What is dropshipping?
Dropshipping is an e-commerce fulfilment model where you market a product and when you get an order, a third party supplier sends the product directly to your customer. The perk of the dropshipping business model is that you get to start an ecommerce business without the need to invest in bulk purchase of inventory, warehousing inventory or handling and shipping products.
Now can you use the Dropshipping fulfilment model on Tiktok shop?
The simple answer is yes! you can definitely dropship on Tiktok Shop, however you need to understand what Tiktok shop policies are, find and work with a supplier that meets up to Tiktok Shop policies.
What tiktok shop policies should you be concerned about if you want to dropship on Tiktok shop
The Tiktok policies to look into when trying to dripship on Tiktok are;
- Tiktok shop shipping policy; Tiktok shop shipping policy requires that a product be dispatched for shipping within 2 days of receiving the Order. This does not mean that a product will get to the customer within two days. It means that you should be able to have handed the product to the shipping company and updated the tracking number on Tiktok Shop within 2 days from the time the Order was created.
If your Tiktok Shop shipping settings is “shipped by Tiktok” you will be able to print the shipping label and hand over the product to the designated Tiktok logistics service provider within two days, in this case, tiktok will automatically update the tracking number.
If you have selected “shipped by seller” on your Tiktok shop shipping settings. you are required to hand over the product to the shipping company working 2 days. Tiktok Shop requires that the product delivery time should be not later than 12 days after the order was created.
To dropship on Tiktok shop, you will have to work with a dropshipping supplier that can dispatch your product to the shipping company and update tracking number within 2 days after the product was created and ensure delivery of the product to the customer no longer than 12 days after the product was created.
- Tiktok Shop acceptable shipping provider; If you want to dropship on Tiktok shop, you need to pay attention to Tiktok Shop accepted shipping providers. If your shipping setting on tiktok shop is “shipped by seller” which is our recommended Tiktok Shop shipping setting for dropshippers. Tiktok Shop only allows you to use the following shipping providers and update tracking information within 2 days of order creation; Fedex, Lasership,Ontrac, UPS, USPS, DHL and Amazon logistics.
This means to dropship on Tiktok shop, you have to work with a Dropshipping supplier who will constantly ship out your products using any of the accepted Tiktok shop shipping providers.
- Ship from location settings; currently Tiktok “Ship from ” location settings is uneditable. Tiktok only allows persons and businesses in Malaysia, the Philippines, Singapore, Thailand, the United Kingdom, the United States, and Vietnam to sell on Tiktok shop. If you have a Tiktok Shop US Account, your Tiktok shop “ship from” location will be in the US and is not editable.
You therefore need to ensure that the supplier you are working with Can ship from the US, UK or any of the supported Tiktok Shop countries where your Tiktok shop seller center account is registered.
- Tiktok shop Payouts schedule; Tiktok shop pays out sellers 15 days after an order is placed. To dropship on Tiktok shop you need to pay attention to the seller payment schedule.
You need to have the price of at least one inventory of the product, so that when you get an order on Tiktok shop, you can place the order with your Supplier and quickly ship out the product within 2 days. You will then get your Tiktok shop payout at Tiktok standard settlement period of 15 days from the date the order was delivered.
Keep in mind that, if you have been an active Seller on Tiktok Shop for more than 30 days, not flagged for fraudulent activities on Tiktok shop, maintained a late seller fulfilment metrics of less than 4 %, a seller cancellation rate of less than 2.5%, Sellers fault return/refund of less than 1.5% and valid tracking rate of at least 95% then you may qualify for the Tiktok dynamic settlement payout, in which Tiktok shop pays out after 3 days from the day Order was delivered.
Important Profit, loss and risk analysis before dropshipping on Tiktok shop
The reason people go into dropshipping, e-commerce or most businesses is primarily to make profit. When you think about making profit, we often forget to do an analysis of risk and loss. When dropshipping on Tiktok shop, it’s important to do what we call the Profit, loss and risk analysis to know what is the loss that can happen when dropshipping on Tiktok Shop and how to prepare against it.
When people make purchases we hope they will love it but sometimes things doesn’t go well or maybe they just regret making the purchase so they ask for a return and refund. You need to evaluate Tiktok shop return and refund policy, you seller drop dropshipping supplier’s return and refund policy and what potential risk and loss this can impose on your business and how to prepare against it.
let me show you how we do our profit, risk and loss analysis, using a hypothetical case study; for ease of understanding we will call our profit, risk and loss analysis approach, The 7ps and 2ms approach;
Product Name; ?
Product Cost Price; ?
Product Shipping fees ?
Product Return fees ?
Product Referral fees; ?
Product Profit mark up ?
Product Selling price; ?
Minimum cost for one inventory; ?
Maximum risk of loss for one inventory; ?
The important thing about this Profit, loss and risk analysis approach is to be able to fill out each of the metrics and see a full picture of your dropshipping business, how much profit you can make, how much risk of loss there is and how much you need to run the dropshipping business.
(P1) Product Cost Price; the name of the product you want to sell.
(P2) Product Cost Price; the actual cost of the product from your dropshipping supplier,
(P3) Product Shipping fees; The cost Shipping product to your target market location. If you intend to sell in a Tiktok US shop, the shipping cost will be the cost of shipping the products within the US.
Some dropshipping suppliers may offer free shipping, In that case, your product shipping fee is $0.
Also if your dropshipping supplier charges a shipping fee, you may decide to add the shipping fee to the product selling price and offer your buyers free shipping. We actually recommend this approach, that is adding up the actual shipping fee (if any) from your dropshipping supplier to the actual product cost and offering your buyers free shipping.
(P4) Product Return fees; It’s important to pay attention to the product return fee. While we, as e-commerce sellers, hope that buyers will purchase our product and love it and never have the need to request a return and refund, the reality is sometimes buyers ask for return and refund, so you need to factor that into your profit, risk and loss analysis.
Note that According to Tiktok shop policy a refund request can normally be raised by the buyer within 30 days, In addition, after the standard return or refund period of 30 calendar days has lapsed, if customers are unable to reach a satisfactory resolution with you, they are still entitled to raise a case for a return or refund under the TikTok Shop Buyer Protection Program within 90 calendar days from the date the order was delivered.
Tiktok shop policies are very customer centric at the expense of the Seller, so you need to be prepared for this. Tiktok shop allow the customer to select reasons for their refund, in most cases when a customer wants a refund of a product, they may deliberately select a reason for the return that is Seller’s fault ( your fault) and not that customer’s fault (their fault). If you decline the customer’s refund request, Tiktok Shop reserves the right to determine if the customer is eligible for a refund.
In most cases where the buyer has selected a refund reason that is the fault of the seller aka your fault (i.e product not as described, product damaged in arrival etc), you as the seller will not only need to cover the full price paid by the buyer for the product, you will also need to pay for the shipping cost of returning the product back to you.
Moreover, Tiktok shop Return and refund policy for sellers registered in the US provides that Tiktok reserves the right to debit your account and issue an advance refund to the buyer if the buyer chooses to return the product by dropping off the product with a Tiktok logistics provider and if the product is less than $100.
In such a case, If you receive the returned product and it’s not in good condition, although the buyer would have gotten an automatic advance refund from Tiktok you can still raise an appeal in the Tiktok Seller Center if you are unsatisfied with the returned product’s condition.
Tiktok shop customer service team will review and determine if compensation should be issued to you based on the evidence you submit (for example, image, video, or comments on the returned condition of the product).
Tiktok shop seller policy is specific to the region where you have registered your Tiktok Shop Account, you should read up the Tiktok seller refund policy on their website in the country where you have registered your Tiktok Shop seller Account.
For reference;
Tiktok Shop US Refund and Return Policy
Tiktok Shop UK Refund and Return Policy
Tiktok Shop Malaysia Refund and Return Policy
Tiktok Shop Thailand Refund and Return Policy
Tiktok Shop Singapore Refund and Return Policy
Tiktok Shop Philippines Refund and Return Policy
Tiktok Shop Vietnam Refund and Return Policy
It’s important to read up on Tiktok Return and Refund policy, especially if you want to find a way of avoiding Tiktok automatic advanced refunds and making refund requests subject to your prior approval.
There are product categories which may have more meltdown rules, for example selling items under the Own used category, Non-Returnable category, customised items or selling products greater than $100. These product categories do not have Tiktok “speedy/advanced/automatic Refunds” to the Customer and allows the Seller to approve or decline return requests with reasons.
Also depending on the Tiktok shop’s registered country, some countries (i.e United Kingdom) allows a Seller to issue partial Refunds. While some other countries (i.e the United States) does not allow Sellers to issue partial refunds.
Generally to calculate the “Product Return fee”.The general formula is; the cost of Return shipping label + return warehousing solution aka restocking fees.
Specific Case Scenarios for calculating “Product Return fees”
- To calculate your Return shipping fee you need to speak with your dropship pin supplier if they offer “Free Returns” within 30 days of purchase.
In that case you have a $0 product Return fees.
- However, if your dropshipping supplier does not offer free return shipping but offers a paid return shipping label and accepts returns back to their warehouse within 30 days of purchase.
In this case the cost of your dropshipping supllier’s paid shipping return label will be your Product return fees alone. There is no return warehousing solution cost to add up because your dropshipping supplier is already warehousing the product.
- If your dropshipping supplier does not offer any return shipping arrangement at all (neither pre-paid or unpaid) and requires that you arrange and bear the cost of return shipment but your supplier accepts returns within 30 days to their warehouse.
In the 3rd scenario we recommend using a pay-on-use return shipping label provider. If you are a US seller, we recommend using Pirateship as a pay-on-use return shipping label provider because you can pay only about $3 per return shipping label, and you ONLY get charged if the label is used by the customer. If the Customer initiates a Return and Refund Request but does not end up using the Pirateship pay-on-use return shipping label, you won’t be charged. Pirateship pay-on-use return shipping labels are valid for 30 days as well, and stop working after 30 days which matches up to Tiktok shop customer return request window.
In the 3rd case scenario, the cost of the pre-paid returns shipping provider label will be your Product return fees alone. There is no return warehousing solution cost to add up because your dropshipping supplier is already warehousing the product.
- If your dropshipping supplier does not offer any return shipping arrangement at all (neither pre-paid or unpaid) and does not accept return shipment back to their warehouse within 30 days of purchase.
This 4th case scenario makes up most dropshipping suppliers because most dropshipping suppliers have a refund and refund policy that is less than 30 days and do not accept returns on remorse purchases.
In this case you need to discuss a 30 days return shipping and refunds arrangement expressly with your supplier to match up to Tiktok Shop return and refund policy.
However, If your dropshipping supplier does not accept a 30 days return and refund shipping arrangement with you, you have a few options that we can suggest;
- Consider working with a 3pl for your returned products;
3pls stands for third party logistics provider. A 3pl can recieve your returned product, warehouse and ship them out for you if you get an order at a fufillment cost.
There are some affordable 3PLs, for example ship bob and Amazon Multi Channel fulfilment.
If you have to use a 3pl to facilitate your returns, be sure to add the cost of using the 3pl service, to receive your returned product and warehouse it for some time (up until when you expect to get your next order and ship out the returned product from the 3pl’s warehouse).
Therefore, if you choose to use a 3pl as a return warehousing solution, you should add the cost of using the 3pl and the cost of the return shipping labels. This addition should then make up your Product return fees.
- Consider using your address or the Address of a family or friend as “Return Address” to reduce Product Return fee cost;
Instead of using a 3pl, if you, your family or friends have an address within your Tiktok shop registered country, you can consider using the address for your return shipping address.
- Consider offering Returnless Refund;
Tiktok shop have an option for offering return less refund. If the cost of the product is low and processing returns may be expensive, you can choose to offer the customer a refund without needing the product to be returned.
Be Careful with this option though because unscrupulous buyers who are looking for free products could exploit this option to be able to keep your product for free and still get a refund without any genuine reasons for requesting the return and refund.
(p5) Product Referral fees; The product referral fees stand for the amount which Tiktok shop will deduct from your payment as their Referral fees.
See it this way, if you were not selling on Tiktok shop organic and were running paid ads and driving sales through paid ads, the referral fees will include your CPA (Cost per Action on your PPC ads). Look at Referral fees as simply the average marketing cost for landing a sale.
According to Tiktok shop seller policy, Currently Tiktok shop does not charge any Referral fees 0% within 90 days of being an active Tiktok shop seller. After 90 days, Tiktok charges a referral fee per order calculated as: (2.0% * Customer Payment + Platform Discount) + 0.30 USD per order
(P6) Product Profit mark up; The product profit mark up, is the amount you want to include into the selling price of the product as your profit. While deciding on what your product’s profit markup would be, it’s important to put into consideration the competitive pricing of your product.
This is where you need to do a little market survey, go to Amazon, Ebay, Tiktok Shop, check out for sellers selling similar products as yours, see how much the product is priced.
It’s important to ask yourself, if I add up my product cost, referral fees, shipping fees, product actual cost from the supply, return fees and profit mark up. Will my price be competitive?
If my price is not competitive, can I differentiate my product, offer additional great value to my product offer, have a great product photo and a conversion optimised product page and market my product so we’ll that my ideal customers would purchase my product at my price rates and find the purchase to be a good value for the price?
(p7) Product Selling price; We highly recommend the Product selling price to be the addition of; Product Cost Price + Product Shipping fees + Product Return fees + Product Referral fees = Product selling price.
This way, you have a simple price offer with free returns and free shipping.
Also in accordance to Tiktok shop policy, if a buyer returns a product and selects a reason that is the seller’s fault (your fault), you would need to cover the cost of return shipping, so it’s a good idea to factor in the cost of return into the product price.
(M1) Minimum cost for one inventory; The minimum cost for one inventory is a very important figure to pay attention to when dropshipping on Tiktokshop.
This is because Tiktok shop’s standard settlement period is 15 days after the delivery of an order but sellers are required to ship out an order within 2 days of the order creation.
This means that you need to have the product cost price amount readily available in your bank or credit card, so you are able to quickly order the product from your supplier when an order is created, ship out within 2 days and receive your payout from Tiktok within 15 days after product delivery.
Beyond having the product cost amount, you also need to additionally have the product selling price amount + returns fees, so that if your customer raises a return and refund request after your payout (pay out is 15 days from the Order delivery date) but within the customer’s return and refund request window (which is 30 days from the Order delivery date and an additional 90 days for most product categories), you can quickly process the return and refund request.
Minimum cost for one inventory is how much you need to keep aside for dropshipping one inventory of your product on Tiktok shop. This amount is to help you quickly order a product from your supplier when you get a sale and to quickly handle refunds, incase you get a return and refund request from your customer.
Therefor minimum cost for one inventory is calculated as product cost price + product selling price + product return fee
.
(M2) Maximum risk of loss for one inventory; The maximum risk of loss for one inventory is a metric you should pay attention to. Why you can make money dropshipping on Tiktok shop, you can also make loss too, so it’s important to know how much loss you can make if one sale goes south and ends up being returned back to you.
To check the maximum risk of loss, look at your review the following metrics; Product Cost Price, Product Shipping fees, Product Return fees and Product Referral fees
Consider what amount of these fees is non refundable back to you if an order is returned, the addition of all amounts not refundable back to you if a product is returned will equate to your “Maximum risk of loss for one inventory” metric.
Will the product cost price be refunded back to you? This will depend on your dropshipping supplier returns policy. if a customer returns a product to you within 30 days in accordance to Tiktok shop policy you need to give them a full refund except the product was not returned a good condition, if your dropshiping supplier won’t accept the return of that product and offer you a refund as per your Dropshipping supplier’s own policy, then you may count the cost of the product as a loss, although it’s technically not an absolute loss since if your supplier won’t accept return and refund, you will at least still have the product at hand.
Additionally, take into account the product shipping fee. If your supplier does not provide free shipping or the option of reimbursing shipping fees for returned items, it signifies that if a customer initiates a return and refund request in accordance with Tiktok shop’s policy, you will be obligated to refund the customer for the shipping fees. However, you will not receive a refund for the shipping fees that you have already paid to your dropshipping supplier. Consequently, shipping fees could potentially translate into a loss if a customer returns a product and your dropshipping supplier does not offer free shipping or reimburse shipping costs.
Moreover, product return fees can result in a financial loss if your supplier does not provide free returns. In this scenario, when a customer requests a return, even if you included a return cost margin in the product’s selling price, as per Tiktok shop’s policy, you are required to refund the customer the entire price they paid for the product order. This includes the product selling price along with any included margins, such as those for free shipping and return shipping. Additionally, you must cover the cost of the return. Therefore, if your dropshipping supplier does not offer free returns, the return shipping fee is likely to be considered a loss.
In any case factoring in the return fees to the product selling price is still helpful, since it increases your profit margin on non-returned products. it could easily make the margin on successful non-returned sales cover up for the loss of refunded sales.
Currently, Tiktok Shop provides a refund of the referral fees to sellers under specific circumstances. If a customer requests a return and refund, and the seller duly issues a full refund to the customer, Tiktok’s referral fees will be reimbursed. This means that in such cases, the Tiktok referral fees won’t be considered as a loss for returned products. It’s essential to stay updated on Tiktok Shop’s policies, as they may change over time.
Dropshipping suppliers for dropshiping on Tiktok Shop
There are really good dropshipping suppliers in the US and UK, who can make a great fit for dropshipoing on Tiktok Shop.
We have made a review of dropshiping suppliers in the UK in this Article.
Also see our review of dropshipping suppliers in the US in this Article.
Conclusion
Certainly, dropshipping can be a viable and successful business model on Tiktok Shop. However, achieving success in dropshipping on Tiktok Shop requires a comprehensive approach.
It’s crucial to consider the entire dropshipping fulfilment model, delve into the policies of both your dropshipping supplier and Tiktok Shop, and conduct a thorough analysis of profit, risk, and potential losses.
By doing so, you’ll be better prepared to develop a strategy that will enable you to thrive in the business of dropshipping on Tiktok Shop.
Remember that understanding the nuances and staying up to date with policies can greatly contribute to your success in the dropshipping on Tiktok Shop ecommerce venture.
