usually mention "ad" or "sponsored."
• How to Avoid: Before buying based on an influencer's recommendation, look for reviews from other sources.

Social media platforms are filled with influencers who promote dropshipping products without being upfront about their financial incentives. These influencers often receive commissions or own a stake in the dropshipping business.

They create a false sense of authenticity by hyping up a product, making it seem like a genuine recommendation rather than a paid advertisement.

The problem is that the promoted products are often low-quality, overpriced, or have long shipping times. Unsuspecting followers who make purchases based on the influencer's endorsement end up with disappointing items and feel deceived.

Not all influencer promotions are scams, but it's crucial to be a savvy consumer.

Summary: If an influencer is promoting a product, look out for mentions of sponsorships. Otherwise, they may not be upfront about their financial incentives.

4. Dodgy Websites Linked in Profiles

• How to Detect: Be wary of websites offering incredibly low prices on branded or trending products. These are likely too good to be true and may indicate counterfeit goods.
• How to Avoid: Before buying from a social media-promoted website, research the company thoroughly. Search for reviews on independent websites and check for any red flags.

Social media platforms are rife with dropshipping "gurus" advertising products through questionable websites they've linked in their profiles.

These scams often work in the following ways:

• Counterfeit goods: The scammer will advertise popular branded products at heavily discounted prices. The products you receive will likely be knockoffs.
• Non-delivery: After placing an order, you might never receive your product. The scammer disappears, leaving you out of pocket and with no recourse.
• Data theft: Dodgy websites often have poor security, which can put your personal and financial information at risk when you attempt to make a purchase.

Be vigilant when encountering product promotions on social media. If a deal seems too good to be true, it almost always is. Before entering your debit card number, research the website and focus on buying from reputable sellers, even if the prices are a bit higher.

It's also crucial to check if a social media-promoted website has SSL security. Look for the padlock icon in your browser's address bar and "HTTPS" at the beginning of the URL.

Here’s an example of a HTTPS website (regarding the padlock):

And here’s an example of an unsecure site:

A lack of SSL encryption should be a major red flag. Legitimate businesses prioritize their customers' security. If a website doesn't have this basic protection, it's likely part of a scam, putting your financial and personal data at risk.

Here’s an example of a sketchy site, but let’s turn it into a game. How many red flags can you find in this product description in under 1 minute?

I found 7. I might have missed some, though.

Here’s what I found:

1. Trademark on package: It says “© Zhangchen 2020,” shouldn’t it say “©Pokémon”?
2. “Deformation toy,” what kind of English is this?
3. Keyword stuffing; look at all that text beneath the title.
4. On the left side where the social media icons are, there’s supposed to be a Facebook and X (Twitter) logo. Are they too shy to come out?
5. Inconsistent capitalization: They capitalize all the words with “Add to Cart,” but not “Write a review.”
6. Look at the keywords that they stuffed beneath the title for the word “venusaur.” This is another Pokémon, thus it should be capitalized.
7. “Pokemon figurer Mewtwo” what’s a “figurer?” Does it figure out problems for me?

Let us know in the comments how many red flags you found.

If you buy stuff from this website, you better be ready to find your financial data on the deep web.

Summary: If a website looks sketchy, avoid it.

What To Do if You're a Victim of a Dropshipping Scam

First, gather evidence. Collect order confirmations, receipts, and screenshots of any misleading product descriptions or promises. And if you haven’t already, save all emails, chat transcripts, and social media messages with the supplier or “guru”.

Then record the website URL, business name (if there is one), and any contact information.

From there, you’ll need to do the following:

PayPal or other payment gateways: File a dispute with the payment platform and explain the fraudulent activity.

Report the scam to these entities:

• Better Business Bureau (BBB): Report the scam to the BBB in the area where the business operates.
• US Federal Trade Commission (FTC): Report the scam through their complaint portal.
• Internet Crime Complaint Center (IC3): File a complaint through the IC3, which is a collaboration between the National White Collar Crime Center and the FBI.
• econsumer: Network of government organizations that may help prevent future fraud; report using their tool.

Pursue legal action: Consult a lawyer who specializes in consumer fraud to see whether it’s possible to take legal action.

The entities that I suggested above are primarily for businesses operating inside the US. Canadians, for instance, would go through their anti-fraud center portal to report a scam. Folks in other countries will need to search for options their government offers.

Many of the businesses that’ll scam you are likely outside the US—for instance, in China.

There’s not much you can do other than to contact the trade division of the country’s embassy in your country. For instance, if the company that scammed you is located in China, you’d contact the Chinese Embassy.

Will they do anything? I can’t say.

Also, many countries don’t offer variations of the BBB. Thus, you’re best off just reporting them to the BBB to spread awareness of their scam.

Ways To Protect Yourself From Dropshipping Scams (In General)

Here are the most basic ways to protect yourself from dropshipping scams—aside from what I mentioned throughout different sections:

• Verify authenticity of buyer reviews: Scrutinize reviews on the supplier's site and external platforms like the Better Business Bureau.
• Ensure you have a solid line of communication: Test the supplier's responsiveness and availability before committing to large orders.
• Use real-time inventory management: Implement software (e.g., Linnworks) that syncs inventory levels between your store and the supplier. This prevents overselling and disappointments due to out-of-stock issues.
• Document EVERYTHING: Maintain records of all communications, orders, invoices, shipping information, and customer interactions. This is invaluable in case of disputes or chargebacks.

Most of what I mentioned is common sense and doesn’t require further emphasis. But this next section does.

Verify Company License

Ask the supplier to provide a copy of their business license or registration documents. Reputable suppliers should have this readily available. If not, move on to a different supplier.

If you’re a US company, you have these options:

• Check the Secretary of State (SOS) website for the state where the supplier claims to be based (here’s California’s SOS).some text
  • Most states maintain online business registration databases with searchable records.
• Consider using a third-party verification service (e.g., Melissa Data) for in-depth checks.

When vetting Chinese companies, people usually recommend using QiChaCha, but they require you to download the QiChaCha app to search for businesses, which is ridiculous. And you need Google Translate to view the page, because it’s all in Mandarin Chinese.

If you don’t care about this, you can use the tool to search for a business’ information such as whether they have a “Working registration”.

You could try using the National Enterprise Credit Information Publicity System, but that’s also all in Mandarin.

Summary: Search local government databases to verify whether your supplier is legitimate.

Why Do Many People Believe Dropshipping Is a Scam?

People believe dropshipping is a scam for many reasons, including:

• Unrealistic expectations: Many online ads and "gurus" promote dropshipping as a get-rich-quick scheme, promising huge profits with minimal effort.
• Shady suppliers: Some suppliers falsely represent themselves as reliable wholesalers when they are actually middlemen or untrustworthy businesses.
• Low barriers to entry: The ease of setting up a dropshipping store attracts legitimate entrepreneurs and inexperienced individuals looking for a quick buck.
• Focus on “trendy” products: Many dropshippers chase short-term trends and sell generic products.

Dropshipping itself is a legitimate business model. Like any industry, exercise caution and do your due diligence.

Summary: Dropshipping is often perceived as a scam due to unrealistic expectations, shady suppliers, low entry barriers, and the focus on "trendy" products, but it can be a legitimate business with proper due diligence.

FAQs for Dropshipping Scams

Read on to find frequently asked questions about dropshipping scams.

Is Dropshipping as a Whole a Scam?

No, dropshipping itself is a legitimate business model. However, many (suppliers and influencers) could scam you.

Conclusion

Dropshipping can be a viable business model with careful planning. Remember to vet suppliers, prioritize product quality, and protect customer data. By staying vigilant, you can avoid costly scams and build a successful dropshipping store.

Want a tool that’ll help you find legitimate products from trustworthy suppliers? Learn how Dropship can help.