Many aspiring entrepreneurs hesitate to open their own online store due to start-up costs and the hassle associated with delivering goods.
But imagine someone suddenly offering to pay your initial expenses for purchasing various products and taking over the management of their shipping operations. This would make your job much easier and would also allow you to manage your business from anywhere in the world. Sounds too good to be true? But it’s not just a dream if you know how to start dropshipping the right way.
In this article, we will look at all the benefits of dropshipping, get acquainted with two most important principles of dropshipping business operation at the initial stage. Also, you will receive detailed advice that will help you start your own business.
Benefits of the Dropshipping Business Model
There are many reasons why you should consider dropshipping as an online business. Here are the most important ones:
- You don't need any start-up capital to start selling. Dropshipping makes it easy to start selling products online. You don't have to invest in inventory, but you can still offer thousands of products to your customers.
- Convenient and efficient. Successfully starting and growing an e-commerce business takes a lot of effort, especially if you have limited resources. Not having to worry about shipping your products frees up your time, allowing you to focus on marketing, customer service, and additional operations.
- Access from anywhere in the world. Once all issues related to the physical fulfillment of orders are resolved, you can run your business from anywhere where there is access to the Internet.
- A proven business model: Many online retailers, even large retailers like Macy's , use dropshipping sites to offer their customers a wider selection of products without having to deal with large inventories.
The Main Principles of Dropshipping That Everyone Needs to Know
If you have never done dropshipping before, the information in this chapter will save you weeks of wasted time and frustration. The dropshipping tips in this article are built on two main principles for running an effective dropshipping business:
- Accept that things can go wrong. The convenience of dropshipping comes at a cost, and having a hidden third party involved in every sale can often make things more complicated. Order fulfillment issues , from failed orders to out-of-stock items , are something you'll have to deal with. If you plan for this up front, you'll be less frustrated and less likely to give up.
- Follow the “KISS” principle. The KISS mentality will serve you well when it comes to dropshipping. Given the complexity inherent in dropshipping (many suppliers, multiple locations, etc.), you might think that you need to have your system set up perfectly and constantly monitor your expenses and inventory. But if you try to do that, you’ll likely go crazy, spend a lot of money on a custom strategy, and never get your store up and running. Focus on the easiest solutions to implement, even if they’re not “perfect.” This is usually the best option, especially when you’re new. Ask any dropshipping store owner this, and they’ll tell you it’s true.
Now, with the two concepts above in mind, here are some basic dropshipping tips to help you structure your business properly and make everything run as smoothly as possible.
10 Dropshipping Tips for Beginners
1. What to do if the supplier has not fulfilled the order?
Even good suppliers make mistakes sometimes, and you're guaranteed to have errors processing orders from time to time. So what do you do when a supplier sends the wrong item or doesn't send anything at all? Here are three steps to fix the problem:
- Admit your mistake. Never blame your dropshipper for a mistake in front of your customer. This will only lead to confusion and make you look bad. The customer doesn’t even know the dropshipper exists. Instead, you should take ownership of the problem, apologize, and let the customer know that you are doing everything you can to resolve it.
- Make amends with the customer. Depending on the severity of the error, you may want to offer the customer something as compensation. This could be a refund of shipping costs (the best option) or an upgrade if the customer needs a new item shipped.
- Hold the supplier accountable for the error. You may have to take responsibility for the error itself to the customer, but that doesn’t mean you should lose your profits. Any self-respecting supplier will pay for the steps necessary to correct their own errors, including paying for the shipping costs for returning the goods. But they shouldn’t have to pay for any free gifts or upgrades you provided to the customer. That’s why you need to factor these costs into your business plan up front.
Again, even the best dropshipping suppliers make mistakes sometimes, but be extremely wary of suppliers who routinely mix up orders and fail to fulfill them properly. Unless you can get the supplier to be more responsible (which is unlikely), your business's reputation could suffer greatly. In this case, simply switch to a more responsible supplier.
2. How to manage inventory and work with multiple suppliers
Most experienced dropshippers will agree that keeping track of inventory from multiple suppliers is the biggest challenge you'll face when running a dropshipping business. If you don't do a good job of it, you'll be constantly telling customers that their product is out of stock, which isn't the best way to attract repeat customers and loyal fans.
Additional information on the topic: Everything you need to know about the ePacket delivery method.
Proper inventory management among suppliers and distributors, as well as accounting for products that are out of stock , is a very complex process. Shopify apps like DuoPlane and Syncee or the web service Ordoro can help you sync inventory. Of course, it would be great if suppliers had automatic real-time inventory updates, but not all suppliers have this service.
Below are innovative inventory management techniques that will help you significantly reduce the amount of unsold goods due to their absence from suppliers' warehouses.
Cooperation with several suppliers
If you work with multiple suppliers, you have a huge advantage. Why? Because having multiple suppliers for the same product is the best way to increase your order fulfillment efficiency. If Supplier A doesn't have the product in stock, there's a good chance Supplier B does. Plus, relying on one supplier as the only place you can get your product is risky. If they decide to cancel your business, raise their prices, or go out of business, it could jeopardize the future of your business.
You are unlikely to find two identical suppliers who will have exactly the same terms and products, but if they are in the same dropshipping niche or the same industry, then most likely they will both have similar products, and that is what you are looking for.
Choose your products for sale carefully
Building on the previous point, try to sell mainly those products that are supplied by several suppliers. This way, you will have two potential options for order processing .
More information on the topic: How to Find the Best Products for Dropshipping
Use interchangeable products to your advantage
Even if suppliers don't have exactly the same products, they may have similar products that are interchangeable. This is especially true for small accessories and add-ons to main products. If you're sure that two products are nearly identical, you can write a less detailed product description, which will allow you to order from either supplier. You can also specify the model numbers of both suppliers in the Model field. This way, you can invoice the order to either supplier without making any changes.
Please note: Some caution is required in this aspect. There are well-known brands in every market (e.g. Nike , Bose ) and you can never replace one with another.
Additional information on the topic: How to safely purchase goods on AliExpress and AliBaba.
Check product availability
Just because a dropshipper has listed a certain product on their website doesn't mean they always have it in stock. You should talk to your sales representative about the availability of the products you're going to sell. Are these products in stock 90% of the time? Or does the dropshipper only have a few units in stock and often have trouble re-ordering the product from the manufacturer? You definitely want a supplier you can trust, so always check this.
What to do if products are out of stock
Despite your best planning, you will inevitably encounter customer orders that you cannot fulfill . Instead of telling a customer that an item is out of stock, offer them a similar, better product for the same price. Your customer will likely be delighted, and you won’t lose them. You may not make as much money on the order as you planned, and that’s okay. In any case, you wouldn’t have made any money at all if your customer had cancelled the order.
3. Processing orders in dropshipping business
Working with multiple suppliers has a number of advantages, which we have already discussed, such an approach:
- increases the likelihood that products will be in stock;
- provides geographic diversity to speed up delivery times;
- allows you to not be dependent on any one source of supply (a useful backup plan if your main supplier runs out of stock on Black Friday or Cyber Monday).
But with so many options for order processing, how do you know which supplier to choose? There are several methods you can use:
Forward all orders to your primary supplier
If you have one supplier that you really enjoy working with (great service, great selection, etc.), you can simply route all orders to that supplier by default. This is easy to do with process automation , as you can simply add the supplier's email address as the recipient of all new order confirmations in your store.
If you choose this method, ideally your primary supplier should have most of the items you sell in stock. Otherwise, you will often have to re-order orders that they were unable to fulfill.
Distribution of orders depending on location
If you work with several suppliers, each of which has most of the goods you need in stock, you can simply send the order to the supplier who is closest to your buyer. This will not only speed up the delivery of the goods to the customer, but also save on shipping costs.
Distribution of orders depending on availability
If you have a large product catalog and many suppliers, you will have to route each order based on which dropshipper has the product in stock. This option is more time-consuming if you do it manually. However, if your suppliers provide stock feeds , it can be automated, for example, using a service like eCommHub .
Distribution of orders depending on price
This sounds great in theory, but unless one supplier has significantly better prices, it is difficult to automatically determine which supplier will be the best value. Any automated solution must take into account potential fees, shipping costs, and supplier prices in real time. So (while possible), implementing an accurate automated system to solve this problem can be difficult.
Note: Even if you don't allocate all your orders based on price, you should encourage your suppliers to compete with each other. This will ensure you get the best prices as your business grows. Just don't try to do this too early. If you're new and ask for price discounts, your suppliers will likely not budge.
All four methods have been tested in practice and we have found that for us there are no more practical options than the methods described above. But, of course, everything depends on your store, your suppliers and your personal preferences.
4. Probability of fraud and protection from fraudsters
Saving customers' credit card numbers
Storing your customers' credit card information can make repeat orders easier and increase sales. But if you do it on your own site, you need to be secure and accountable.
To store credit card data, you will need to adhere to various PCI (Payment Card Industry) compliance regulations and conduct a security audit. This is an expensive and complicated process, especially for business owners who are not technically savvy. In the event that your server is hacked, you will be held liable for the stolen card information.
The best solution is not to store your customers' credit card information. Consider using an automated payment system in your store, such as Shop or PayPal, which speed up checkout and help reduce cart abandonment. Implementing payment systems in your store will allow you to focus on marketing and customer service, rather than security audits.
Luckily, if you're using a hosted platform like Shopify, you don't have to worry about this. But if you're using the cart functionality on your own hosting, be sure to disable the "store card information" option in your settings panel.
Working with orders from scammers
Fraudulent orders can be scary if you're just starting out in online business, but with common sense and a little caution, you can prevent the vast majority of losses that arise from fraudulent orders.
Address Verification System
The most common and widely used fraud prevention measure is AVS or Address Verification System. AVS prompts the customer to enter the address on the credit card so that their transaction can be approved. This helps prevent fraudsters who only know the credit card number but not the address from successfully completing online purchases. Orders that pass AVS verification are rarely fraudulent.
The vast majority of fraudulent e-commerce orders are distinguished by the fact that the billing and shipping addresses are different. In these cases, the thief enters the cardholder's address as the billing address, but specifies a separate shipping address for the goods. But if you don't allow customers to ship to addresses other than the billing address, you'll lose legitimate orders. On the other hand, if you allow it, you're putting yourself at risk of loss - if you ship to an address other than the cardholder's address, the payment processor will force you to pay the bill even if it's fraudulent.
Luckily, scammers tend to follow patterns, making it much easier to spot illegitimate orders before they are sent. These signs alone won't help you spot a fraudulent order, but if you see two or three of them, you should be wary:
- Different billing and shipping addresses. Again, over 95% of all fraudulent orders will have different billing and shipping addresses.
- Different names. Different names in the billing and shipping addresses can be a red flag for fraudulent orders. Or it could be a gift purchase.
- Unusual email address. Most people's email addresses include part of their name, which allows you to match part of the email address to the customer's name. But if you see an address like dfssdfsdf@gmail.com , there's a good chance it's a fake address created by a scammer.
- Expedited shipping. Since scammers are using someone else's card, they often choose the fastest and most expensive shipping method. This allows them to reduce the time it takes to catch them before the goods are delivered.
If you find an order that you suspect is fraudulent, simply call the number listed on the order. Fraudsters almost never list their real phone number on the order. If the order is legitimate, you will most likely speak to someone within 30 seconds who will clarify the situation. If not, you will be told of a non-existent number or will answer on the phone that they know nothing about ordering a huge boat for overnight delivery. After such a call, you can cancel the order and issue a refund to avoid problems.
5. Refunds
When a customer calls their bank or credit card company to dispute a charge you made, you're faced with a "chargeback". Your payment processor will temporarily deduct the amount of the disputed charge from your account and ask you to prove that you delivered the product or service to the customer.
If you fail to provide evidence, you will lose the disputed amount and receive a chargeback processing fee. If you have too many chargebacks in relation to the volume of orders processed, you risk losing your merchant account in the payment system.
The most common reason for a refund is usually fraud, but real buyers can also dispute a chargeback because they are unhappy with the service, forgot about the purchase, or simply don't like the product they received. Many businessmen face this.
When you receive a chargeback notice, you will most likely only have a few days to respond, so you need to act fast! To have a chance of getting your money back, you will need to provide documentation of the original order, shipping information, and a wholesale invoice showing what items you purchased and shipped.
If the disputed charge was made as part of a legitimate transaction, then you have every chance of getting your money back. But this is only if you did not make any false statements or promises during the transaction.
Unfortunately, if the chargeback is related to an order that has different billing and shipping addresses, you will almost always lose. Most payment processors will only pay compensation for fraudulent orders that were shipped to the address listed on the card. Otherwise, many merchants turn a blind eye to such chargebacks because they know that trying to get them back is a waste of time.
6. Return Procedure in Dropshipping
Before you write your own return policy, you need to make sure you know and understand how all of your suppliers handle returns. If they offer returns within 45 days , then you can afford to be more flexible in your terms. A strict return policy from one supplier may force you to rethink all of the terms you set.
If a buyer needs to return an item, the process is as follows:
- The buyer contacts you with a request for a return.
- You send a request to the supplier.
- The buyer mails the item back to your supplier.
- The supplier returns the wholesale price of the product to your account.
- You refund the buyer the full cost of the goods.
However, it is not always that simple. Returning goods can be complicated due to the following circumstances:
Refund of commission payments
Some suppliers charge a return fee, which is essentially an extra charge for the labor involved in facilitating the return process. Even if your supplier charges such fees, we strongly recommend that you do not include them in your return policy on your website. This is an outdated system and does not look good on your customer base. While you may have to pay a fee sometimes, you will recoup the cost by having more customers choose to do business with you.
Defective goods
The only thing worse than receiving a defective item is having to pay extra postage to return it. Most dropshipping suppliers do not pay return postage for defective items. They feel that since they did not manufacture the product, they are not responsible for defects. They simply attribute this to the risk of selling poor quality products to the retail market.
If you are interested in building a reputable business, you should always compensate your customers for the cost of returning defective products. Again, this is a cost that you cannot pass on to someone else, but it is an essential part of running a reputable dropshipping business.
If the defective product is relatively inexpensive, it may make sense to simply send the customer a new product and not require them to return the old one. This approach has a number of advantages, including:
- This can be cost effective. There is no point in paying $10 to return an item that only costs $12 from a wholesaler. You will get a net profit of $2 , but it is not worth it because of the hassle of the customer, the supplier and the staff.
- The customer will be pleasantly surprised. How often do companies simply send a new product without requiring the return of the old one? Almost never! You will receive a positive review and, possibly, attract this customer for life. In addition, the customer will receive the new product much faster than in the case where the old product must be returned to the warehouse and a new one must be issued.
- Your supplier may pay for shipping. Suppliers will not pay for return shipping of a defective item, but they may be persuaded to pay for shipping of a replacement defective item that you simply purchase separately. Also, many will be happy to take the hassle out of processing the return.
If a customer wants to return an item they don't like and get a refund, most companies expect the customer to pay for return shipping. This is a reasonable policy. But if you're willing to offer free returns on any product or service, you'll definitely stand out (and companies like Zappos have made this part of their unique business model ). It can be really expensive, but most customers understand that you shouldn't have to pay for return shipping just because they ordered an item they didn't end up using. So, in practice, you shouldn't expect a lot of returns with this approach.
Please note: If you are dropshipping on Amazon or eBay, your return policy will vary depending on the specific marketplace. What you include in your return policy may not be allowed by those sites' return policies.
7. Difficulties with order delivery
Calculating shipping rates can be a big challenge for dropshipping business owners. With so many different products being shipped from different locations, it can be difficult to accurately calculate shipping costs for orders.
There are three types of shipping rates you can use:
- Real-time pricing: This approach analyzes the total weight of all items purchased and the shipping destination on the checkout page to generate an actual shipping price in real time. This is a very accurate method, but the calculations can be complex when shipping from multiple warehouses.
- Rate by item type. With this method, you set flat shipping rates based on the type of items ordered. For example, all small items would ship at a flat rate of $5 , and all large items would ship at a flat rate of $10 .
- Flat rate shipping: This is where you set a single flat rate for all shipments, regardless of type. You can even offer free shipping on all orders.
When it comes to shipping, it’s important to refer to the basic principles of dropshipping listed at the beginning of this article. In particular, you need to find a solution that emphasizes simplicity over perfection, especially if you’re just starting out in dropshipping.
Some business owners will spend days or weeks creating shipping rules for their e-commerce store before they have a single sale. Instead, focus your efforts on optimizing your marketing, social media, and customer service, and create a shipping policy as quickly as possible. Then, as your business grows, you can invest in a more accurate system. With this approach, it’s best to estimate your average shipping cost and set it as a flat rate. You may lose money on some orders, but you’ll make it back on others.
Even if you could use a special system that calculates additional shipping fees based on the location of the supplier, would you want to? Most buyers refuse additional shipping fees.
Try to avoid having products from different suppliers on the same order. To do this, use suppliers with similar stocks and carefully select the products you want to sell. This is a practical and simple solution for long-term work.
International transportation
Nowadays, international shipping has become much easier than before. However, sometimes there are still some complications. When using international shipping, you will have to consider the following points:
- Different weight and length restrictions apply to different countries.
- Additional supplier fees for processing international orders.
- Additional costs for resolving problematic orders.
- Increased shipping costs for large and/or heavy items.
Is it worth the hassle? It depends on the market you are in and the profit margins you make. If you sell small items with a high profit margin, then a wider market reach may be worth the expense of shipping internationally. For others, especially small business owners who sell larger or heavier items, the added benefit may not be worth the expense and inconvenience.
Selecting a carrier
Choosing the right carrier is very important because it will save you a significant amount of money. For example, in the US, you will have to choose between UPS/FedEx and USPS (United States Postal Service).
- UPS and FedEx. These large privately owned firms are great for shipping large, heavy orders domestically. Their rates for large orders will be significantly lower than USPS.
- USPS (United States Postal Service). If you are shipping small, lightweight items, USPS rates are the best value. The cheapest USPS shipping rates are $5 or less. The post office is usually the best choice for shipping international orders, especially small ones.
When setting up delivery options, you should separate them by delivery time ( "Within 5 days" or "Within 3 days" ). This will allow the buyer to choose the most optimal carrier not only by price, but also by delivery time.
8. Quality support service
Trust me, dropshipping pros, managing all your emails, inquiries, and customer returns in an Excel spreadsheet is n’t ideal. As great as Excel is, it’s not designed to handle this kind of work. Likewise, as your business and team grow, supporting your customers with a single inbox can also become a pain and lead to service issues.
Using a good help desk and adding an FAQ section is one of the best things you can do to provide quality service to your customers. Help desk software comes in a variety of forms, all of which provide you with a centralized location to manage customer support messages and questions. Most of these help desk services automatically handle the distribution of questions to your team members and maintain a history of communication between all parties involved.
Here are the most popular support service options you can use:
- Help Scout. Simpler than other services, Help Scout frames each request as a separate email conversation, removing the boilerplate information customers typically see in responses from other support services. On the client side, the information appears as a regular email, creating the effect of a more personalized communication. The service’s pricing plans start at $15 per month.
- Zendesk. Zendesk offers a variety of tools and integrations, and is one of the most popular help desk services today. It requires some setup, but it’s worth it once you customize it for your business. While the app is available for free on Shopify, it requires a subscription to the Zendesk Support Team Plan, which starts at $19 per month.
- Gorgias: Built specifically for Shopify stores, Gorgias manages all your support requests in one place, helping you reduce response times and improve customer support efficiency. Gorgias features automation tools to personalize responses to the most frequently asked questions. Plans start at $60 per month.
- HelpCenter: Access all customer queries from email, Live Chat, and FB Messenger in a single platform. Easily create FAQ pages from scratch to help customers find answers to their questions on their own. Free plan available.
- Richpanel. You can view order data, as well as send information about the location of the parcel, edit orders and issue returns without leaving the help desk account. It is possible to create scenarios for self-service in the help center and instantly give visitors answers if they ask one of the frequently asked questions. A free tariff plan is available.
9. Telephone support service
Deciding whether to offer phone support can be a difficult decision. It's obviously a great way to provide real-time help to customers, but it's one of the most expensive support methods.
If you are just starting your business and work 9 to 5, then you simply won’t be able to answer the phone. But if you work on your business part-time or have an employee who can do it , this may be a good option. If you can’t sit by the phone during the day, you can always turn on voicemail and call customers back later. It’s not a perfect solution, but it can be a good compromise.
You should consider the type of dropshipping products you will be selling when thinking about how to offer phone support. If you have a jewelry store that sells jewelry in the $ 1,000 to $5,000 range, many customers will not feel comfortable ordering that much without first speaking to a real person. However, if you sell items in the $25 to $50 range, most people will not need phone support, as long as you have created a professional website with the necessary information.
If you do decide to offer phone support, be sure to do it right. Placing a phone number at the top of every page can lead to information overload. Instead, consider adding the number in more strategic places, such as on the Contact Us and Cart pages, where the likelihood of making a purchase is high.
No matter what methods of communication you choose with your customers, you should always be prepared to call the customer after the sale if there is a need to resolve any issues that arise. There is nothing wrong with forgoing pre-sales phone support, but when it comes to taking care of the people who have purchased from you, you should never refuse to help them over the phone.
The following services can help you set up your phone number and support line:
- Grasshopper: Grasshopper offers phone services and is geared toward small businesses. You can get a toll-free number, three extensions, call forwarding, and voicemail for a reasonable monthly fee (around $26).
- Aircall. Aircall offers a phone number, email, and a help center in its basic plan, essentially giving you a help desk. You also get unlimited calls to the US and Canada (international rates apply). Aircall can integrate with other popular help desk software, such as Zendesk.
10. Focus on marketing
Ultimately, sales success depends on whether customers find your store. To do this, you need to create a steady flow of traffic. To increase website traffic, it is usually best to focus on marketing channels such as search engine optimization (SEO), Facebook advertising, and Google advertising.
Search Engine Optimization
SEO is the process of fine-tuning your website to increase its chances of ranking high in search results for relevant keywords.
Ideally, you want your product pages to match keywords so that people can find them naturally through search engines. Although most keyword queries are short, two- or three-word queries, they are more common and competitive, so it is difficult to get traffic from them.
Instead, try focusing on long-tail keywords that are three or more words long. Long-tail keywords may have less traffic, but they are much easier to exploit because of the lack of competition.
You can find keywords using tools like Google Ads or keyword.io. Enter the name of your product and you will see a list of related queries that you can insert into the text of your product pages.
Facebook Advertising
Facebook is a platform that many e-commerce entrepreneurs use. Especially those who are just starting out and don’t have much advertising experience or a large advertising budget. There are plenty of opportunities to attract new customers and bring them to your online store because there are over 2.6 billion active users on the network. Creating Facebook ads will allow you to directly access an active and engaged user base.
The beauty of Facebook advertising is that you can target customers based on demographics, interests, and activities. Facebook is designed for people to share personal news, vacation photos, new songs they've discovered, and relationship status. All of this, along with likes and connections, creates user profiles that can be used by advertisers.
You can use Facebook ads to match your products to a list of interests and user behavior patterns, increasing the likelihood that you will find your ideal buyer. Once you have found your audience, you can advertise your products only to those users. Try out the different ad types that Facebook offers (image, video, carousel, or collection) and see which one works best.
Google Ads
Google Ads allows you to advertise on two of the largest search engines: Google and YouTube . Google Ads has the same features as most other advertising platforms, allowing you to set a budget and maximum daily spend, as well as a cost per user click. You only pay money when someone visits your site. These features make Google Ads a great entry-level advertising platform, despite the somewhat complex interface.
What makes Google Ads so attractive is the ability to reach a wide audience in three different ways: search advertising, Google Display Network, and YouTube advertising.
The real beauty of Google Ads is that you can target specific audiences based on their specific behavior, interactions with your site or brand. For example, you can only show ads to those who visited a specific page of your store or abandoned their purchase by leaving an item in their cart. You can also target your ad campaign based on demographics, interests, and other user characteristics. For a beginner dropshipper with a small budget, this can help you attract a large audience and make more sales.
By combining some of these features, you can try using the Google Display Network to retarget people who have previously viewed specific products on your site. In other words, when they visit other sites, they will see a Google Ads ad for the product they recently viewed on your online store.
Also, in the SEO section we talked about how to find and use long-tail keywords. Advertising on such keywords usually costs less. So why not try to become even more popular?
Are you ready to start your own dropshipping business?
While the dropshipping model is one of the fastest ways to start a business, remember that it is not a quick path to passive income. A successful dropshipping business requires active work. You need to constantly grow it to keep your customers happy and coming back to buy from you.