How to spot a drop ship scam?

[MICROmud]

I’m lookin’ to set up shop online, and want to use a drop shipper for my supplier (seeing as I have... my apartment for storage), but I’ve heard all kinds of horror stories about how drop shippers can be scammers. Any tips on spotting/weeding out the scams from the real deal?

[emaill337]

Whew, yeah, drop shipping is a pretty common hunting ground for scammers. The end seen by the customer is ridiculously easy to fake - a website and a prepaid cellphone - and so scammers love it. Likewise, because of the perceived ease of drop shipping, people go into it with only a basic understanding of how a drop ship supplier should behave. First and foremost, be skeptical, and treat drop ship suppliers as you would any supplier and you should be fine.

In general, too, the following points can keep you out of hot water and in business-

1. Without exception, a real drop ship supplier will gladly show you the product they have available and will speak openly about prices for those products. Reluctance on either count should be a red flag. If a supplier refuses to show you their current, up-to-date product list, there’s likely no product list to be had.

2. Any descriptions should be detail and concise. Uncertainty or lack of familiarity with the product, and lack of precision in item descriptions entails that the drop shipper doesn’t actually have the items described.

3. A listed, land-line business number and physical address are requirements for most business licenses, and so your supplier should have both. Regardless, they have to have a physical location at which to store their stock.

4. “One-time fees” and the like mean run away! A drop shipper’s business is dependent upon market expansion and the success of their associated retailers. Under neither of those touchstones does it make sense to charge your customers for being your customers.

Remember, it’s in the drop ship supplier’s best interest to keep your customers, and therefore you, happy. If their products are shoddy, fake, or difficult to verify, then they aren’t someone you wanna deal with.

[gamerfan]

Whew, yeah, drop shipping is a pretty common hunting ground for scammers. The end seen by the customer is ridiculously easy to fake - a website and a prepaid cellphone - and so scammers love it. Likewise, because of the perceived ease of drop shipping, people go into it with only a basic understanding of how a drop ship supplier should behave. First and foremost, be skeptical, and treat drop ship suppliers as you would any supplier and you should be fine.

In general, too, the following points can keep you out of hot water and in business-

1. Without exception, a real drop ship supplier will gladly show you the product they have available and will speak openly about prices for those products. Reluctance on either count should be a red flag. If a supplier refuses to show you their current, up-to-date product list, there’s likely no product list to be had.

2. Any descriptions should be detail and concise. Uncertainty or lack of familiarity with the product, and lack of precision in item descriptions entails that the drop shipper doesn’t actually have the items described.

3. A listed, land-line business number and physical address are requirements for most business licenses, and so your supplier should have both. Regardless, they have to have a physical location at which to store their stock.

4. “One-time fees” and the like mean run away! A drop shipper’s business is dependent upon market expansion and the success of their associated retailers. Under neither of those touchstones does it make sense to charge your customers for being your customers.

Remember, it’s in the drop ship supplier’s best interest to keep your customers, and therefore you, happy. If their products are shoddy, fake, or difficult to verify, then they aren’t someone you wanna deal with.

It should be noted in #4 that supplier lists and databases often charge one-time/yearly/monthly access fees. This is completely normal. What Emaill337 is meaning, I think, is that you shouldn’t be charged for getting any information whatsoever from your drop ship supplier.

Remember, too, that you shouldn’t be charging much if anything over SRP for your products, so prices for drop shipped goods shouldn’t be that much higher than the wholesale prices of goods supplied on the traditional model. Yes, the supplier picks and posts the goods for you, but your overhead can’t be that much higher than a traditional supply chain. Outrageous prices are typically an attempt to prey on those new to the industry and don’t know better.

[O_OWHISPER]

As to the website, there’s a good many ways to check authenticity. One of the best ways is to try a Whois lookup, like what’s available at http://Whois.domaintools.com/ and get the name of the domain owner, contact information, and how long the domain’s been registered (domain here being the “example.com” part of the site URL). A young site and/or lack of owner names or contact information should raise a warning for you.

Here’s a thread on the forum that goes into a lot more detail than I can recount here on catching fake sites

Contact info should be the big one you check, since any legitimate business site should have that info. Several perfectly legitimate sites make use of anonymous services like ContactPrivacy.com; so, the domain owner’s legitimacy shouldn’t be discounted just because their info is concealed. The Whois landing page for an anonymous domain should look like this page for popular tech and culture blog, BoingBoing.net.

That said, anyone looking to do legitimate business should respond to any contact you make through ContactPrivacy. If you can’t get contact info or verify the domain in addition to any of the red flags mentioned by Emaill337, it should be an indication that you should run the hell away. You should be able to contact the domain owner for any legitimate business site, if the domain is anonymous.

[emaill337]

Good point, Gamerfan! There are always going to be exceptions and subtle differences that make it difficult to apply the points I made across the board to all potential suppliers. Even with what O_OWHISPER was saying should be considered carefully. A young company will very likely have a young site, for instance.

[O_OWHISPER]

Emaill337 says the Truth, which is why I make it a point not to deal with suppliers less than 5 years into the game, unless I have no choice for a particular product! As to #1, can’t stress the importance of an up-to-date supply list enough. It might be paper or electronic, but they will be able to provide you with the current product list whenever you request it, otherwise, you (and any other customers this supplier may have) won’t be able to properly market to your customers, and that’s just bad business for a drop shipper.

The fundamental business model for a drop ship supplier is one of voracious expansion, and so they should be constantly bringing in new clients, and that means making it as easy and transparent to come onboard, as possible. Membership fees and obfuscated product/prices are the opposite of easy and transparent.

[gamerfan]

I tend to take the easy route and stick with stuff like Fulfillment by Amazon :P. Seriously, though, check out the supplier’s history. Ask about previous customers, and go to those customers. Heck, check up on the customers to make sure they’re legitimate, too. Read online reviews, but take those with a grain of salt. I know this might seem like a lot of work, but remember that, especially with the drop ship model, you’re choosing the company that will be responsible for supplying your customers. You don’t want to muck this selection up, believe me.

[MICROmud]

What about testing the waters with a sample order? Seems like it’d be almost as bad an idea to get just a plain bad supplier as a fake one.

[emaill337]

This is a slippery area. Yes, it’s nearly as damaging to your biz to have an inefficient supplier, but it’s not just a matter of a sample order. Remember, you never see any of the products your customers order. Even if you get a sample shipped to you, the ease and efficiency of a shipment the drop ship supplier sends to you, isn’t necessarily indicative of the experience your customers will have from the same supplier. Samples are certainly something to check out, but I wouldn’t base my decision on one.