How to handle returns for a dropshipping business
Are you considering starting a dropshipping business?
Dropshipping is one of the easiest ways to get into ecommerce, as you’re not responsible for holding inventory and can eliminate expenses associated with inventory management and fulfillment.
In a dropshipping model, your brand will simply serve as a conduit between the manufacturer or supplier and the end customer: Once you accept the order from a customer, you’ll forward it to your supplier, and they’ll ship the product directly to the customer. This model enables you to keep expenses to a minimum, and ensure sustainable business growth.
2025 trends in dropshipping
While international tariff laws have added substantial expenses for many dropshipping businesses, the industry is still on the upswing overall: The total market for dropshipping businesses grew by 31.9% over the past year. Dropshipping accounts for over 27% of all ecommerce sales, and it’s a viable and profitable business model that merchants can launch quickly.
By choosing trusted suppliers who can provide high-quality merchandise on time, building a marketing strategy for driving visitors to your site, and using an ecommerce platform like Shopify to handle your payment processing and order tracking, you’ll be able to build a successful dropshipping store in virtually any product category, from dog supplies to athletic apparel to Christmas decorations.
Brands using Loop can also take advantage of our order tracking technology to provide a branded order page with real-time order tracking, ensuring that customers remain informed through the entire buyer’s journey. By providing personalized tracking updates across both email and SMS, you’ll be able to keep your customers engaged from the moment they place their order until it arrives.
Building a best-in-class dropshipping returns process
But that journey doesn’t end once a product lands at your customer’s doorstep. A streamlined returns process is crucial to delivering a great customer experience.
Customers expect their returns to be easy and cheap – or, if they’re not, the prices should be low enough that they feel like the gamble is worth the risk.
It’s easier to manage the reverse logistics process when you have full control over your inventory in your own warehouse, or are working with a domestic 3PL partner. But how can you make sure that you live up to customer expectations around returns if your business is based around dropshipping? And what can you do to mitigate against the high shipping costs of sending returned products back to an international supplier?
Here are some guidelines for building returns management solutions that will impress your customers without hurting your profit margins.
Start by choosing the right suppliers
The success of your dropshipping business will come down to partnering with high-quality, reliable suppliers that can help you build an economically sustainable business.
In light of recent tariff legislation, your suppliers’ geographic location is more important than ever. If you’re shipping to U.S.-based customers, consider using a platform like Sprocket or Modalyst to help you identify high-quality U.S. and E.U.-based suppliers, so that you can reduce or eliminate the impact of tariffs on your profit margins. These platforms can help you identify vetted suppliers with fast shipping times and minimal or no import fees, so that you can curate a high-quality collection of products and get your store set up quickly.
In some cases, the cost-savings of choosing suppliers from higher-tariff regions in Asia may outweigh the burden of the additional import fees—just make sure that you’re able to calculate the total cost of goods up front, so that you can build it into your pricing to maintain a healthy profit margin.
It’s also important to take note of your suppliers’ returns policies: If certain suppliers do not accept returns, then you’ll likely need to build a similar policy with your own customers to protect against the risk of refund-related losses. And for those that do accept returns, calculate the costs of sending items back to the supplier, as you should factor those reverse logistics fees into your customers’ return shipping fees.
Accept return orders to a PO box
Instead of asking your customers to ship back to an international warehouse or supplier, consider setting up a PO box where you can accept return orders as they come in, and then use your bulk rate to ship the items back to the supplier in a consolidated load. Because customers want their refunds processed quickly, you’ll likely want to process their refunds once you receive their items, rather than making them wait until you receive the refund from your supplier.
Although it might be easier, don’t put your home address on any business-related transactions. By using a PO box, you can protect your privacy and ensure that your business mail is kept separate from your personal mail.
With larger items, such as furniture, it may still make more sense to ask customers to send the item directly back to your supplier, rather than paying large shipping costs twice. Evaluate the costs involved in shipping back products, and develop a policy that includes conditional logic based on an item’s size or weight if necessary.
Offset your return shipping fees
While dropshipping businesses have lower operating expenses than other ecommerce brands, you can’t avoid the cost burden of reverse logistics fees when a customer wants to make a return.
In these cases, you can either cover the cost of your customers’ return shipping, or ask them to pay for it. Increasingly, more brands are putting this cost on their customers: More than 63% of Loop merchants now charge customers for returns. And 70% say that they’re willing to pay a premium for access to a convenient returns experience.
That’s why we launched Offset, a program that enables you to collect a small fee from your customer during the checkout process that helps cover the cost of a return if they need one later. By collecting Offset fees from shoppers who opt in, you’ll be able to cover the entire cost of your returns process, including shipping and software fees, while giving shoppers access to a streamlined returns experience.
Consider letting the customer keep the product
In cases where the product is expensive to ship back, it may be worthwhile to let the customer just hold on to or donate the item and receive a refund for the cost.
After all, in some cases, the cost of processing returns can be between 20% to 65% of the total item cost, and around 11% to 13% of returns cost twice as much to send back as the original purchase price.
“Returnless refunds,” as they’re known, are a way to provide a great customer experience without wasting shipping dollars and packaging materials on items that you know your store won’t be able to resell.
By offering a returnless refund, you’ll be able to ensure that the customer is satisfied by receiving a refund or exchange credit right away. This type of policy can be highly variable based on the item type, so you don’t need to publicize it in advance – but on a case by case basis, it’s an ideal way to keep customers happy and ensure that they’ll give your brand another chance, especially in situations where it’s not financially beneficial to request a return.
Rather than manually checking conditions, you can use a platform like Loop to set up Workflows, so that you have a defined list of conditions that should be met for whether to authorize a return or a returnless refund. This can help your team save time and automate work that would otherwise cost you countless customer support hours.
Incentivize exchanges
When customers request a return, it can often mean the end of the customer relationship.
Instead, by offering your customers the opportunity to exchange the item without needing to request a refund, you can maintain the relationship, driving more lifetime customer revenue.
Doing this through a platform like Loop, you’ll be able to gather customer feedback to understand exactly why they’re returning an item – whether it’s too big, too small, the wrong fit, defective, etc. – and be able to offer the right remedy based on their response, whether that’s offering the same product in a different size or color, or recommending a different product altogether. With Loop, customers can manage self-service returns and exchanges, pulling directly from real-time inventory data from your suppliers so that you can provide them with the right option at the right time.
Loop also enables you to incentivize returns by offering customers “bonus credit,” which they can use to purchase a higher value product or additional products. When customers have access to bonus credit, they often spend above the bonus amount, bringing in more revenue than the initial purchase. Instead of losing the customer relationship, you’ll be able to upsell and increase the amount of per customer revenue. With Loop, brands typically retain about 40% of revenue that would otherwise be lost in exchanges.
Dropshipping is easier with the right technology
In order to make the most of a dropshipping business model, you need great suppliers, a transparent process, and the right technology. Using an ecommerce platform like Shopify makes it easy to market your products and complete customer transactions, and when customers need to make returns, Loop can help you deliver a great customer experience that helps you keep more customer revenue in the returns and exchange process.
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