Guide: Operating a dropshipping Business (chapter 7)

This chapter will be a game changer for you if you’ve never been into dropshipping business. Basically, this chapter foots on two principles of dropshipping as detailed below.

  1. Things are not always rosy – The truth remains that dropshipping business is not an all-easy venture. Its convenience and success come with a price. Having a third-party even makes the whole thing more complex. Ranging from fulfilment issues to out-of-stock complaints and all that, you’ll definitely have to deal with some issues. Don’t give up.
  2. Keep It Simple, Stupid – Sounds weird, right? You need this to grow in your business. Dropshipping is without a doubt, complex, and if you try to set up a system that does your tracking perfectly, you may not get things right. The best way is to keep it simple, start with the easiest-to-implement solutions, go from there and grow. This is ideal when you’re a beginner, and doesn’t matter if the path you took is not so perfect.

Having these two in mind, we can now proceed to how to shape your business to run at its best.

How to React to Botched Orders

As long as you’re an online entrepreneur into dropshipping, you’re bound to encounter order fulfillment errors. The big question is, what’s your reaction when your supplier delivers the wrong item? How do you handle issues of no delivery at all?

Take up the mistake – Remember, your customers don’t know your suppliers. All they know is you, and you should blame your drop shippers in the case of botched order without your customers’ knowledge. Accept the blame, and let your customer know that you’re working towards fixing it.

Do well to make up for the mistakes – Your customers are the air your dropshipping business breathes. So, in the case of botched order, you can promise to make up for it, and also fulfil the promise. You may want to give back the shipping cost, or offer an upgraded version of the previously ordered item.

You take the blame; your supplier pays for it – In as much as you accept the blame and apologize directly to your customers, you don’t have to pay to fix it. Any good supplier will pay up for the error including shipping costs. But then, they don’t bear the cost of the upgrades or freebies you give your clients for the error. Those should be added as brand-building expenses. Don’t forget to start looking for a new supplier if your current supplier is not really up to the task.

Inventory Management and Using Multiple Suppliers

Ask any experienced online entrepreneur who’s into dropshipping business; they’ll tell you that managing inventory status across different suppliers is a herculean task. If you don’t play this part rightly, you’ll be telling your customers that products are out of stock often.

It’s indeed a complex process to manage inventory across multiple suppliers. But then some web-based services are at your beck and call when you want to manage inventory. They come in handy when suppliers provide real-time data feeds, but these are not easy to pull through.

Check out some of the inventory management practices that can help you reduce the ‘out-of-stock’ products you offer.

  • Go for many suppliers – To improve order fulfilment ratio, you should deal with many suppliers who have overlapping inventory. Even if supplier A runs out of stock, supplier B or C can fulfil the order. Also, working with one supplier is like putting your eggs in one basket. If they eventually kick you off or raise their prices, that’ll be a hard blow to your business. Always look for suppliers that are in the same niche, even though the stock different products.
  • Utilize generics – Generic product description allows you to make minor changes in the products you sell. Two suppliers who have near-identical products can fulfil your orders interchangeably, and this means that when one fails, you can use the services of the other without hassle. Also, indicate the model numbers of the suppliers in the model field, this will help you send an order invoice to with of your suppliers without editing. However, when you follow this trick, be careful not to substitute very popular brands.
  • Item availability – Seeing products listed on a supplier’s website doesn’t entail that such products are still in stock. Now, what you need to do is to chat up your personal sales representative to inquire about the product availability. They should tell you whether such items are available often, or whether the supplier encounters issues trying to reorder such items. Considering these will determine if you should go for such items or not.
  • Select your products wisely – select products that most of your suppliers carry in order to have more than just one order fulfillment option.
  • Handling out-of-stock orders – No matter how you run your dropshipping business, there are times your suppliers can’t fulfil your orders because they all are don’t have that product. Now, don’t tell your customers this rather offer them an ungraded and similar item. This might leave you with no profit, but you’ll retain the customer relationship.

Fulfilling Your Orders

As stated earlier, a good online entrepreneur running dropshipping business should have more than a supplier to fulfil their orders. This doesn’t just come with the benefit of having what your customers need often, but also allows for faster delivery and offers geographical diversity. But then, how do you know which supplier to give each order at a particular time? Consider some of these:

Route all orders by default to a particular supplier – Check the supplier with the best service, ranging from good customer service to wide product options, and route all orders to this dropshipping supplier by default. This has an easy implementation, add you supplier’s email address to receive all new and confirmed orders. This is an automated process and doesn’t take time. If you must use this method, your supplier should be up and doing to stock and fulfil all your orders. Otherwise, you’ll be faced with the challenge of rerouting often.

Route orders to suppliers based on availability – If you have a large catalog of products with many suppliers, route your orders to the dropshipper who has the products in stock. For those routing orders manually, this may be tedious, but you can enjoy automated routing if your supplies offer data feeds.

Route orders to suppliers based on price – This can be quite tricky as it’s not very easy to spot pricing differences among suppliers unless one sells at significantly low prices. Any form of automated system to spot pricing differences needs to put shipping rates, drop fees and real-time pricing to work efficiently. However, it can be quite a hassle to implement a perfect and automated system that accomplishes this. Note that it’s important to compare your suppliers’ bid literally to get the best for your business. Don’t be obsessed with asking for discounts too quick.

Fraud and Security Issues


Keeping track of credit card numbers

Keeping track of your customers’ credit card details can help you increase sales and convenience. However, if you’re going to host your site, it doesn’t worth the security liabilities and issues that come with it.

Keeping track of customers’ credit number requires that fulfil many Payment Cards Industry (PCI) rules. If your server ever gets hacked, you’ll be held for the stolen card details.

To avoid all these, don’t just store your customers’ credit card details, rather hone your focus on effective marketing and good customer services.

If you run your ecommerce store on Ali2Woo, you don’t have to worry about these because Ali2Woo works with WooCommerce which doesn’t store credit card data.

Handling Fraudulent Orders

This is bound to happen, and it scares new ecommerce store owners much. You need to be cautious and know how to avert some of these.

Address Verification System

AVS (Address Verification System) is the commonly used means of preventing fraud. With the AVS feature enabled, transactions can only be approved when customers input the address on file in line with their credit card. This prevents fraudsters who have only the credit card number from making purchases. Orders that get through AVS check and are delivered to the billing addresses hardly fall prey to fraudsters.

Too bad, if you don’t allow shipping to addresses other than the billing address, you stand to lose many orders. But then, if you allow it, you run a risk of getting fraudulent orders that you’ll bear the loss.

Fraudsters are known to follow some patterns that you can draw on to ascertain if an order is illegitimate. Individually, you cannot say an order is fraudulent, but a combination of two or more of these can make you decipher if an order is fraudulent.

  • Different names – An order could be illegitimate if the names on the shipping address and billing address are different.
  • Different Shipping and Billing – Most fraudulent orders are known to have various billing and shipping addresses.
  • Unusual email addresses – Most people sign up for an email with part of their names. But when you see an unusual email address that doesn’t have any relationship with the buyer’s name, it could be fraudulent.
  • Expedited Shipping – Fraudsters who target Dropshipping businesses are fast and wise. They often go for expensive items and the fastest shipping option.  Of course, it’s not their money; they tend to spend it lavishly before they’re get caught.

When you have a suspicious order, go for the phone. Just so you know, these fraudsters don’t input their real number when placing an order. Call the number and have your doubts cleared by asking a few questions. If what you’re suspecting is true, the number will not go through, or you’ll speak with someone who has no idea of the purchases made on their behalf. At such point, hang up and cancel the order.

Understanding Chargebacks in Dropshipping Business

You get a chargeback when a customer calls their bank or their credit card company, telling them to contest a charge you made. In such cases, the payment processor automatically deducts the said amount temporarily, pending your provision of proof of delivered goods and services. If you fail to provide the requested proof, you lose to the dispute and the money deducted permanently. Not just that, you incur a $25 processing fee for a chargeback. You need to be careful about this as you may lose your merchant account if you encounter many chargebacks.

Fraud remains the major cause of chargebacks. It also arises from customer dissatisfaction, non-recognition of your business, when they order and forget,  or even dislike what you deliver.

Whenever you get a chargeback dispute, it’s expected that you respond within a few days. To get into the dispute, you’ll have to provide many documents including the tracking information, packing slip, purchased item among others. If you really provided the service and goods as agreed, you stand a better chance of getting your money back.

However, if the order is one with mismatching shipping and billing addresses, you are most probably not going to win. Some payment processors will compensate you for some fraudulent orders.

Managing Product Returns

Before you craft your return policy, do well to understand the way your suppliers handle returns. Having a strict return policy from a supplier can make you revisit the terms that’ll go up on your page. Now, look at a typical return process:

  1. Customer contacts and requests to return a product
  2. You ask for Return Merchandise Authorization (RMA) number from the supplier who delivered the product.
  3. The customer sends a reply mail to your supplier, noting the RMA number on the given address
  4. Your supplier credits your account for the wholesale price of the item
  5. You refund the customer the complete cost of the item.

Obviously, the return process is not a very easy one, as the following can make it complex:

Restocking Fee

Most suppliers, for each return, charge a restocking fee. This is a surcharge a merchant bears for having an item returned. However, it’s not advisable to put this in your return policy as it scares your customers sometimes. You’ll definitely cover up with other successful sales.

Defective items

For customers, no one would cheerfully want to pay an additional fee to return a defective item that was shipped to them. Likewise, your dropshipping supplier wouldn’t want to bear the loss. They tell you that they never did the manufacturing and didn’t cause the mistake.

It’s left for you to compensate your customers for the costs the incur trying to send back the defective item. This is a fee you can’t pass to another person, but include it into your running cost. Do well to compensate your customers for this.

Here’s a tip; if the defective item is not an expensive product, you may want to tell them to keep the faulty product while you deliver an entirely new one to them. This idea saves costs and also raises your reputation bar. Such customer will hardly forget this and will most probably recommend new buyers.

It Can Be Cost Effective – It doesn’t make sense to pay $10 to return an item that only costs you $12 from your wholesaler. You’ll get a $2 net credit, but it’s not worth it for the hassle to your customer, supplier and staff.

The Customer Is Blown Away – How often do companies simply ship out a new product without needing an old one back? Almost never! You’ll score major points and may land a customer for life. Also, the customer will get the new product much faster than if the old one had to be returned to the warehouse before the new item could be shipped.

Your Supplier May Pay for Shipping – Suppliers won’t pay for return shipping on a defective product, but most will pay to have a new replacement sent to the customer. Because they’ll be paying for return shipping anyway, most suppliers can be talked into covering the shipping on a replacement product that you simply purchase separately. Plus, many are glad to duck the hassle of processing the return.

If a customer wants to return a non-defective product for a refund, most companies will expect the buyer to pay for the return freight. This is a fairly reasonable policy. If you’re willing to offer free returns on everything, you’ll definitely stand out (and companies like Zappos have made this part of their unique business model). But it can get expensive, and most customers will understand that you shouldn’t have to cough up return shipping fees simply because they ordered a product they ultimately didn’t want.

Shipping Issues

Keeping an accurate calculation of shipping rates can be quite a hassle for dropshippers because products are shipped from various locations and with various shipping rates. Basically, there are three types of shipping rates, and you can choose any of these:

Real-time rates – In this case, your shopping cart considers the cumulative weights of purchased items and the destination to give a real-time quote. This gives an accurate shipping rate but appears hard for merchants who source from various suppliers to determine the accurate shipping rate for each product.

Flat-rate shipping – With this method, you set a standard shipping rate, and this applies to all orders, despite the type of product. It can be implemented easily, but lacks accurate shipping costs.

Per-type rates – in this method, flat shipping rates are set for different types of products. Perhaps, all small items ship for $4 flat rate while large items go for $10 shipping cost.

While some merchants spend so much time automating shipping costs and features without making their first sale yet, others are busy marketing. The truth is, you better focus on better customer service and marketing and then implement a shipping policy averagely.

Some customers will complain of high shipping costs, believing that the products are from the same place. You, with your hidden secrets, should choose suppliers with overlapping inventory. Also, stay selective with the products you sell.

International Shipments

International shipping got easier, but can never be as simple as domestic shipping. Now, look at some things to consider when you want to ship internationally.

  • Each country’s unique length and weight limitations
  • Costly shipping quotes for heavy and large items
  • Additional processing fee suppliers charge
  • Additional cost of resolving international orders in the case of error.

After looking at these, you should conclude if the hassle is worth it. Your market, profit margin among others comes to play here. Depending on what you sell, international orders might not be favorable. Heavy items and their high shipping costs will make you want to sell them domestically.

Choosing a Carrier

Making the right choice of carrier is very important as you can save huge amounts with the right choice.  Your best decision should be choosing either U.S Postal Service or UPS/FedEx.

UPS/FedEx – These shipping giants are privately owned, and are known for shipping heavy and larger items locally. They offer juicier shipments rates for big items than USPS.

U.S Postal Service – If your shipment is small, the USPS is your go-to partner. The post office is a better choice for sending shipments internationally, especially smaller items.

When you set up your shipping options on your ecommerce store, do well to categorize them by shipping time, say “Within 6 Days.” This gives you the chance to select the apt carrier for each order.

Offering Customer Support

No matter how effective Excel Spreadsheet it, it’s not apt to manage your customers’ details which include emails, returns, and requests. Likewise, as your business expands, it becomes a hassle trying to handle all issues with a single email address.

For optimum customer service, you need a help desk. There are many help desk software, but all are designed to let you manage your customer support issues and correspondence. Most of these help desks assign duties to team members, as well as keep track of the communication history that involves many parties in each issue.

Help Desks to Choose From

Help Scout – This help desk option offers less cluttered features, and handles each issue as an email. Thereby removing the ticket information that follows an issue which the customer sees. With this, customers get support tickets in the form of emails, and this creates a better experience.

Desk – SalesForce backs Desk, and its Universal Box gives you the opportunity to communicate with your customers via different channels, all root on a streamlined interface.

Zendesk – This gives you the opportunity to enjoy a more customized help desk. Standing out as one of the most popular help desk around, it offers different integration features and tools to help you tailor it to your brand’s needs.

Kayako – They claim to offer an all-in-one platform where users can benefit from live chat, remote support, issue management, phone call and even ticket-based support.

Providing Phone Support

In as much as phone support is a good real-time support option, it’s very expensive and can dig a hole in your pocket. When thinking about phone support, you should consider your products. If you sell high-ticket products, most potential buyers will not place an order unless they speak with a sales agent over the phone and get convinced more. Low-end products, in terms of price, will have their buyers place orders without even wanting to call.

If you must go for phone support, then you need to take it strategically. Ensure you add your number in some strategic sections of your ecommerce site. Get ready to call your customers if any issue arises after-sale because you build a long list of loyal customers when you do.

These services can help you with a sales line and set up a toll-free number for your dropshipping business:

Grasshopper – This phone service provider focuses more on smaller business. They can provide you with a toll-free number, voicemail, call-forwarding and unlimited extensions for around $25.

RingCentral – This service provider is a brand to beckon when you need a flexible interface for your phone system. You can customize rules and extensions, and it offers 800-number space. However, Mac users may need to look for another phone service provider as RingCentral OS software is unreliable.Next chapter: 7 Key Factors For Success In Dropshipping Business (chapter 8)

Previous chapter: Choosing Where to Sell (Chapter 6)

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