Why Returns Matter

Returns are a real issue for eCommerce businesses. Many online stores deal with more returns than brick-and-mortar shops, and since profit margins for these businesses are already stretched thin, returns could have a significant negative financial impact on eCommerce stores.

But, putting a number on the impact of returns can be tricky because there are so many factors to consider. Statista estimates that the cost of eCommerce returns will increase by 33% between 2018 and 2020 to reach $550 billion. To minimize the impact of eCommerce returns on their business, online merchants must understand why these returns are being made and how to create a good return policy.

Chapter 1: Analyzing the Returns Landscape

In 2019, the global eCommerce industry generated $3.535 trillion in sales; by 2023, experts predict this figure will reach $6.542 trillion. Of course, this comes with a corresponding increase in returns. But, it’s not simply enough to create a policy for returns. Managing customers’ expectations is an important part of creating a viable eCommerce return policy. Here are a few things customers say they want from eCommerce returns:

The way returns are handled is also important to online shoppers. Your eCommerce store must make it easy for customers to return unwanted products. There is a growing expectation among online shoppers that making an eCommerce return will be as easy as making the purchase itself.

In terms of the returns process, most customers will want to be able to simply drop off their items at the post office. Here are the most popular ways to return online purchases:

  • 63% Shipped
  • 13% Recieved refund without returning items
  • 13% Returned in store
  • 11% Courier pickup

According to Statista

Of course, these elements aren’t going to be practical for all businesses, but if you handle returns well, returns can actually be an opportunity for more business. While returns can be tricky to navigate, all eCommerce businesses will need to find a solution that works for them and their customers if they want to avoid the significant burdens that returns can bring.

Dealing with the challenges of returns is important, too. Returns fraud has become a big issue for many online retailers; additionally, most retailers simply don’t have the right technology to deal effectively with returns, such as being able to properly identify and track why returns are being made or who serial returns are.

Cost of Returns to Online Retailers

Reverse logistics can incur significant costs for retailers, though many of these aren’t immediately obvious. The cost of processing a return can be up to 65% of the total selling price, which can eat into your profit margins, especially if you’re offering free returns.

When a product is returned, a retailer has to factor in the following costs:

  • Labour: Every part of the returns process will have labor costs, including customer service, financial reconciliations, shipping, warehousing, restocking, and reselling.
  • Reselling: If returned goods are to be sold again, they may need to be repaired or refurbished, then repacked and remarketed. The cost of doing this can far outweigh the retail price.
  • Damaged Goods: If a product is returned in damaged or unsaleable condition, it may have to be destroyed completely, which means the retailer eats the cost of the product and the return.
  • Transportation: Getting returned goods back from a customer can involve significant costs - this might include paying for shipping services, packaging, and labels.

Here’s a look at the real cost of a return:

Amount
Company Margin
Item Retail Price
-
$100
Item Whole-sale Price
-
$80
Over-head Costs
5%
$5
Total Profit (Pre-Return)
15%
$15
Cost of Return
14%
$14
Total Over-head Costs
-
$19
Total Profit (Post-Return)
1%
$1

According to The Conversation

Then there are non-financial costs to consider. If customers find they can’t return their purchases - or if your shipping policy is hard to find or understand - they can easily become frustrated. This could lead to a slew of customer complaints - or worse, negative reviews about your products and business.

6 Reasons Why Consumers Return Products

There are many legitimate reasons why a customer may need to return a purchase they made online. The one problem in eCommerce is that a customer can’t really see, touch, or try on a product before they make a purchase; this means when the product finally arrives, it might not be suitable.

The Rise of Return Fraud in Retail

Rise of Return Fraud

The rise of online shopping has seen a corresponding increase in eCommerce returns fraud. This is when a customer makes a purchase and then returns it in order to benefit financially from the returns process. This results in your business losing money and inventory.

“Wardrobing,” where a customer purchases an item, wears it and then returns it, is a popular - indeed, commonplace - scheme. In fact, wardrobing has become such a problem that big retailers like ASOS and Harrods have introduced blacklists for customers they’ve identified as being “serial returners.”

Three ways to identify if your business is a victim of returns fraud are:

  • Excessive loss of inventory
  • Higher than normal number of returns
  • Shrinking margins due to increased returns

Chapter 2: Building Your eCommerce Return Policy

Build Your Return Policy

Some retailers overlook returns simply because it’s a headache. You have to figure out how to get the products back without their being damaged; then, there’s the cost of processing these products. But it’s important that you put some thought into handling eCommerce returns. If they’re not handled carefully, they can significantly damage your bottom line and cause you to lose customers. However, having a good policy can build trust with your customers, encouraging repeat business and higher lifetime value. This trust translates into building major promoters of your business.

51% of online shoppers say that they avoid retailers with a strict return policy.

Obviously, it’s important that you have a solid return or exchange policy, and that it’s easily accessible for customers. Here are a few benefits of having a visible, easy-to-understand return policy:

  • Increased conversions and purchases
  • Powerful marketing tool
  • Encourages repeat purchases
  • Lowers cost of customer acquisition
  • Increases a customer’s lifetime value
  • Minimizes costs
  • Offers convenience for customers
  • Can lead to enhanced profits

Step 1: How To Write a Return Policy For Your Store

Your eCommerce returns policy will depend on exactly what type of business you are and what products you sell. But, customers should easily be able to figure out how to return a package.

Here’s a cheat sheet for creating a good returns policy for your eCommerce store:

  1. Decide if you’ll offer returns only, or exchange/store credit, too
  2. Create a time limit for returns - 30 days is standard, but some stores offer up to 90 days
  3. Outline guidelines for returns - for example, goods must be in original packaging with tags attached
  4. Decide whether you can offer free returns, of if you’ll charge for this
  5. Figure out how to provide a return label, and whether it will be a prepaid return label with the return address already printed on it
  6. Outline a step-by-step return process
  7. Make sure to include other important information the customer will want to know, like:
    • How long it will take to process their return
    • Contact information
    • Whether they’ll need to pay processing fees

The Easyship shipping policy generator can also help you figure out how to handle reverse logistics and the type of return policy you need for your online store. You’ll need to think about things like whether you’ll offer returns as well as exchange, whether you can offer free return shipping, and how to to deal with returned items.

Step 2: Communicating Your Return Policy

Communicate Your Return Policy

The key to communicating your return policy is integrating it throughout your customer's journey. Many innovative businesses have recognized that a customer-centric return policy is more than a customer service tool, instead, if used well, it becomes a powerful marketing tool.

It’s crucial that you communicate this clearly with your customers. Your customers should easily be able to figure out how to return a package to your store. The best way to do this is to link to your policy from several obvious places on your website and throughout the purchase process. This way, the onus is on the customer to take the time to read it - they can’t say they simply didn’t see it. This will help set the right expectations before a purchase is made.

Make your return policy easy to find, here are a few places where you should link your policy:

  • As a static header or footer on your website
  • On an FAQ page
  • Within product pages
  • In carts
  • At checkout, before hitting purchase
  • Links to begin the return process on tracking pages and email
  • From your shipping policy

The Importance of Product Pages

If you want to avoid products being returned because they don’t fit or don’t meet your customers’ expectations, you need to give them the tools they need to make a purchase they won’t want or need to return. This is where it’s important to have a great product page.

Importance of Product Page

Your product pages should have:

  • Detailed product descriptions, including materials, sizing, fit notes, and construction
  • Sizing guides to help your customers find their perfect size
  • Extensive product photography, including lifestyle shots and detailed images
  • Customer reviews that will help customers make a better decision

Step 3: Automating the Returns Process

Automating the Returns Process

Reverse logistics can become a pain point for any eCommerce business. Businesses need to account for the postage cost of the items being sent to a vendor, restocked and/or discarded, as well as the human capital that goes into these operations.

Returns will become much simpler if you consider outsourcing part or some of the manual process. Establishing a standard process for the handling of returns truly helps streamline this process.

Here are a few parts of the returns process that can be automated:

  • Customers can start the returns process through an online returns page
  • Use a chatbot to answer customers’ enquiries through your website
  • Use scan-based return labels so you can easily reenter the returned product into your saleable stock
  • Use tracking data to notify customers that their returns have arrived and their refund is being processed
  • Utilize an Inventory-management system (IMS) or order-management system (OMS), to manage inventory levels, order fulfillment and rectify stock with sales across channels.
  • Work with a 3PL, or Third-party logistics provider, to outsource fulfillment

There are many web-based providers that can integrate or provide the above solutions, like Easyship. Learn more about Easyship fulfillment services.

Find a Shipping Partner to Power Your Returns

Powerful Shipping Partner

While having a comprehensive shipping policy is key to a holistic return policy, using the right services to shipping these returns will enable you to save both time and money on your operational costs.

While the exact services provided - and costs - will be different from each provider, you’ll want to do your research to find the best option for your business.

Here’s what you should be looking for in a returns service provider:

  • Do they integrate with your current eCommerce system?
  • Can they provide return labels?
  • Are you able to set up customised rules for returns?
  • Can they process store credit or exchanges as well as refunds?

Easyship Shipping Services

Easyship was built with entrepreneurs in mind. Store owners can quickly integrate the shipment software with their store, customize shipping rules, and even send return labels with every generated label. Global merchants can use our shipping rates calculator to find shipping discounts with global couriers.

Chapter 3: Turning Returns into Revenue

Returns don’t have to be a bad thing for your eCommerce business. Clever retailers understand that eCommerce returns provide an opportunity to grow their business, improve their profit margins, and engage their customers. You simply have to know where these opportunities lie.

The Hidden Benefits of Reverse Logistics for eCommerce Retailers

Reverse Logistics Benefits

For the most part, eCommerce returns are considered a nuisance for customers and a necessary evil for retailers. However, you may be surprised to know that there are a few rather useful silver linings to the cloud of product returns. A savvy online retailer will use returns as a means of building their business and customer retention.

Here are a few ways returns could benefit your company:

  • You can gather data to identify trends in commonly returned items and provide better customer service. For example, you can survey customers to understand product issues, and improve your future inventory via pricing, informative details product pages, or remove problematic SKUs.
  • Free returns can be a way of increasing revenues. That’s because customers are more likely to buy more if they know that they can easily return things they don’t want; but, once they receive their order, they’re less likely to return it.
  • A good process encourages customer loyalty by building trust in your brand. This will encourage them to buy from you, thereby increasing profits; if they’re satisfied with their first purchase, this can also help increase their lifetime value.

How To Calculate Your Return Rate

When looking at today’s state of eCommerce, the average eCommerce return rate is at least 30%, compared to the 8.89% of brick-and-mortar stores. Thus, in order to build out a profitable returns policy, knowing your return rate is vital. To get this ratio, run your monthly sales amount, then divide refunded by total sales. Note: you have to wait for the return duration to complete to have a holistic view.

Users with a high return rate aren’t always a bad thing. Create profiles of your most and least profitable customers by coordinating return rates with net sales. For example, your most profitable customers can have a ~35% return rate because they buy a lot, but they also return a lot. With more targeted operations, this represents an opportunity to maximize profit.

For example, with an average rate of return being 30%, if your shop sold $15,000 in products monthly, that’s $4,500/month in returns. That’s $54,000 in revenue gone each year.

It’s also important to evaluate your pricing strategy in regards to its impact on return rate. For example, if you were to buy a t-shirt from Zara for $10 and it lasts 30 days, you would most likely be okay with this. But if you purchased the same shirt from Supreme for $60 and it lasts only a month, satisfaction rates would plummet while return rates would soar. But just think, if Supreme played with its pricing in regards to it’s return rate and perceived brand value, and adjusted the price, to say $30, the return rate could drop because the value to then the consumer was not violated, and the retailer could in turn could make a lot more profit.

5 Ways to Reduce Your eCommerce Return Rate

Here’s how:

Offer Exchange or Store Credit

Offer Exchange or Store Credit

Offering exchanges or store credit instead of returns can help cut your return rate and create new opportunities to increase order value or cross-sell. You’ll minimize the monetary loss of returns (including customer acquisition and cash refunds) while also improving a customer’s lifetime value.

Sell Warranties

Sell Warranties

It will take time for a returned product to reenter saleable stock; returned goods may also be too damaged to be resold. Either way, you’ll be out of pocket. Selling warranties - especially for expensive items - is one way to mitigate the cost of returns.

Display Reviews

Display Reviews

In addition to providing detailed product pages with descriptions, photos, and sizing, help your customers make educated purchases by highlighting reviews. This way, their expectations will be managed before the purchase, and an influx of negative reviews can highlight product issues to be addressed by the business.

Ask Why They’re Returning the Product

Ask Why They’re Returning the Product

This may not seem important, but understanding why your customers are returning their purchases can help you address these issues and reduce your return rate. For instance, if a lot of customers are returning their product because it didn’t fit, then you know you need to provide better sizing and fit information on your product pages.

Use Sturdy Packaging

Use Sturdy Packaging

You’ll want to make sure that your products are packed securely in protective packaging to minimize any potential damage while in transit, thus minimizing returns. Using packaging that can be reused for returns can also make the process easier for customers, and can also build customer loyalty.

Remember that shipping rates are based on package size and dimensions, so if a customer is returning only part of their order, the original packaging may not be suitable. It might make sense to have packaging that can be modified according to different sizing needs, such as a soft-sided package that can be taped down into a smaller size.

Chapter 4: Examples of Great Return Policies

The best - and most successful - online retailers understand that a good returns policy can go a long way in growing their business. Here are three major businesses that have aced the reverse logistics game.

Zappos

Zappos Return Policy

Return Policy: Full refund within 365 days of purchase, as long as items are unworn and in original packaging; exchanges are given store credit in the form of an eCard. Free return shipping with UPS is provided within the US.

"Our best customers have the highest returns rates, but they are also the ones that spend the most money with us and are our most profitable customers. Zappos' modus operandi is not to give its purchasers the cheapest footwear on the block, but to give them the best service: hence, a 365-day returns policy, and free two-way shipping."

— Craig Adkins, CEO

Details: This online shoe retailer figured out a winning shipping and returns policy way back in 2010. They discovered that customers who make a lot of returns are also the ones who make a lot of purchases. Because shoes are tricky to fit properly, Zappos needed a returns policy that would encourage customers to take a chance - and reassure them that they could return shoes that didn’t fit.

Estee Lauder

Estee Lauder Return Policy

Return Policy: Unused purchases made through esteelauder.com can be returned through UPS within 1 year of purchase date. Customers can request a free return label and UPS pickup within the US.; returns are free for the US.

Details: Makeup returns are notoriously wasteful - because of hygiene issues, returned cosmetics are usually destroyed and disposed of immediately. To prevent this, this major cosmetics company invested $1.3 million in scanners to help put viable returned products back into stock. This led to a savings of $500,000 in labor expenses and created a secondary profit stream worth up to $250,000 each year.

Ikea

Ikea Return Policy

Return Policy: Ikea allows returns to be made within 365 days of purchase, as long as they remain new and unused, even if you’ve assembled them.

Details: This Swedish homeware retailer has a very generous eCommerce returns policy that embraces their customers. They offer returns and exchanges, as well as an extended 1-year returns period. Perhaps more importantly, though, they use language that makes their customers feel valued. A quick read shows many references to “love,” a calculated move to ensure that customers know they’re at the heart of Ikea’s business decisions.

Take Control of your eCommerce Returns

As you can see, there’s a lot to think about when it comes to eCommerce returns. But, creating a good return policy and showing your customers how to return a package is just the first step. Any smart eCommerce merchant will also be considering how to reduce their return rate while taking advantage of the benefits that can be accrued with returns. They will also find ways to optimize their returns process. However, the first step to managing eCommerce returns is having a proper understanding of why they happen in the first place.

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