Dropshipping returns: how to create a successful policy

Dropshipping returns influence the success of a dropshipping business. There are several factors that startup owners and side-hustlers need to be aware of in order to create clear policies on to satisfy customers. 

Crucially, there are legal requirements to consider. Customers have certain rights when it comes to returns, even when they buy the item online (known as ‘distance selling’). You can still create your own returns policy that offers the consumer more than their minimum entitlement in law, however.

Whether you are just starting your dropshipping adventure – or looking to maximise your existing enterprise’s chance of success – this article will walk you through what you need to know about dropshipping returns and refunds.

Why is a returns policy important?

According to ecommerce website Invesp, at least 30% of online purchases are returned, compared to 9% for bricks and mortar stores.  Quality control procedures throughout your and your suppliers’ businesses can reduce the number of items returned. Inevitably though, any online business, particularly dropshipping, which involves shipping goods to customers sight unseen, will have some goods sent back.

Therefore, it’s crucial to have a return policy for your dropshipping store. Businesses that provide a straightforward, hassle-free return policy that puts the customer first will retain more customers. 

“It’s important to have a clear returns policy,” says Ron Stefanski, a college business professor, and the founder of BusinessGuru.co. “This builds trust with customers and makes things run smoothly. “The key is keeping it simple and easy to find. Your policy should clearly outline the steps a customer needs to take to return something.”

Handling returns is straightforward if you are consistent, pragmatic, and fair. Depending on the value of the shipped item, it can be simpler to let the customer keep the product and send out a replacement. Otherwise, request they send it back to your supplier and decide if you should cover the shipping costs or not.

What is a dropshipping returns policy?

A dropshipping returns policy is an agreement between the dropshipping online store owner and their customers. It specifically informs customers of conditions when a return or refund is due and explains how the process works when the policy is activated.

Advise customers to request a return via email. Then reply to their email with the address of where the product should be returned to. After you receive the product back, tell the customer how they will receive their refund, credit, or exchange.

Your returns policy must adhere to the law but you can also create a more generous returns policy should you wish. The terms should be included on the website. In most instances there is no difference between a returns and a refunds policy.

Your external suppliers should have their own returns policy, but you need one too as there will be cases where it is your responsibility. 

Also, from the customer point of view, it is your store they are buying from, even though order fulfilment comes from the supplier. This is why your returns policy should normally match your suppliers, to ensure consistency of service. If you use multiple suppliers, try and match the combined policies as much as is practical.

What are the benefits of a returns policy?

It creates trust and loyalty between the dropshipping business and its customers. This encourages customers to select your business for their purchase and reduces misunderstandings. Be polite in customer communications as this reduces the likelihood of them wanting to return the goods or get a refund.

Invesp’s research also found 92% of customers would buy again if the returns process was easy and 67% of buyers check the returns page for policies before ordering.

Further research from Capital On Tap reveals the impact of returns on business, illustrating why a fair, customer-focused returns policy can benefit your business. It discovered UK retailers are losing around £5.2 billion per year due to online returns alone, with 18% of orders placed with UK SMEs returned. Time spent dealing with returns is the biggest issue for small businesses, with 27.3% admitting this is challenging.

It impacts restocking policies as SMEs don’t know how many products will be returned. Over a quarter of SMEs, 26.9%, said returns cause them financial difficulties. “Linking returns to inventory helps restock returned items fast and keeps inventory accurate,” explains Stefanski.

A precise returns policy makes the process of dealing with returns requests easier for both parties, reduces customer friction, clarifies financial issues linked to returns and offers a clear and transparent process to follow. 

“Streamlining returns is key for efficiency,” says Stefanski. “An easy online returns portal greatly improves the customer experience. It can generate labels, check status, and issue refunds automatically.” 

Another important reason to have a returns policy is to show your business complies with the different rules and laws relating to customers from the UK (and abroad if you are selling overseas).

Legal requirements for designing a returns policy

Drafting a returns policy that informs the customer, protects your cash flow, and meets the requirements of the law can be tricky.

Legally, businesses must offer a full refund if an item is faulty, not as described, or does not do what it’s supposed to. These are quite general descriptors which means that in the majority of cases customers can successfully argue for a refund.

Consumer Contracts Regulations also state that the consumer has a goodwill cancellation period that starts the moment they place the order and ends 14 days from the day they receive their goods. After this date, the buyer also has a further two weeks from the date they request a refund from the retailer.

After 28 days, the store can set its own return policy with stricter guidelines on when a return is allowed. However, within the first six months the item is still under guarantee, which means you must offer to repair an item if it breaks or turns out to be faulty (even if refunds aren’t given).

After six months, the onus is on the customer to prove an item is faulty and there is no obligation for the business to offer a repair or refund.

Some online retailers believe they do not have to refund an item just because a customer no longer wants an item (for example because it’s the wrong size or colour). However, for dropshipping this rule does not apply because the customer bought it without seeing it and is therefore entitled to request a refund.

What should you include in your returns policy?

Include details of your returns policy on the order or delivery note, offering tickbox options if a customer wants to return. They can select the reason for return, and, if you offer these options, decide if they want a replacement, refund or exchange. These options supplement information contained on your dropshipping store front. A dropshipping returns policy can include:-

• a requirement to produce the original till receipt (also known as proof of purchase)
• a requirement to return the goods unused and in unopened packaging (if they are not faulty)
• a deadline for returns (if after the minimum 28 days)
• an offer to exchange or offer a credit note, but not to refund (if after the minimum 28 days)
• a requirement that only the person who bought the item can ask for a return 
• a requirement for the customer to inform you before returning goods

Once you have established if/when a customer can request a refund, you should also provide practical information on how the process will work, such as:

• a contact address to arrange where goods should be returned to
• details of who will pay for the cost of returning goods (you or the customer?)
• details of how the customer will receive a refund (generally bank transfer)

What items can be returned?

Only in certain cases can an item be legally exempt from your returns policy, for instance:

• if a customer knew an item was faulty when they bought it (eg. it was discounted)
• if a customer damaged an item by trying to repair it themselves

There are certain items which do not need to be refunded even if they’re faulty, such as:

• custom-made items, for example printed t-shirts
• perishable items, for example flowers
• newspapers and magazines
• unwrapped CDs, DVDs and computer software

Make sure customers are aware of the above rules by specifying what condition an item should be in to qualify for a refund if returned, whether you offer exchanges for items instead of refunds, and whether exchanges are free.

Your policy also needs to cover which countries are eligible for refunds and returns.

International returns

For dropshipping businesses with international customers, separate policies may be required as the costs and laws vary.

Many goods sourced from UK-based dropshipping businesses come from the US, Asia or Europe. If there are problems and returns are required, this can be expensive, so clear, consistent policies are needed. Customs duties need clear communication on responsibilities.

“Handling international returns has extra challenges,” says Finn Wheatley, a risk analyst at The Small Business Blog. “Spell out international policies clearly to prevent confusion over rules and fees. Offering store credit keeps sales while giving value to customers abroad.”  One solution is to source suppliers from different countries so they are closer to your end customer and can manage returns for a lower cost. “Collaborating with overseas carriers simplifies shipping across borders,” continues Wheatley. 

You could work with other dropshipping agents from countries you supply to and have reciprocal arrangements for their UK returns. This can reduce return shipping costs and provide excellent customer service. Working with suppliers from the same country as your customers means you may be able to use their customer fulfilment centres or warehouses to store goods, speeding up customer deliveries.

For customers from certain countries and perhaps for orders below a specified cost, you could simply agree to a full refund, replacement or credit, without them needing to return the product if the cost of returning is prohibitive and its impacts your dropshipping businesses profitability.

What are the common causes of returns?

As the data shows, a high proportion of online purchases are returned and protective laws tend to favour the consumer.

The main factors are if the goods don’t fit such as wrong-sized clothes. Another common reason is if goods don’t match the description or the customer receives a product that is different to what they expected. 

Products can get damaged in transit. Your returns policy should cover damaged or defective goods if the product doesn’t arrive at all or misses delivery deadlines. The latter reason should be easy to identify through tracking deliveries. It is less likely to occur if you have suppliers based near your customers.

Reducing return rates

Reliable shipping and quality procedures throughout your business helps reduce return rates, but other factors also contribute. Accurate product information and descriptions, backed up by quality, true images mean customers can see what they are ordering and that it matches the product delivered.

“Lowering return rates starts with good product information,” insists Stefanski. “Make sure listings have detailed descriptions and high-quality images.” When you do get returns, find out why. “Gathering feedback and reviewing why items are returned provides insights to improve. Quality checks before shipping can reduce defects and educating customers on product use and value through guides or videos enhances understanding.”

Other factors to reduce dropshipping return rates are fast, accurate delivery times, staying in contact post-purchase and having a clear and returns policy that is easy to find on your online store.

Tools and technologies for streamlining returns

Technology helps make dealing with returns more efficient and reduces disruption to your business and customers. Tools can automate and simplify returns for your dropshipping business.

Stay updated on the latest software, apps, or platforms that help manage returns efficiently. Some of the latest include Returnly, which lets customers easily print labels and check statuses. AfterShip automates filing through a self-portal, saving time. You can track your parcel delivery status from over 1,100 carriers worldwide, receiving real-time updates and email notifications. 

How does returns policy can help retain customers and improve sales?

By dealing with a customer and their return request fairly, transparently and politely, you may actually increase the chances of the customer ordering from you regularly.

“Returns are part of retail but a well-designed policy and process can turn this into a way to boost customer satisfaction and loyalty,” explains Stefanski.

If you offer free returns for products, customers can buy from you in confidence, knowing they are covered for faults. This encourages customers to use your service. However, be careful with this policy or you could lose money. If you get the balance right and it helps grow customers, it could be worth utilising for some products shipped to certain territories.

By having more customer data, you can retarget them with new marketing campaigns or send information on similar products to those they previously purchased.

Who handles the cost of dropshipping returns?

This is another key decision. It is influenced by where the goods are shipped to and whether you have local suppliers close to the customer, which makes returning goods cheaper.

You can either choose to cover the cost of returning goods yourself, benefitting from customer goodwill that will hopefully turn into increased sales and cover the extra costs you incur, or insist they pay for returns.

The latter is not a good customer retention strategy, but if you source goods from suppliers in Asia or the US it may be uneconomical to cover the cost yourself. 

You need to carefully assess the relevant costs to you and the customer and decide which strategy will benefit your business overall.

It may be that a hybrid policy is best, flexed depending on where the customer is based, where you ship from and to and the cost of the product.

Conclusion

Returns are a critical for ensuring  the success of your dropshipping business in a notoriously fickle market. You will encounter them, so it’s vital to instigate a returns policy that is clear, easy to find, consistent and economically viable.

Consider where your customers are based and the cost of the goods you sell, balanced against the cost of returning goods to decide if you or they should cover the costs

“Returns are part of retail but a well-designed policy and process can turn this into a way to boost customer satisfaction and loyalty,” emphasises Stefanski. 

By focusing on excellent communication and customer service you can ward off many problems but the strategies and policies outlined in this article will enable you to efficiently handle returns and contribute to the success of your businesses.

“Overall, balancing efficiency with good customer service builds trust long-term. Communication is at the core of dropshipping success,” concludes Wheatley.

Benjamin Salisbury - business journalist

Benjamin Salisbury is an experienced writer, editor and journalist who has worked for national newspapers, leading consumer websites like This Is Money and MoneySavingExpert.com, business analysts including Environment Analyst, AIM Group and written articles for professional bodies and financial companies. He covers news, personal finance, business, startups and property.