How to Deal With Dropshipping Returns and Refunds Like a Pro!

Most sellers know what dropshipping is, but in case you need a refresher, pop back into this article before reading any further. What we will turn the lens on, are the ways to deal with dropshipping returns and refunds, which is a bit tricky considering that you, the seller, will be held accountable for a poor experience despite the inventory not being directly in your control.

There are several reasons for products making their way back to you or customers demanding a refund for the loss they incurred in terms of expectations. And the lack of a clear returns and refunds policy is akin to sweeping the problem under the carpet, which will cast suspicions on your credibility. With 2.14 Billion digital buyers (THAT's a THIRD of the global population!), a bunch of reviews elaborating on negative transactional experiences will be all that it takes to deter prospects from wanting to buy from you. This is why it matters that eCommerce sellers going the dropshipping route have a thorough understanding of how to deal with returns and refunds in dropshipping.

Let’s dig a bit deeper into the reasons for a customer wanting their money back and what you can do to handle drop shipping returns and refunds like the pro you are!  

Dropshipping returns: Common Reasons

Living up to a customer’s expectation is about giving them what they want, in the time promised. In theory, this seems fairly straightforward, and had it been a direct buyer-to-seller interaction, we would have agreed. Add high order volume, competitors in the same space and several middlemen in the mix, and you have a recipe for things misfiring anytime after a shipment is out of your hands. Sellers and customers both know this, but the idea is to bring your reverse logistics rate down and make what is returned or refunded a simple, hassle-free process. 

Here are a few reasons for dropshipping returns:

1.  Product Mismatch

The topmost reason for customers initiating a return follows them unboxing the product only to find it mismatching with the online description and visuals. This is true especially for eatables which have a brief shelf-life and arrive spoiled, or wearables which depend on sizes, color, price and fit. 

2. Missing instructions

While orders for DIY equipment that require assembly or set up usually carry an instruction manual, there have been the odd one or two cases where the manual isn’t included, and the customers are unable to make use of the product. The additional headache for alternative instructional sources can cause the customer to lose patience, and ultimately demand a return and replacement.

      3.  Wrong orders

It isn’t always your fault! Nearly 35% of online orders are misplaced by customers, with a very good chance that they received a wrong product. If the product falls under the same price range, some platforms offer exchanges post an in-person examination, and the wrong order is returned back to the supplier.

     4.  Damaged Shipments

If the packaging isn’t careful, what’s inside ends up suffering damage, and arrives at the customer’s doorstep in bad shape.  Mishandling fragile items can cause them to crack, break or become defective in other ways. In such cases, the law is clear; every eCommerce company has to accept the returned item and promptly process a refund or replacement for the damaged item. 

       5.  Lost and Missing Shipments

If multiple items are clubbed in a single order and the order is missing some items, it is a partial delivery. If the order is untraceable in transit, the fault lies with the carrier your supplier is using. There are instances where no update is provided from the courier partner and as a result, you’re unable to give your customer an answer when the original timeline is exceeded and requests for updates repeatedly come up. If the item goes off the grid, the customer is entitled to ask for a refund.  

As a dropshipper, the responsibility for order fulfillment and delivery is completely on the third-party service contracted. However, you still owe your customers an explanation which is where having a dropshipping returns and refunds policy comes in handy.

How do you handle returns and refunds with dropshipping?

The best way to handle dropshipping returns and refunds and returns is to determine how much it is going to cost you, and decide whether it would be cheaper to send a replacement while letting the customer keep the original product. We’re separating the process for refunds and returns to make it simpler, starting with responding to refund requests.

‍How to respond to refund requests

If you receive a refund request, the first thing to do is to determine if the item qualifies for a refund, and whether the customer is justified in insisting on one. Ask yourself the following questions prior to responding;

1.  Are they a first-time user or a repeat customer?
2.  Are they usually reasonable or impossible to please?
3. How receptive would the customer be to getting a replacement while keeping the original intact?

If the answer to 3 feels like a yes, that would work out to be more cost-effective as you only have to worry about the substitute’s quality instead of going into the entire reverse workflow which requires you to arrange for your supplier to accept the item on your behalf. You would then need to jointly check if the item is fit to be repurposed, restored or simply discarded and dropped from the inventory.  

Here’s a templated response you might like to try sending your customer;

Hello “First name of the customer”,

Please accept our apologies for falling short of your expectations. Having seen that the product received does not match the description, we’d like to remedy this by sending you the correct item, free of charge. You won’t need to send back the product you got from us! Let me know if this works for you.

Kind regards,

Conversely, If the customer is extremely disgruntled and has already used means to soil your social reputation, issuing the refund would be in your business’s best interest, even if it means that they will never return.  This is of course, subject to requesting for further visuals and an offline inspection to verify the condition of the item. If it is established to mutual satisfaction that the item qualifies for a refund, you should inform your customer of your intent to do so. Keeping in mind the CLV aka customer lifetime value, the end goal is to encourage the customer to come back despite a one-off bad experience. 

How?

By making sure that you did all that you could to placate the customer and even refunded them the amount after all other options were rejected. Additionally, you can also try making them happy by including things such as a freebie, or time-bound coupon codes, store credit or a membership upgrade that unlocks more offerings on your eCommerce website. 

All these are a small price to pay to rebuild faith in your store. Here’re a few tips to keep in mind to simplify the returns process.

1. Draft a returns policy with your supplier

It’s always a good practice to set the criteria for returns, refunds and exchanges based on a pre-existing policy your supplier might have drafted. A few constraints are that the supplier could charge a restocking fee subject to the returned item passing quality-compliance checks, or they could impose a timeline in which the item should be returned.  Then there are some suppliers who refuse returns altogether.

When you’re setting up your dropshipping store, you should look into the return policies for different suppliers. The process of elimination can help you drop the ones that are rigid or against a returns policy and partner up with those willing to be part of the reverse logistics should the occasion rise. Depending on whether you work with a single, or multiple suppliers, you’ll need to readjust your policies based on the order volume, product type etc. to account for exceptions. 

2. Accept return orders to a PO box

The idea of asking your customers to ship back to your supplier or to a specific warehouse may seem unfeasible for a lot of your customers. Instead, ask them to drop the item off at a PO box that you can set up to accept returns. This is location-specific and can allow several customers from that area or pincode to drop it off, from where they’re collectively shipped back to the supplier using a bulk rate.It’s a bit more complicated for large,heavy equipment though. It would be cheaper to have your customers send the item directly to the supplier rather than paying return shipping costs twice. 

Pro-tip: don’t use your home or office address.  You can authorize access to the PO box to protect your privacy. 

3. Incentivize returnless refunds and exchanges

The returns costs can be steeper than the charges to ship the item in the first place, especially if you think about the handling, restocking and reselling charges. Rough estimates suggest that the cost to process returns ranges between 20-65% of the total item cost. In cases where return shipping costs are high, it is worth a shot suggesting to your customer that they donate the item to a cause you support. For example, if you shipped shoes that were a size too large or too small (this incidentally accounts for 14% of returns and 23% for online eCommerce returns this year!) The item can be donated to a homeless shelter in exchange for store credit into a digital wallet. You can give them a little social loving by requesting them to send a picture after drop off, which can be featured on your returns policy page (with their prior consent!) to encourage other customers to similarly donate. Rather, a visual depiction of how returned items are recycled would tell an eco-conscious consumer that some good does come out of a mistake made by you, the dropshipper!

Exchanges can also work out in your favor. It entails offering your customers the opportunity to trade products with someone else who might be searching for that very item. This way no returns happen and you can gather customer feedback to feed into your algorithm to understand the reasons for return. An Amazon update offers sellers precisely this, by tagging items that are frequently returned to signal to eCommerce sellers to either re-advertise to a different demographic, or de-list the item. 
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How to handle returns when dropshipping

The typical return workflow associated with dropshipping returns are;

1. The customer places a request for return through your dropshipping website or platform.
2. You forward the request received to your supplier.
3. The supplier sends through a request merchandise authorization (RMA) form which you then forward to the customer.
4. The supplier verifies the items’ condition and initiates a refund for you against the product’s wholesale price.
5. You credit the full product price back to the customer’s original mode of payment.

Tips to reduce return rates in dropshipping

According to Insider Intelligence, return rates in dropshipping are hitting  $627.34 Billion in 2023,which is ~9% of total retail sales. Though there are projections of a dip in returns across categories like apparel and accessories from present-day figures of 22.9% to 18.6% in 2026, why should you wait that long to reduce return rates? 

Here are a few tips to get closer to the goal of dealing with fewer dropshipping returns and refunds

1. Perform fraud checks

Your starting point would be to verify that the item isn’t a dud by going back to the order details. The customer should be able to supplement their claim for a return or refund with adequate evidence, such as pictures and screenshots of the transaction, which would contain the mode of payment, date of placing the order,billing address and date of delivery. It should tally against the records you have to confirm that the order (and claim raised)  is legitimate. 

If your store is on Shopify, you can use their fraud analysis tool. 

2. Exercise caution with eChecks

If you’re using PayPal, do not fulfill the order first and process the payment later. If the customer uses eChecks, they can cancel the check after receiving the order. 

3. Great customer service

Great customer service is all about evolving your responses to suit the circumstances and need of the hour. Your support team should undergo routine training to be of assistance in scenarios where customers reach out for a resolution. 

Here are possible scenarios and appropriates responses;

Conclusion

Many dropshippers may be averse to returns due to the hassle reverse logistics generally entails, but the bottomline is; your customers are not concerning themselves with the behind-the-scenes, and are even unlikely to know you’re using the dropshipping model. All they would care about is getting the product they paid for. So while you’re not directly handling the fulfillment and shipping, you still need to deliver a seamless shopping experience that has a contingency plan in case your deliveries go awry. Today’s customer could become tomorrow’s brand ambassador, and a pathway for you to earn more fans! 

If you opt to work with suppliers to draft a dropshipping returns and refunds policy, keep the following tips in mind;

1. If the return window is 30 days, shorten this by a couple of days to your customers. This ensures the returns process is initiated in a reasonable amount of time while accounting for procrastination, shipping delays or problems with renting out and setting up the PO box. 
2. If there’s more than 1 supplier, standardize the return timeline to round off the final tally of returned items and then segment them by location and by which supplier received more returns in a particular week.
3. In the absence of a physical store, be reachable via online means and respond to emails by stating a fixed timeframe within which the customer can expect a reply from your end. 
4. Retrieving reports such as confirmed and pending returns reports from an automated returns reconciliation software like EasyEcom will help you keep track of items making their way back to the supplier’s warehouses. You can initiate a refund after confirming the item is back and investigate reasons behind return to determine the correct course of action (refund/replace/exchange?).

Frequently Asked Questions

1. Do dropshippers accept returns?

Dropshippers accept returns but first offer the option for a replacement while letting the customer keep the original product. The customer can then dispose of, redistribute or donate the item as they see fit. If you use AliExpress, they have a buyer protection system with a money back guarantee. If customers are dissatisfied with the purchased product, you can get in touch with the AliExpress seller. If the item is inexpensive, the refund will be processed faster and a full or partial refund can be initiated through PayPal.

2. Who handles returns in dropshipping?

The supplier handles returns and will refund the wholesale price to your account. After confirming receipt of refund, the same can then be sent to your customer at the merchandise’s full retail price.