The Ups and Downs of Running A Dropshipping Company
If you never had the opportunity of running a drop shipping business, or you are struggling with one, this information will help you. It’ll save you several weeks of wasted time, frustration and stress.
The first thing to know about dropshipping is that these suggestions below are drawn from two basic principles. These principals are core to dropshipping:
Things Will Get Messy
Dropshipping is a convenience with a big price to pay. It gets more complicated once you have an invisible third party involved in every sale you make. There have been many stories of botched orders, out-of-stock items, fulfillment problems and more. The sooner you come to terms with it, the easier it’ll be.
Have A KISS Mindset
The second principle is having a KISS mindset. KISS stands for “Keep It Simple, Stupid!” Simplicity at its core is great in any kind of business. The simpler you have a process for your business, the simpler the business will be to run. There are many moving parts to a dropshipping model, so make sure your solutions and approach are simple when starting. It doesn’t have to be perfect.
With these two principals in mind, let’s apply these principles in practice.
Dealing With Botched Orders
Your suppliers make mistakes as well, they’re not perfect and some errors will occur. With those principals mentioned above in mind, here are some suggestions to consider.
Don’t Blame Others
Do not blame your supplier, ever. Your relationship with the customer is far more important. The customer will have no clue there was a supplier involved. Blaming someone else only makes you look like an amateur.
Offer Something To The Customer
Depending on the severity of the mistake, you want to be proactive with offering something to the customer when you make a mistake. Consider freebies (free shipping) or a free upgrade.
Let The Supplier Pay For It
Own your mistake, but you don’t always have to foot the bill. Any reputable supplier will pay to fix any of its own errors. This also includes paying for shipping costs to returned items. A supplier, however, may outright refuse to pay in scenarios where the customer takes a freebie or an upgrade that you offered.
Regardless, suppliers will make mistakes at times. However, you want to keep an eye on the frequency of these mistakes. A supplier who habitually botches orders will ultimately hurt your brand to other customers. In that case either work with them to help them change (unlikely to happen), or find another supplier.
Managing The Inventory & Suppliers
Managing inventory across many suppliers is a tough challenge for a dropshipping business. Having a simple system to address this will help immensely. Some things to consider first is getting access to inventory management services. A good place to go is sites like Ordoro and eCommhub to sync inventory.
Here are some other issues to consider:
Have multiple overlapping suppliers
Suppliers don’t always stock one item. Having multiple suppliers that cover some items amongst others ensures that you have someone to turn. This help in scenarios where your go-to supplier for one item is low or out of stock, you can still provide it by turning to another.
Pick products wisely
Only sell specific items that you know suppliers can provide. If two suppliers have an inventory of teddy bears, sell teddy bears on your site. One or the other supplier is bound to have them.
Use Generic Products
This can help particularly with smaller accessories and add-ons. Write a generic product description to either supplier when an order is placed. Use either model number and send the order invoice to the respective one without making changes. Also be careful with this too as each market has their own well-known brands. You do not want to substitute those.
Being listed by a supplier doesn’t mean they always have an inventory of it. Chat with your sales rep on that product to determine how often that item is in stock.
Issues With Security And Fraud
The potential of getting fraudulent orders when starting out can be scary. But with common sense, you can prevent a lot of the activity. It’s a matter of looking at the information given to you when an order is placed.
One way to squash it is having an AVS, or address verification system. When enabled, customers must enter the address on their file AND their credit card info for every transaction. This prevents people who have just the credit card info.
Having an AVS system will drop fraud rates significantly, but some may still slip through. Furthermore, if you can’t afford an AVS, here are some methods you can use to spot them:
Different billing and shipping
95% of fraud order will do this.
Could be two things: a gift purchase, or a fraudulent order.
Unusual email addresses
If it looks like a spammy or made up an email address, then it’s one sign of fraud.
Fraudsters tend to select the fastest and higher priced method of shipping since it’s on someone else’s dime.
If an order has two or more of those elements above, there’s always calling the number. It’s either a bogus number, someone confused about the order or someone who did genuinely place an order and can explain the situation.
Before setting up any return policies, first look at how your suppliers deal with returns. If they offer a 45-day return window, you can be generous with your return policy. Remember though, one strict return policy and that’ll change your entire return policy structure.
In the most simplistic of return methods, returns tend to go like this:
- A customer requests a return.
- You fill out a return merchandise authorization (RMA) number to your supplier.
- The customer mails the merch to the supplier with the RMA# on the address.
- Supplier refunds the wholesale price to you.
- You refund the customer for the full price.
This method gets tougher in some scenarios, like these:
A surcharge for having to return the item. Even when a supplier charges these, it’s unwise to put these in your return policy. They’re rather outdated and unfriendly towards customers. In cases of these fees, cover the cost for the customer.
Most suppliers won’t cover the postage for returned defective items. On your end, compensate customers for the return always. That being said, if the item they’re returning is inexpensive, you can always request them to hold the item and you’ll ship a new one to them.
In the end, you want a solid return policy in place. Another option to consider is offering to cover return costs regardless of the scenario. In cases of inexpensive items, you can offer instead a brand new item. This can set you apart as it’s fairly standard for companies to expect buyers to pay for return freight for non-defective items. At the same time, it can also get expensive.
Calculating the shipping rates has the potential of getting messy, especially when you have multiple locations and suppliers. With shipping rates, there are three types to keep in mind that you can use:
Using the collective weight of all items and the shipping destination to determine shipping price. Very accurate but it gets tricky when multiple warehouses are involved.
A flat shipping rate based solely on the items that are ordered. Teddy bears ship for $3 while larger teddy bears ship for $7.
One shipping rate only. Doesn’t matter about weight, type, or how many items. You could even throw in free shipping when people spend a particular amount. The easiest one, but doesn’t reflect actual shipping costs.
With shipping, you want it’s important to be mindful of the core principles. You want it simple, but also to ensure that you can turn a profit. Don’t spend weeks or days on this, pick something that you think will give you an edge.
International shipping has gotten easier, but it’s not as straightforward as domestic shipping. Here are some things you’ll have to deal with and consider:
- Weight and length limits for various countries.
- Additional charges and shipping fee and expenses.
- Larger costs for shipping large/heavy products internationally.
Considering international shipping really falls down to the niche you select and what sort of profits you can earn in it. You have more appeal if your business has a broad appeal (like cheap watches) but also the items you are shipping are small and light.
A carrier is integral to your operations and having the right one will save you a lot. You really only have a few options to go with at this point: either UPS or FedEx or the local postal services.
UPS and FedEx will give you cuts on big shipments compared to the local postal services. They work great for companies who ship large and heavy packages domestically.
The postal service, however, is good for international delivery, but it’s smarter to use them for items that are lightweight.
Don’t be the guy managing customer support on an excel spreadsheet. Excel can help, but it’s not built for customer support. Also when your team grows, a single inbox to manage customer support won’t cut it either.
You want to be implementing a help desk to help you deal with customer service. Thankfully there are a variety of platforms that can offer these services. Here’s two to consider:
You can use Gmail as a customer relationship management (CRM) system using built-in tools and add-ons. This is what I use and recommend. It's simple and easy to set up and use.
Shopify Order Comments
I use the Shopify order comments to communicate with my VA's about what is happening with an order. It's the best place to keep all your order-related information stored. I go over how to use Gmail and Shopify order comments in depth in the drop shipping masterclass.
This may be a simple thing, but even phone support can be a bit tricky to consider too. Whether phone support is a good idea or not really depends on what it is that you are offering. For example, people prefer calling someone if they’re buying expensive items like jewelry but won’t need much help if they’re buying a $10 item.
Another thing to consider is your own lifestyle too. If this is a side-business and you have a day job, it might be hard to be available throughout the day. At the same time if you or someone else working for you have time throughout the day then this becomes less of an issue.
If you do decide to put in phone support, be wise with where you put it. A good idea is to place the phone numbers on the contact page and/or on the checkout page. This’ll save you many pointless calls as people who go to those pages are in the buying mood at this point.
All that being said, you still want to offer phone support regardless of your choice when dealing with issues. You want to take care of your customers, so make sure you let them know after they made a purchase they can call you if there are any problems.
I recommend using Grasshopper to set up a toll-free number and sales line. I have used their systems for years and they work great all the time.