There are three main ways dropshipping stores lose money. Are you aware of them? Read on to learn (and avoid) them all.
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Everybody hates losing money.
But some of us are losing it without even realising it.
I get it. It’s easy to not notice where money is being lost when we are too focused on where money can be gained.
Besides that, ‘losing money’ is a topic a lot of people shy away from in general. (Ever been deep in credit card debt and scared to even look at the number?)
Most people don’t want to talk about this; but after reviewing so many dropshipping stores, and seeing the same mistakes being made over and over again — it wouldn’t be fair going another day NOT talking about it.
That is why today, I’m going to talk about three ways dropshipping stores lose money, and how you can avoid these mistakes.
Let’s get started!
Way #1: Not Handling Refunds as a Dropshipper Correctly
This is a tricky one — and on our part, admittedly, the advice we have given about this in the past has been rather lazy. (And for that, we are truly sorry)
Have you ever heard of false refunders? These are people who get an item in excellent condition, but then try and claim that it arrived damaged and ask for a refund.
Why do they do this? Besides the fact that they have no life, their goal here obviously is to ‘game’ the system by essentially getting their product for free. (Sort of like having your cake and eating it too.)
So they try and bully you into giving them a refund by threatening you with things like chargebacks or PayPal disputes.
Luckily, there is a simple solution to overcome these type of “customers.”
First, only allow refunds for faulty products. Shopify has a great refund policy that you can auto-generate and use.
In it, it requires that a customer mail the item back to you. The Shopify refund policy also states that the customer is expected to pay for the return shipping, and that a refund will only be issued once an item has been inspected. This is industry standard for the online retail industry.
Requiring that a customer mail the broken or faulty item back to you at their expense is a way of figuring out whether or not the customer actually needs a refund. And the reason why this is so effective is simple.
Imagine yourself as the “false refunder.” Wouldn’t it be a pain — assuming you were lying about the refund — to have to now break the item (to prove your claim) and pay for shipping too?
That’s quite a bit of work on their part, therefore the majority of these scammers wouldn’t even bother to. It would make them look stupid!
However, this can get quite tricky if you live outside of the U.S because it is not an industry standard to require a customer to mail an item to another country to get a refund, as that would be extremely expensive.
In this case, what you can do is get a free Shipito address (or something similar) and use this as your return-to address.
If a customer sends an item to Shipito and it arrives, the chances are that it is actually faulty (since they bothered to pay for the shipping and spend the time to return it) and you can issue them a refund.
If you live in the U.S., then you can inspect it and issue a refund if you find it to be faulty. You can then list it on eBay to recoup costs or sell it in second-hand stores.
To make one thing clear: we do NOT suggest using the AliExpress return policy, as that would require you to ship the item back to the Chinese supplier (which is not cost-efficient).
Way #2: Picking the Wrong Suppliers
I’ve said it before, and I’ll say it again: most dropshippers fixate too much on the initial sale eventhough the true money is not made here.
If you have a Facebook ad that is breaking even – that is a good thing! In fact, that is an AWESOME position to be in.
Why? Because now you have the opportunity to upsell customers to other items.
So say a customer initially purchased some cat coffee spoons, but additionally purchased your upsell of a cat coffee mug.
They would obviously presume that because these were “bundled” together, they would also arrive together in the same package.
But a lot of dropshippers don’t keep that in mind when working with multiple suppliers; if a customer were to purchase more than one item from their store, then those different items are going to arrive in different packages.
Don’t get me wrong though; sending orders in multiple packages is not the end of the world.
Thanks to Amazon normalizing this, an easy workaround solution is to inform your customer in-advance that the items are going to arrive in different packages to expedite the shipping process.
However, it is not the ideal situation. To articulate this idea so you fully understand, let’s put this into a real life context. I want you imagine that you are someone who LOVES collecting phone cases.
And one day, you stumble across a cool dropshipping store that sells a bunch of them. You head in over and order a total of five phone cases.
Now, imagine if these phone cases all arrived – but on totally different days? Two arrived on a Monday, one arrived on Wednesday, and the last two don’t even arrive until the next Monday.
How would that make you feel? Annoyed? Livid? Confused? These are all emotions that customers feel when their items arrive in different packages!
Do you know what would be better? Shipping items in a single package.
An easy way to do this is to first take a look at what else your supplier is selling. For example, do they sell a range of cat items, or are they just selling one? In that case, this supplier probably wouldn’t be worth working with as there is no opportunity to upsell customers.
You always want to prioritize sellers that are selling multiple related items, even if they cost more. If you are able to ship items in a single package, this improves your customer’s experience (and prevents you from receiving any potential complaints).
The best possible position to be in would be to use as few suppliers as possible in your store. This is especially important when considering both your front-end productsyou’re your upsells; in fact, it is a must.
Another thing you must consider when working with suppliers is their reliability. Sure, a supplier may have the item you want to sell, but are they trustworthy and efficient?
How many orders do they receive? Is it a lot, or only a few? What are there reviews like? These are all factors to consider, because picking the wrong supplier can doom your store.
If you want to learn more about choosing the right supplier, here is an in-depth article dedicated to this topic.
Way #3 Being Careless with Scarcity Timers
Using scarcity is KEY in urging customers to buy then and there without price-checking the item against another store like Amazon.
If you’re new to this term, it is simply making an item seem as if it is ‘limited,’ thus urging customers to make a faster purchase.
People jump through hoops to take on an exciting opportunity because of FOMO (fear of missing out).
People don’t want to experience the pain of missing out on huge discounts and bargains, or being uncertain of whether or not the offer will come back. Pain is the strongest factor in the world to make someone take action.
In relation to dropshipping, one way to encourage scarcity is to use a scarcity timer.
There are several apps on Shopify which do this, such as Countdown Timer. And they work great — until you abuse them by putting them on every single page.
Guys, customers aren’t stupid, so don’t treat them like they are!
If you slap a countdown timer on all of your product pages, customers will realise this, and the illusion of scarcity will be ruined. The customer won’t trust you and you’ll lose the sale.
The solution to this problem is rather simple: Limit which pages you put them on.
If you do want to test a lot of products with scarcity timers, make a copy of all your product pages and put the timer on the duplicates.
You can then put those product pages in a separate collection that you do not add to your store menu.
That way, you can directly link customers to pages with the scarcity timer without the risk of them finding the original product page in your store.
Overall, you don’t want to use scarcity too much, as there comes a point where its effect plateaus.
This is a good thing, in fact, because there are several other psychological triggers that can help you make more sales and increase conversions.
The Bottom Line
If you truly want to be successful in dropshipping, focusing on making money is simply not enough. You need to be a detective; one that is able to pull out the “dead weeds” that are losing you money.
Learning these three ways can help recover a buttload of cash that you are losing in your store.
And by learning how to not to lose money in your store, you are essentially earning more money as a result.
Want to learn the blueprint wildly successful dropship stores follow to make six-figures?
6 Steps to Building a Six Figure Dropshipping Store
In this eBook, I’ve included:
· How just one “winning item” can earn $10k/month. Yep. A lot of people don’t realize this… but most stores make the majority of their money from just a handful of items!
· The right way to choose AliExpress suppliers. Picking the right AliExpress dropshipper is crucial to drastically reduce things like refunds. Learn how to pick the right suppliers.
· Why long shipping times DON’T matter. A lot of people are scared to start Dropshipping because of “long” shipping times. You’ll learn why this doesn’t matter inside.
· Why six-figure stores take ONLY two hours a day to manage. You’ll learn how they utilize apps like Oberlo to make their stores semi-automated, making managing orders super simple!