Introduction
Many people hesitate to start an online store due to startup costs and execution issues. But imagine if a supply company covered the initial inventory costs for thousands of items (at a price slightly above wholesale) and managed your fulfillment operations. This is the dropshipping model.
With a dropshipping store, you can easily start an online business and run it from almost anywhere in the world. Does that sound too good to be true? Not if you know how to get started.
In this chapter, I will outline the benefits of dropshipping, share with you two vital operating principles for starting a dropshipping business, and provide detailed tips for beginners. Benefits of a Dropshipping Store
Benefits of a Dropshipping Store
Whether you have a Shopify store or use a different e-commerce platform, there are several reasons to consider the dropshipping business model. Here are some of the most compelling reasons:
1. You don’t need capital to start. The dropshipping process makes it surprisingly easy to start selling online. You don’t need a significant investment in inventory, yet you can access thousands of items for your customers at a very low price above wholesale and sell them at market value.
2. Convenience and efficiency. Launching and growing an e-commerce business takes a lot of work, especially if you have limited resources. Not having to worry about fulfillment frees up your time to focus on your marketing strategy, customer service, and operations.
3. Mobility. With all the actual fulfillment issues taken care of, dropshipping stores can operate their business from anywhere they can get an internet connection.
4. It’s a proven model. Many online stores, including major retailers like Macy’s, use dropshipping sites to offer a wider range of products to their customers without having to deal with the problems of excess inventory.
Essential Dropshipping Principles
If you’ve never run an e-commerce business with the dropshipping model before, the information in this chapter can save you weeks of wasted time and frustration. Many of these dropshipping tips stem from two core principles about making the dropshipping business work efficiently:
1. Accept that things might get messy. The convenience of dropshipping comes at a price, and things can become complicated with every sale due to an invisible third party. From failed orders to items being out of stock, fulfillment issues will be something you have to deal with. If you accept this upfront, you are less likely to give up due to frustration.
2. Embrace the KISS principle. The ability to keep things simple (Keep It Simple, Stupid!) will serve you well with the dropshipping model. Given the inherent complexity of dropshipping, including multiple suppliers and shipments from different locations, you might think you need to track your costs and inventory meticulously at all times. But if you try to do that, you’re likely to go insane, spend thousands of dollars on custom development, and never launch a store. Focusing on the easiest fulfillment solutions, even if they aren’t “perfect,” is usually the best option, especially when you’re just starting.
10 Dropshipping Tips for Beginners
Ask any owner of a dropshipping store, and they will agree. With these two ideas in mind, let’s discuss dropshipping tips for beginners that will help you organize your business operationally and make things run as smoothly as possible.
1. Take Responsibility for Your Supplier’s Mistakes
Even
The best direct shipping suppliers will make mistakes sometimes, and with the direct shipping business model, you will certainly encounter fulfillment errors from time to time. So what do you do when your supplier sends the wrong item or nothing at all? Here are three possible options:
– Take the blame. By no means should you blame the direct shipping supplier for the mistake. This will only cause confusion and make you look like a beginner. The customer has no idea that there is a direct shipping supplier involved. Instead, you need to take on the problem, apologize, and inform the customer what you are doing to fix it.
– Offer compensation to the customer. Depending on the level of the mistake, you may want to offer something to the customer upfront for the error. This could mean refunding shipping fees (a personal favorite of ours) or providing an upgrade if the customer needs a new shipment.
– Make the supplier pay to fix it. You may have to take responsibility for the error, but that doesn’t mean you need to reduce your profit margin. Any reliable supplier will cover the costs of their own mistakes, including paying for shipping to return items. However, they likely won’t cover any free gifts or upgrades you provided to the customer. You should consider those expenses as public relations and marketing costs.
Again, even the best direct shipping suppliers will make mistakes sometimes, but be very cautious of suppliers who disrupt your orders regularly. Unless you can convince the supplier to change (which is unlikely), your business reputation will be affected. If that is the case, you may want to start looking for another supplier.
2. Managing Your Inventory Levels
Most experienced direct shipping suppliers agree that managing inventory across multiple suppliers is the biggest challenge you will face in running a successful direct shipping business. If you do not do well in this area, you will always be informing customers that their order is out of stock – and that is not a great way to attract repeat customers and brand advocates.
Here are some inventory management tips that can help reduce the number of out-of-stock items:
– Use multiple suppliers. Accessing multiple suppliers with overlapping inventory is one of the best direct shipping tips to improve your order fulfillment rate. If supplier A does not have an item in stock, there is a good chance that supplier B has it.
– Choose your products wisely. Once your product is confirmed, try to sell items that you know are available with all your suppliers. This way, you will always have at least two potential options to fulfill any product.
– Use generic products to your advantage. Even if suppliers do not carry the exact same item, different suppliers may have products that are very close to each other that can be swapped out. This is especially true for small accessories and product add-ons. If you can confirm that two products are nearly identical, write a generic product description that allows you to fulfill the order from any supplier.
– Check item availability. Just because the supplier has an item listed on their website does not mean they consistently carry that item. It is a good idea to talk with your sales representative about the availability of the products you are considering selling. Are these items in stock 90% of the time or more? Or does the supplier only keep a small amount and struggle to reorder the product from the manufacturer? You will want to avoid stocking last-minute products.
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Handling Out-of-Stock Item Requests. No matter how well you plan, you will eventually deal with customer requests that you cannot fulfill. Instead of telling the customer that the item is unavailable, offer a free upgrade to a similar but better product. The customer is likely to be very happy, and you will be able to maintain a customer relationship.
3. Smart Order Fulfillment
There are many benefits to using multiple suppliers, as discussed earlier: it increases the chances of item availability, provides geographical diversity for faster delivery times, and prevents you from relying on a single source for your products. But with multiple options for order fulfillment, how do you know which supplier is the best fit? There are several different approaches to consider:
– Directing orders to a preferred supplier. If you have one supplier that carries most of your items and is easy to deal with (excellent service, great selection, etc.), you can simply direct all orders to that supplier by default. This can be easily implemented, especially since you can simply add your supplier’s email address as a recipient for all new order confirmations, automating the entire process.
– Directing orders based on location. If you are using multiple suppliers, each carrying a majority of your products, you can simply route the order to the supplier closest to your customer. This not only speeds up delivery to your customer, but also saves on shipping fees.
– Directing orders based on availability. If you have a large assortment of products spread across many suppliers, you may need to route each order based on the supplier that has the item in stock. This requires more work if you are doing it manually, but it can be automated using a service like eCommHub if your suppliers provide real-time data feeds.
– Directing orders based on price. This sounds great in theory, but unless a supplier has significantly better pricing, it can be difficult to automatically determine which supplier will be the cheapest. Any automated solution would need to account for potential shipping fees, real-time shipping costs, and real-time supplier prices. So, while it isn’t impossible, implementing an accurate automated system to achieve this can be challenging.
Note: Even if you don’t route all your orders based on price, your suppliers should offer deals for the best possible price as your business grows. Just don’t try to do this too early – if you’re asking for price reductions as a beginner, you may irritate your suppliers.
We’ve tried all four methods and found that there is no “best” way to do it. It really depends on your store, your suppliers, and your personal preferences.
4. Implementing Best Security Practices
In our current world, there is no excuse for running an online business with weak security or poor practices to prevent fraud. Here are some tips for drop shipping to keep customer information safe while shopping online:
– Storing credit card numbers. Allowing the storage of credit card information can make for convenient reordering for your customers and may increase sales. However, if you are hosting your site yourself, it’s unreasonable to deal with security and liability issues.
– Handling fraudulent orders. The prospect of fraudulent orders can be daunting when you’re starting out, but with some caution and vigilance, you can prevent the majority of losses due to fraud. One of the most common and utilized fraud prevention measures is an Address Verification System (AVS). When AVS is enabled, customers must enter the billing address registered to their credit card to approve the transaction. This helps prevent thieves who only have the raw credit card number from successfully making online purchases.
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Dealing with fraudulent orders. Most fraudulent orders occur and are used when billing and shipping addresses are different. In these cases, the thief enters the cardholder’s address as the billing address and enters a separate shipping address for the goods. Unfortunately, if you do not allow customers to ship to addresses other than the billing address, you will lose many legitimate orders.
– Dealing with fraudulent orders. When a customer disputes a shipment with their bank or credit card company, you will receive a “chargeback.” Your payment processor will temporarily deduct the disputed amount from your account and request proof that your business provided the goods or services to the customer. If you cannot provide evidence, you will lose the disputed amount and incur a chargeback processing fee. If you accumulate many chargebacks, you might lose your merchant account.
5. Handle Chargebacks Promptly
When a customer contacts their bank or credit card company to dispute a shipment, you will receive a “chargeback.” Your payment processor will temporarily deduct the disputed amount from your account and request proof that your business provided the goods or services to the customer.
If you cannot provide evidence, you will lose the disputed amount and incur a chargeback processing fee. If you accumulate many chargebacks, you might lose your merchant account.
The biggest reason for chargebacks is usually fraud, but customers may also dispute a charge because they did not recognize your business, forgot about the transaction, or simply did not like the product they received.
When you receive a chargeback, you usually have just a few days to respond, so you must act quickly! You have a chance to recover your money if you provide the original order documentation and tracking information showing delivery, and possibly the packing slip showing the items you sold and shipped.
Unfortunately, if the chargeback is related to an order with different billing and shipping addresses, you are unlikely to win. Most processors will only reimburse you for fraudulent orders shipped to the billing address on the card.
6. Write an Effective Return Policy
Before writing a return policy for your dropshipping store, you will want to ensure you understand how to handle returns from all your suppliers. If they have a flexible 45-day return window, you can be generous in your terms. A strict return policy from just one supplier might cause you to reevaluate the terms you can afford.
When a customer needs to return an item, the process will typically be as follows:
– The customer contacts you to request a return.
– You request an RMA number (Return Merchandise Authorization) from your supplier.
– The customer sends the goods back to your supplier, noting the RMA number on the address.
– The supplier refunds the wholesale amount to your account.
– You refund the retail amount to the customer.
It’s usually not that simple. Several factors can complicate returns:
– Restocking fees. Some suppliers may charge restocking fees, which are essentially additional charges for returns. Even if your supplier charges these fees, we strongly recommend not passing them on to the customer, as it will make your online store seem outdated and unfriendly.
– Defective items. The only thing worse than receiving a defective item is having to pay extra fees to return it. Most dropshipping suppliers will not cover return shipping costs for defective items. In their view, they did not manufacture the item, so they are not responsible for defects. However, you should always compensate your customers for return shipping costs on defective items if you care about building a trusted business. This is a small part of the overall cost of running a successful dropshipping business.
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Handling unavailable requests. Instead of telling the customer that the item is out of stock, offer a free upgrade to a similar but better product. The customer is likely to be very happy, and you will be able to maintain the customer relationship. You may not make any profit from the order, and that is normal: after all, you won’t make any profit if the customer cancels the order as well.
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