- [Voice Over] Bro, dropshipping is so easy,
you'll be printing money in just a few weeks.
- Derek's mouth started dripping with wet droll
after these wise words were spoken
by his favorite dropshipping guru
and when he saw his guru's profile picture
had a banana yellow rented Lambo in the background,
he instantly knew he must be the real deal.
Yes, I'm finally going to get rich.
But after three months
of following the guru's repackaged PDF course
that had no ongoing support, he knew he had been scammed.
He felt a sharp punch in the gut
as he looked at his Shopify dashboard in disappointment.
Maybe trying to sell pure trash products
from trying to the breaks
within one week isn't my ticket to quitting my nine to five?
Derek then fell into a crippling depression.
If only he'd spent his $1,000 in savings
on running ads instead of a hyped up PDF course
he decided to just accept his long income status
and give up on the idea of owning his own banana Lambo.
But then something magic happened.
One night scrolling YouTube,
he came across a long blonde head YouTuber named D-Fog
who had an oily six pack that was so tight
it rivaled the living kings.
He was known for spreading the gospel truth
about e-commerce.
You gotta get that sound back.
And was considered a God in the space
because he had actually built a real legitimate business.
This golden head hero majestic rode towards Derek
on his Noble Metaverse (indistinct)
And said, "Derek, my son come with me
"and I'll show you the true way to eCommerce riches
"without selling you a thousand dollars pdf."
People think it's easy to get rich with dropshipping.
- It's called dropshipping
(crosstalk)
- That's why in today's video I'm gonna cover
why I think dropshipping is the biggest scam, 2022.
Yep, bigger than Fyre Festival, bigger than Theranos.
Being pushed by thirsty YouTube gurus
that are prey on beginners.
I wanted to finally make this video
and put the argument to rest to prevent you getting scammed.
Then I'm gonna show you the real way
on how to create a profitable business.
Firstly, we're gonna cover what dropshipping actually is,
the business model.
Secondly, we're gonna cover the three main reasons
that dropshipping is e-commerce suicide.
Thirdly, I'm gonna cover the psychological tactics
that these gurus are using to prey on beginners.
And then finally, I'm gonna cover the exact framework
that I've used to create profitable e-commerce businesses
and know there's gonna be no PDF involved.
dropshipping is best explained with the simple story.
A drop shipper will go to a factory in China
and buy the product for $20.
Let's say it's a massage gun.
They'll then set up a website, usually on Shopify
and then list it at a marked up price, let's say $50.
They can then buy the product from the supplier
and ship it directly to the customer
making about $30 profit.
About $30 is generally spent
on advertising like Facebook or another digital platform.
Now, this model has become more and more popular.
You don't need to hold too much inventory
and it doesn't take a lot of cash to start,
but be warned there's issues of dropshipping
that will stay with you for the rest of your life
if you do it improperly.
With inflation skyrocketing
and a recession just around the corner
lots of people are starting a side hustle.
In fact, 37% of Americans since the pandemic
have started some form of side hustle.
Unfortunately, dropshipping is one of those.
Now, don't get me wrong, there are some things
I like about dropshipping,
which I'm going to get into in a minute,
but the risks outweigh the benefits.
While everyone's talking about the old dropshipping model
there is a successful way to launch eCommerce businesses
without the risk the social media overlords
banning you from all platforms.
This is in fact the exact strategy that I use
to take The Oodie to over 450 million in sales
in just four and a half years
and put me on the Australian Financial young rich list
just underneath Margot Robbie at 57th.
Sorry about that, Leo.
I firmly believe that if I started with dropshipping
I wouldn't be on that list today.
So let's jump into the three main reasons
that dropshipping isn't going to achieve
what you want it to achieve.
The first reason is platform bands.
Platforms like Facebook, Google, TikTok
they spend hundreds of millions of dollars
to improve their customer experience on their platform.
They're not gonna allow some drop shipper
to send them a crap product that breaks all the time.
To manager this Facebook introduce customer feedback scores.
You might have seen these after buying something
after seeing an ad on Facebook.
All these platforms have different ways of measuring
whether you're fraud or not
and dropshipping generally ends up in the red.
In 2021 Google alone suspended 5.6 million ad accounts,
but one of the scariest platforms out there is PayPal
and payment processing platforms
because they can seize all your money
that's in the platform.
On paper these payment platforms say things like,
lots of sales in a short period of time
or lots of refunds or long delivery time
will result in your account being banned.
All of these things fall right
in the wheelhouse of dropshipping.
I know someone that took an e-commerce store
to $500,000, half a million dollars a month revenue
in just three months
and then PayPal banned their account.
They had over $800,000 seized in their PayPal.
They even had two day shipping time.
Could you imagine if you had 14 to 30 day shipping time
like most dropshipping stores have.
These platforms are fickle
and you need to really think about the customer
and their policies before launching an e-commerce store.
I think the most frustrating thing about this for me
is I'm in this Skype group with amazing entrepreneurs.
These are centi-millionaires and will create great brands.
They are always talking about
where they can get their next ad account
or next payment method account
because all of theirs has been banned
and they're off these platforms life.
This is valuable time
that they would much rather be
spending on improving their customer service
and introducing new products.
The second reason why dropshipping
isn't gonna make you rich
is because there's no repeat customers.
As of September, 2020
Amazon had a 93% repeat purchase rate for Prime customers.
Compare that to a dropshipping store
that on average has three to 8%.
I think it would be very hard
to find in history a business that has sold
for over a hundred million dollars
with three to 8% repeat purchase rate.
Eventually, your whole customer audience
is going to be served by your product
and nobody is going to come back.
The main reason Amazon's return customer rate is so high
is because the company is obsessed
with customer service ever since inception in 1994.
They're focused on the best price
and the best delivery speed,
two things that customers really care about.
Think about dropshipping
with a two to four week delivery time
and think about how the customer is gonna feel
after purchasing that.
Not only do customers never come back
but they also give you negative feedback scores
on certain surveys like Facebook or even websites
like Trust Pilot, which kills your future conversion rate
and it can even get you banned off platforms as I said.
Anyone that's ever run a dropshipping store
knows it's really hard to provide
a good customer experience.
There's two major reasons for this.
The first one is long shipping time.
Most people use the option of AliExpress standard shipping
to try to save money on margin.
This means the product won't arrive
from China to the country in 30 plus days.
Amazon has trained customers
to expect their products in one to three days
something that e-commerce is trying to catch up to.
So you can just imagine how many negative reviews,
negative feedback scores
that you're getting on platforms like Facebook
and Trust Pilot when it takes 30 days
for the product to arrive.
Plus, with overseas shipping,
there's generally more issues because couriers
need to hand off to other services in localized countries.
It'll start with one courier in China.
Then it will transition into something
when it comes into like the UK,
might even change hands three times.
This causes tracking issues
which also creates a negative customer experience.
The second reason why it's really hard
to provide a good customer experience
is because you are trusting your factory
to drop ship the product from China.
There can be huge quality problems with this.
They can sneak in an inferior product
and it's very hard to know.
By the time the product finally arrives
the customer has given you a negative review
and you're banned off the platform.
I personally was banned off PayPal from the age of 14.
This cost me millions and millions of dollars
when I started The Oodie.
It was only until we were doing a hundred million dollars
that we were able to start selling with PayPal.
By introducing PayPal to a legitimate e-commerce business
you can increase your conversion rate
by 10 to 20% on some stores.
I've seen landing pages optimized for that.
You don't have to be a math genius to know
that we lost millions of dollars by not having that option.
And the final problem that kills dropshipping stores
is there is no product uniqueness.
Anyone can sell your product.
This Google Trends graph shows
just how popular dropshipping is getting
as millions of people ended the industry.
When drop shippers find a winning product
generally they'll launch more and more ads.
The way that other drop shippers find products
is they go onto something like ads buy
and they look at the social engagement on the ad.
When they see something that is scaling,
meaning it's going up in the likes,
they will then go and find a manufacturer
on AliExpress and start dropshipping within the week.
This means that they're selling the exact same product.
What will happen then is they'll both be launching
very similar ads on the same digital platforms
that are auction.
They'll then be competing each other
which means advertising costs will rise.
To compensate for this
they generally find cheaper and cheaper suppliers.
The supplier is trying to win as much business as possible
so the cheaper they can make the product
the more customers will actually flock to them.
This vicious cycle then repeats and repeats
until you get a product that basically doesn't even work.
If you've ever bought something from a dropshipping store
chances are it's broken in two to four weeks
and you're left out of pocket.
So if the dropshipping model has so many problems,
why aren't we hearing about them?
Why are we just seeing people
with Lambos on YouTube, Instagram touting how great it is?
Well, I'm gonna expose one of the biggest scams
in the industry and explain how these YouTube gurus
use psychological tricks to sell a repackaged PDF
with no ongoing support with predatory pricing.
Before we get into that, I want to clarify,
there are some great people in the industry.
People that are there to help
and people that actually know what they're doing
because they've had a successful business before.
When I talk about thirsty YouTube gurus,
I'm talking about people
that have never had a successful business
and barely know what they're doing
selling you packaged information
that they're finding off YouTubes like this one
and charging you thousands and thousands of dollars,
the money that you need to get started.
As a Naval said, "There's no such thing
"as a get rich quick scheme,
"that's just someone else getting rich off you."
There are lots of studies out there that show
that the human brain is wired for laziness.
Our brains will bias to the easiest option
even though we kind of know that it doesn't make sense.
These guru will prey on that behavior.
All they need to do is create a fake Shopify dashboard.
They right click, go inspect, change the numbers
screenshot and share it.
That's why it's so important before you spend
the well earned money that you need to run ads on a course
and research the person that you are listening to.
What if I told you there is a way
to succeed with e-commerce?
You can skip the account bands,
you can skip the negative reviews
and you can build a business
that actually provides value in the world
rather than ways all your time
building a soulless dropshipping store.
So how do you get rich with e-commerce?
I'm gonna break down a five step process,
but first let me acknowledge
that there are some great things about dropshipping.
If you're a new kid just getting started
you don't even know what an ad account is
and you have a few bucks you can get into the platform
and get your first sale.
You can build your Shopify store.
Chances are you're gonna make mistakes
and you're not gonna make any money.
But it's better that you're only lose $500
than have to invest $2,000 in inventory
and lose all of that.
However, once you are feeling experience
and you're getting a few sales.
You need to transition into this five step framework
that I'm about to talk about.
The second reason why you could use dropshipping
is validating product ideas.
Even if you're a successful business
you can just test a couple of product ideas
couple of use cases, what problems are they solving?
Test that product and then customize it yourself.
Now I can hear those beginners yelling at the screen.
I don't have $500 to get started.
Well, then you're gonna have to save up.
You can either build some skills,
go get a job at McDonald's.
It doesn't matter, but you do need
at least $500 to get started.
If you are one of those entrepreneurs
that only has $500 to their name,
you don't need to buy anything from anyone,
including myself.
Now, I found over five products
that have done over 10 million in sales,
including The Oodie,
which has done over 450 million in sales
by not going onto AliExpress,
by not using an ads by tool, by running a process process.
This process involves going onto Alibaba
finding a product that isn't saturated
making sure it's not saturated in the market
that I wanna sell it on
on the platform that I wanna sell it on.
I also make sure that it has a safe contribution margin,
meaning it is got a good profit per unit
so I can spend enough on advertising,
allowing me to get it in front of lots of people's faces.
I'm so obsessed with this process
that I actually tried to build a tool internally for myself.
This product does everything that I just mentioned.
It finds the trend.
It says where the trend is scaling.
It looks at all the digital marketing
that's going on behind that trend,
and then it even goes to suppliers in China
and gets a quote on the pricing
so it's ready for you to contact the supplier.
Now, again, I preface this,
if you don't have over $500
and you're just getting started
you do not need a tool, not even from me,
you just need to get started.
One other little tip
if you wanna protect your business
is pick product that is over three kilograms
because drop shippers will not be able to steal it.
Lower the quality and lower the trust
for that product category
by making people think that it's a dropshipping product.
The second step, once you've found your product
is you need to make sure that it's unique.
There's lots of ways you can do this.
You can really focus on the branding
using a creative director or yourself to study branding
make the packaging incredible.
But the second way is make the product use case
more useful for a certain demographic.
Let's say you find a trend in the adult skincare business.
You could try to use that trend
and incorporate it in for a different demographic
such as kids.
This isn't an easy process
and you'll need to be creative, but it's worth it.
This is how you're gonna create
a hundred million dollar brand.
The third step is to find a great supplier.
Now you can go into Alibaba and filter
and ensure that trade assurance
or it's a gold supplier to make sure
that they are going to be legit.
You can ask the supplier for customer references.
You can also ask them for samples
and really inspect their product quality.
You wanna make sure
that they have great communication skills
'cause chances are something's gonna go wrong
and you're gonna need them to sort it out for you.
The fourth step is setting up a branded website.
Rather than using content from the dropshipping supplier
on Ali Express, which can get you banned,
you need to shoot it yourself.
This doesn't need to be expensive.
We shot all of this content
just using our iPhone for our Lemon Scrub series
and created a custom brand website that people trusted.
And then the fifth and final step
is setting up a 3PL in the country that you wanna scale out.
Send 50 to a 100 to 2000 pieces to this 3PL
so that you can provide your customers
a one to five delivery time.
All of the payment platforms and Facebook
are gonna love you for that.
If you're looking for reliable 3PL
make sure you do reference checks
for previous customers that they've used.
Make sure that you check about their capacity.
Can they scale up with you?
Do they seamlessly integrate
with something as simple as Shopify?
If not, that's a huge red flag.
Do they use barcodes because you really want to make sure
that they are organized.
Finally, you can use LinkedIn,
contact brands that are using that 3PL
and ask about their experience.
Not only will this allow you to create
a hundred million brand, but it'll allow you
to not build a soulless dropshipping store.
It'll allow you to hire amazing people
that believe in your mission and your product.
You can do cool partnerships with major brands.
You can get into wholesale accounts
like the big retail chains in the United States,
doing hundreds of millions of dollars sales there.
You can even get celebrity endorsements
because people love your product so much.
In other words, you can build something you are proud of.
For all of those people that's saying
that that is just too hard and dropshipping's easier.
Go watch out how to build a brand series.
If an average bloke from Adelaide
is able to build a brand
that's done over 450 million in sales, you can too.
Don't forget to like and subscribe.
See y'all.