Dropshipping has become a popular way to offer products.
Dropshipping refers to the practice of selling products that you never physically have possession of. As a merchant, you’ll market products in your ecommerce store, but only pay the supplier and place the order at the time you receive a customer order.
To be successful at dropshipping, it’s important that you have real-time inventory data for all of the third-party products you’re selling, so you know you can fulfill your customers’ orders. Even so, it may take longer to fulfill customers’ orders than it would if you had direct control over the process, but because your shopfront expenses are very low in dropshipping, you’re able to pass those savings onto your customers.
Dropshipping accounts for as much as 23% 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.
But part of delivering a successful customer experience today comes down to the returns process. Customers expect their returns to be easy and cheap (ideally free) – 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?
Here are a few tips to consider.
Write a return policy based on your suppliers’ policies
Before drafting a return policy of your own, it’s important to look at your suppliers’ policies to see what conditions they’ll accept returns under.
Some suppliers may not accept returns at all, or may charge a return stocking fee. They’ll rarely offer free return shipping. They may also have a limited window of time for accepting returns.
When you’re setting up your store in the first place, you should evaluate your potential suppliers’ return policies as a part of your assessment criteria for who to partner with. Choosing partners that are willing to accept returns is more important than saving a few dollars to your customers, and it should be to you as well.
Once you’re clear on your suppliers’ policies, you can draft a return policy based on their standards. If you source products from multiple suppliers, you may need to develop separate policy standards based on the type of product, or provide exceptions to your returns policy.
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. 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.
Customize your policies to keep customers satisfied
There are some cases when it makes sense to be more generous than your dropshipping suppliers are, especially when you have room for it in your profit margins.
For instance, your dropshipper may tell you it will be $4 in return shipping costs, plus a $2 restocking fee. If the product is a remote-controlled car that you can buy for $30 and sell for $50, there’s probably enough room in your profit margins that it makes sense to pay the shipping and restocking costs out of your own profits. By doing this, you can generate higher sales by being able to advertise free returns, and can ensure that the customer has a good experience through the whole process, even if they need to return something.
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.
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.
Want to test out Loop? Sign up for a demo today.