General
What Is Dropshipping & How Do You Get Started?
Understanding dropshipping and steps to launch your own online business
May 2, 2024
16 min read
One of your biggest pain points as a dropshipper is refunds. It is probably one of the most dreaded words in this business.
Not only do you lose money, but you also lose credibility. As always, prevention is better than cure. While you can deny refunds in some circumstances, it is way more reasonable to think of ways to prevent returns from happening.
Today, I will share not just how you must handle returns and refunds, but also the psychology of why this happens. In the end, you will have a method of how to significantly reduce your return and refund rates.
In this section, you will learn the most common reasons people return products. This will help you create processes and standards to prevent refunds from even happening. If you understand the psychological causes, you can surely create a mitigation plan.
Customers will certainly ask for a refund if the product they received is different from what they ordered. Obviously, this is a packaging mistake from the supplier, and there is no other way to go around it but to give the customer their money back.
This happens either because of a mislabeled SKU or human error. Either way, you need to call it out to your supplier. It is also why it is best to order a sample product first before using a supplier’s services—it lets you know if they ship products accurately.
Not to disparage AliExpress or other supplier marketplaces, but retailers on any platform often embellish their products. Here are some ways they do it:
This, of course, is a supplier credibility issue, and it happens more often than you think. Dishonest suppliers do this all the time, even on Amazon, knowing that customers will not ask for a refund if the product is cheap anyway. If this happens, pull out your listing right away from this supplier.
What does “poor quality” really mean? Any product that does not meet certain standards is of poor quality. This standard, of course, relies not only on what was promised but also on consumer expectations.
Here are some examples of poor-quality products:
While some customers may not be happy about it, cheap materials can be justified by the product price. As is often said, you get what you pay for. What you need to worry about are the defective ones. Customers can forgive low-quality of cheap and flimsy materials, but they will not let defective products slip.
Damage refers to broken parts, leaks, and similar circumstances. This happens either because the shipping company is negligent or the supplier’s packaging is insufficient for protection.
Take note that customers rarely ask for dropshipping returns and refunds because of damaged packaging, unless the packaging is supposed to be part of the presentation—they cannot give the item as a gift if it has a damaged carton.
Minor scratches do not prompt customers to ask for a refund, provided that this damage is negligible and that the product is still functional.
After over a hundred years of shipping and logistics, packages still get lost in the mail. This can happen because of:
On some occasions, failed delivery attempts can happen because the customer is not at home at the time of delivery. There are also situations where the customer’s address is wrong, or it is not serviceable.
Buyers will only give you a few days to get their items delivered. If they don’t get their orders on time, you can’t really blame them for thinking that they were “scammed,” which leads them to asking for a refund.
How is late delivery a problem and a cause for refund? This usually happens during the holidays. In the US, think of Thanksgiving and Christmas.
During this period, customers often order products not for themselves but for their loved ones, and they order the products as gifts.
Late deliveries result in refunds because they no longer have any use for your product. It is likely that they bought one from a physical store since yours is late.
Missing parts can happen in all sorts of products, most especially so for those that require assembly. In this case, a refund can still be prevented.
Common missing parts happen in:
You can ask your supplier to send the missing part. However, if the shipping cost does not make financial sense, it is most likely that the supplier may prefer to process a refund. Either way, your customer is unhappy and is likely not to buy from you again.
This situation is all too common. In some cases, it is the buyer’s fault. They probably selected the wrong size or color when they added the item to their cart.
This happens often with products like
You can reject the refund request if you have evidence that the customer made an error. Make sure that this policy is stipulated in your dropshipping returns and refunds page. However, if it is the supplier’s fault, you have to honor the request.
Similar to the other causes of requests, this issue can happen because of an error in the processing system or because of human mistakes. For as long as the customer is not in the wrong, you have to take the losses and move on.
Lucky for you, there is no law in the US that mandates retailers to issue a refund because the customer had a change of heart.
The thing is that consumers know this, and they may not even use this as an excuse. They know that they can be legally declined.
In this situation, you can probably expect consumers to ask for refunds for another reason, such as broken items or defective products.
The risk here is that it is the consumer who will break the product, in which case there is little you can do. Do not worry, as it does not happen all the time, and it should not deter you from dropshipping.
There are many reasons consumers can ask for a refund. Some are reasonable, and some are not. But know this: refunds always mean loss of revenue.
It is a good idea to make your refund policy accessible and, most importantly, visible to the consumer, even at the product page. While it does not prevent a refund request from happening, it certainly can deter malicious refund requests.
The way dropshipping refunds work is similar to the dropshipping process itself, but in reverse. Here is a quick overview.
It is important to note here that the money involved is merely the purchase price, not inclusive of the shipping price. It is very rare for suppliers to refund the shipping cost, and in most cases, the consumer suffers this loss.
On top of that, it is the consumer who pays for the shipping fee back to the supplier. This is not always the rule, as there are suppliers who take accountability for their mistakes.
Yes, there are suppliers who refund not just the product cost but also the shipping cost, plus the cost of shipping the item back.
There is what we call the “No Return” Model. It is a refund model where the supplier does not ask for the product back. They will just issue the refund for the product and shipping costs, and the customer has to do nothing else.
A policy like this exists mostly for small and inexpensive items. For example, if a product only costs $5 and the shipping cost is about the same, it is far cheaper to just give the customer the $10 back instead of going through all the hassle of a traditional refund process.
This process will depend on your setup with the supplier. Most suppliers will want the item sent back to their warehouse. However, international shipments can be problematic, so this may not work all the time.
Let us say that the customer is from the US. However, the product came from China, while you, the dropshipper, are in the US.
In a case like this, it makes much more sense for the customer to send the item back to you, not to the warehouse located in China, as it will cost more if they do the latter.
Suppliers often have a refund window, which you must reflect in your store. The most common is 30 days after the customer has received the item.
How will you know if the customer has received the item? Well, logistics companies have a record of that. There is a system that will let you know if the parcel has been successfully delivered and received.
Then there are suppliers who ask for restocking and other fees, such as reshipping. With a policy like this, you must decide if you want to take this financial liability or if you will pass it on to your consumer. Of course, it is better to pass it to the buyer, but then you will compromise your credibility if you do this.
Management begins with processes, and in this section, I’ll share some of the best tips to manage dropshipping returns and refunds.
Return policies must comply with legal laws or regulations. Make sure you check out the laws of the markets you target.
As far as placement goes, you must have a dropshipping refund policy link at the footer of your page, and this must be present even in your product pages.
Your return policy must clearly state what refund requests are acceptable. Other information that you must add are:
The actual process may vary, as this depends on your supplier. What you need to make sure of is you have visible contact information for refunds.
It also helps if you prepare standard templates you can use for responding to refund requests. At this point, your customer is already disgruntled, so it does not make sense to aggravate their feelings.
Before everything, take the time to understand how your supplier processes refunds and returns. Most suppliers, especially those that operate a dropship marketplace like Spocket or AutoDS, have a clear policy on how they handle refunds, which I will discuss later.
Knowing these policies is important because it is the supplier’s process that you will replicate in your store, per product, of course. These rules are also the very same ones you will use when dealing with your customers’ requests.
Processing refunds is not just time-consuming but also labor-intensive. There are many tools you can use to automate your responses and make this process easier.
You can use:
In any case, the goal here is to be able to respond to a customer without you being present all the time, even if the responses are generic or canned.
You can also use data-collection tools. For example, there are apps where you can ask the buyer to upload an image of the defective product. This saves time, as there is no back-and-forth necessary in communicating this process via email or manual chat.
Overall, your priority is to de-escalate the situation. Consumers who ask for a refund are usually upset, so you must have the right process about how to speak to them, how to make them reconsider, or how you can offer bonuses and such to keep them as a customer.
On many occasions, a replacement can be a good alternative to a refund, provided that the error is from the supplier’s end.
AutoDS and Spocket are popular dropshipping marketplaces. I will give you a quick overview on how these two companies handle refunds.
For AutoDS, here is the process:
The challenge here is that AutoDS is not a supplier. What it means is that a supplier can deny the refund request because it does not meet their policies. In this case, you are in a tough situation—you must deal with your customer and probably suffer the financial loss.
System-wise, AutoDS has a user-friendly refund interface. However, receiving a reply from a supplier may take a while—longer than an unhappy customer is willing to wait.
A good supplier shoulders the cost of the return shipment. But again, this does not depends on AutoDS, as it is only a middleman. A return will happen only if the request is approved, which happens only in clear-cut cases: lost package, received item obviously broken with pictures proving the damage, etc.
Spocket, similar to AutoDS, has various refund policies, but it is still the supplier who makes the call. To process a refund, you must contact the Spocket customer support team. They do not have a system where you can file for a refund easily.
It is Spocket who will alert the supplier, and the result of this request now relies on the same supplier. If the request is rejected, then there is no way to move forward.
If accepted, you will receive instructions on how to ship the item back to the supplier. You must get a tracking number from your customer—prove that the item has been shipped back. Once you supply this tracking number to the supplier, they will process the refund.
Tradelle is vastly different from other dropshipping platforms when it comes to refund policies. The primary factor here is that Tradelle is not a dropshipping marketplace. Tradelle is THE supplier.
You can request a refund for the following conditions:
Tradelle recognizes that sometimes, products may arrive damaged or defective. In these cases, the company takes full accountability for the issues. To process a refund, however, you must provide Tradelle with supporting evidence, like records of the customer complaints and photos of the said defective products.
Take note that you must submit the required documents within seven days after the customer has received the item. It is important that your dropshipping store stipulates this requirement and that this process is very visible on your website and product pages.
On some occasions, the customer may receive a product that is different from the original order. Similar to damaged goods, you must ask your buyer to provide images or videos, and you need to send this to Tradelle within seven days of product receipt.
If the conditions are met, Tradelle will issue the refund (including the shipping costs) or reship a new (but correct) item to your buyer. This shipment of a new product comes at no additional cost.
Handle refunds according to your supplier’s rules and policies. However, since you are the “face” of the company as the dropshipper, be prepared to suffer losses in case your supplier does not process the refund.
Most often, dropshippers refund products as the customers’ requests, especially if the customers are located in the US, where consumers have strong legal protection.
Yes. Additionally, Tradelle’s high quality of service and products prevents refunds from even happening. Like most dropship suppliers and partners, Tradelle will issue the payment back once the product has been returned.
It depends. From most suppliers’ views, the customer pays for the returns in dropshipping. It is rare for dropshippers to shoulder the cost, but you can do that if it is financially reasonable, or you can pick a supplier with generous return policies, such as Tradelle.
Refunds are a painful but normal part of dropshipping. This does not mean to say that you shouldn’t do anything about them. While you cannot please all customers. There are many ways by which you can reduce the likelihood of customers asking for their money back.
Honesty, transparency, and integrity are important. In addition, you may want to consider using a platform like Tradelle. This way, you do not have to deal with various suppliers who have different refund policies.
Returns and refunds are a headache, and they are also a leak or drain in your profitability. Prevent this by working with only the best dropship suppliers. Check out Tradelle now and see the difference!
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