5 Drop Shipping Pitfalls and How You Can Avoid Them

376533547_aaeb6710e4_zA lot is written about the benefits of drop shipping. It is indeed a great way for retailers – both large and small – to expand their catalog without taking on a lot of inventory risk. But drop shipping isn’t without drawbacks. The reality is that it can be very difficult to provide a consistent, seamless customer experience.

When you drop ship, a huge part of the customer experience is out of your direct control. Unlike a retailer that owns inventory, you are frequently dealing with third-party information and relying on outside organizations to help you service your customer.

At the same time, you – and you alone – are accountable for the customer experience. You can never blame your supplier and any delays in fulfilling orders and getting your customer’s issues resolved will degrade the customer experience.

Why is this important? Simply because your goal as a retailer should be customer retention. With customer acquisition becoming more difficult and more expensive, creating repeat customers (and fervent fans) is something that all ecommerce retailers should be focused on.

Here are five drop shipping pitfalls that can get in the way of a stellar customer experience, and how you can work to avoid them:

1. Order visibility

“Where is my order!?” Poor order visibility is one of the biggest challenges facing drop ship retailers. And, with high customer expectations for fast shipping and up-to-the-minute order updates, it is more important than ever to get a handle on this. Here’s how to make sure the order fulfillment process goes smoothly:

Set expectations up front. State estimated ship dates on your site, in the cart, and/or on order receipts. This not only helps set customer expectations, but also provides a key point-of-purchase assurance that can reduce cart abandonment rates. Key to this, of course, is actually knowing when items will ship. So, it’s important to have an accurate expected lead time for each vendor and to update product availability based on regular inventory feeds from your suppliers.

Keep in sync with your vendors. Ideally your order management system will reflect exactly what is going on with your orders in your vendors’ systems. To the extent that you can, require vendors to confirm new purchase orders and verify expected ship dates. Once orders ship, make sure that tracking information is in your system as soon as possible.

Be proactive about late orders. Keep close watch on which open orders have passed their ship dates. If an order is late, be in touch with the vendor immediately to find out what the status is. And be sure to contact the customer before they contact you about it. (And trust me, your customer will call you as soon as an order misses its estimated ship date.)

Reconsider selling backordered items. No retailer wants to say “no” to an order, but you might want to consider preventing, discouraging, or canceling any orders for backordered items. Backorders are especially problematic because – unless you have full visibility into the entire supply chain – you never really know when the item will be back in stock. Delays happen all the time, especially if your supplier is relatively small and expecting a shipment from an offshore manufacturer. During that time, you will still have an anxious customer checking in with you constantly – and getting increasingly frustrated – as long as the order remains unfulfilled.

(If you do accept backorders and collect payment up front, make sure that you are in compliance with the FTC’s “30 day rule”: http://business.ftc.gov/documents/alt051-selling-internet-prompt-delivery-rules)

2. Lack of branding

In addition to the potential negative brand implications of late orders, etc., drop shipping also makes it harder to reinforce your brand throughout the duration of the customer experience. Once a customer checks out of your shopping cart and receives their receipt, that might be last they see of your brand.

Why is branding the fulfillment process important? In short, it’s a great opportunity to generate goodwill and repeat customers. It’s a significant touchpoint with customers, and one in which you can make a lasting impression.

To reinforce your brand, a few things to consider on this front would be:

  • Branded packing slips: A packing slip with your logo, policies, and contact information is, in my opinion, the bare minimum for package branding.
  • Marketing package inserts: These might include a mini-catalog or brochure. Or, even better, something fun that represents your brand and the personality of your company.
  • Custom packaging: If it’s possible and cost effective to do custom printed packaging, it’s a nice differentiator. Otherwise, it’s fairly inexpensive to supply your vendor with branded packaging accessories, such as logo-printed tape and weatherproof labels to use on your orders.
  • Follow-up: A post delivery check-in, thank you note, or survey keeps you top-of-mind with the customer.

3. Order exceptions

In a perfect world, the drop ship order arrives to the customer perfectly; they are completely happy with it; and you only hear from them again when they place another order. The reality is that issues do arise. All the time. As the retailer, you are on the line for customer service issues. But you usually do not have a lot of direct power to fix issues yourself.

Order changes and cancellations

Customers naturally make mistakes when submitting orders or change their minds later. So, they contact you to make the change, expecting to have their issue resolved immediately. If the order has already been sent to the vendor for fulfillment, however, you can’t simply make the change in your system and assume everything will flow through. What you don’t want is to accept an order cancellation, refund or void the charge on the customer’s credit card, and then find out later that the order has already shipped.

To make sure a scenario like that doesn’t happen, set expectations with the customer appropriately, letting them know that you will request the change or cancellation and confirm back once it is complete. Also, make sure that your vendor has fast turnaround for confirming order changes and cancellations. Finally, be sure to get written confirmations from your vendor for any changes.

Damages, lost deliveries, and other shipping turmoil

Having a process for managing order problems is key to creating an excellent customer experience. When customers contact you about a problem, they are probably already feeling frustrated, put out, and maybe combative. Any delays introduced now are likely to make a bad situation much worse. So, it is important to make sure that you are able to resolve their issue quickly .

One issue with drop shipping is that you are often shipping on the supplier’s account. That means that the shipping company will only communicate with the vendor to resolve issues and process claims. So, you are at the mercy of the supplier to take the time to fix your customers’ problems.

If that’s the case, my suggestion here would be to have a strong agreement in place with your vendor so that there are no delays as far as the customer is concerned. If an item arrives damaged, the vendor will replace it immediately, file the claim, and sort things out with you separately. Furthermore, you should come up with a standard procedure that will work across all vendors. Otherwise, you’ll find yourself having to go back and forth between the vendor and the customer to figure out what that particular vendor needs in to resolve the issue.

(The other option is to do all shipping on your account. In that case it is entirely up to you to process and manage any carrier claims. This can be a time consuming exercise that many drop shippers are unprepared to manage or simply don’t want to.)

4. Returns

Having a clear, easy returns policy is strong factor increasing ecommerce conversions and improving overall customer satisfaction. Dealing with returns is something that drop ship retailers often don’t think about until that first customer calls to return something. Especially if you run a small operation with no dedicated warehouse space, you’re going to need to figure out how to address returns.

Return items to vendor: Depending on your vendor, you might have the option to have the return sent back to them. Returning items to your vendors is clean in that it keeps your inventory-less model intact. The downsides of this approach include:

  • Vendors may charge restocking fees.
  • Vendors might reject returns if the items and packaging are not in perfect condition.
  • Waiting for vendors to confirm receipt of the return introduces delays in refunding the customer.
  • Your bookkeeper must spend time ensuring that you receive vendor credit memos / refunds for returns.
  • Customers may need multiple return instructions or return labels for a single order, which can be confusing and a hassle for them.

Receive items yourself: Returning items to you allows for a simpler and more consistent customer experience, but you are now left holding inventory. So, it’s now key to have a system in place for receiving, storing, and then reselling or liquidating your returns.

5. Bad vendors

Because your vendors are so tightly integrated into your day-to-day activities, a bad vendor can quickly eat up your time, destroy goodwill with your customers, and cost you a lot of money. Who is a bad vendor? One that continually gets in your way of providing a seamless experience to your customer.

Remember that the demands of drop shipping are not something that all vendors can handle, so it’s important to know that you need be highly selective of your partners and realize quickly if they are not working out.

Pre-selection criteria. Come up with criteria that make an ideal vendor for you, and prioritize new relationships based on how the vendor stacks up against your list. If you can, you might want to think about doing a pilot catalog integration with new vendors, running some sample orders through them to see how they work.

Written vendor agreement. Before beginning a relationship with a vendor, I highly recommend setting and documenting expectations, especially around shipping times, inventory updates, communication turnaround times, and order exception resolution. It’s up to you how much of the agreement you want to be full of legalese, but personally I’d make it short and simple. Something that captures the spirit of a mutually cooperative and positive working relationship.

Vendor scorecard. A scorecard helps provide clear metrics and an objective basis for giving feedback. Useful information includes fulfillment performance, damage frequency, and speed at resolving customer issues. Don’t forget to include customer feedback into scorecards. Customers can provide valuable insights on the fulfillment experience, the one part of the process that is not visible to the retailer

Conclusion

These challenges often come as an unpleasant surprise for many new ecommerce retailers, especially since the founders are using drop shipping to avoid having to deal with inventory control and shipping. Instead, they find themselves mired in the logistics of managing potentially hundreds of supplier relationships.

All of these downsides can be overcome with enough planning and ongoing management. But it certainly takes vigilance to make sure that your customers’ experiences are not negatively affected by your choice to use drop shipping.

 

Published by

Sina Djafari

Sina Djafari is the founder and CEO of Duoplane Commerce, a provider of cloud-based drop shipping and back office automation solutions for ecommerce retailers. Sina is driven by automation, efficiency, and the pursuit of an amazing user experience. He's also a pretty decent carpenter.

5 thoughts on “5 Drop Shipping Pitfalls and How You Can Avoid Them”

  1. Great article. A colleague of mine just launched his own drop-shipping site, but I’ve been skeptical of starting my own. Thanks a bunch!

  2. Sina, this is a fantastic article. Your product seems pretty cool also.

    Michelle, in answer to your question, here’s what I’d suggest:

    > Avoid suppliers that charge an ongoing monthly fee to do business with them. It’s important to note that some suppliers WILL charge an initial setup fee that can be up to $300 or more, and may charge a per-order drop shipping fee, but these are legitimate charges to dissuade non-retailers and to cover packaging and shipping fees. It’s the recurring fees independent of orders you should be wary of.

    > Consider where your supplier is located. It will simplify your shipping logistics greatly if they are located at a location near potential customers, or a central location with consistent shipping times.

    > Ensure your suppliers are reliable by placing a few test orders with them. Take note of the average shipping time and quality of the items received.

    > Favor suppliers that understand and use efficient technology. It may be worth it to pay a slightly higher price per item if it simplifies your logistics, especially as you scale up. Suppliers that can make use of emailed or FTP order fulfillment, and provide their inventory in a highly compatible format like CSV can make managing your store much, much easier, especially with an automation tool like eCommHub.

    > Make certain that they have a responsive and competent support staff available to address any questions or concerns you may have

    Here’s a blogpost you might find helpful:
    http://blog.ecommhub.com/5-secrets-to-find-reliable-suppliers-for-your-drop-shipping-business/

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