You have a wonderful differentiated product, your marketing is on fire, your fulfillment is clicking on all cylinders and you are known for your great customer service. So, what could go wrong? One word – returns. The reverse part of the supply chain that so many take for granted can seriously eat into your margins. It is more important than ever to have a clearly defined return policy, understand the true costs of returns, and to develop a returns strategy to mitigate losses.
Clear Return Policy
There are several things you should be thinking of when developing your return policy:
- Your return policy should be clear and definitive. If you have wiggle room in your language you are going to have customers uncertain which can a) lead to them not purchasing due to confusion, b) potentially trying to abuse your return policy due to ambiguity.
- Clear deadlines should be stated within your e-commerce return policy. A lot of merchants go with 30 days, other go with 180-365 days. It really is product dependent, so you do what is best for your business. However, it is important to state and stick to the required return deadline.
- Who will bear the financial responsibility for the return? Merchants frequently provide prepaid return labels. The cost of these returns can either be absorbed by the merchant or deducted from the return amount and charged to the customer. By providing a prepaid return label you can get better predictability and quicker turnaround on your returns. The quicker you can get product back into your inventory the quicker you can sell it to another customer.
- Borrow from the Pros. Return policies are not proprietary. There are many businesses that have used similar return policies as best practices. Don’t be afraid to borrow elements from one of the ‘big boys’ and customize the language to make it yours.
- Once you are happy with your clear return policy be sure customers can find it is easy. It is a good idea to have in multiple places on your commerce website, not just in the FAQ. Returns are such a searched for thing that is makes sense to have its own landing page. A nice clean visual can really hit home so consider a simple flow chart.
Understanding the True Cost of Returns
Statista estimates that returns in the U.S. will cost $550 billion this year (2020)! That is certainly a jarring number. It is estimated 20-25% of all returns that come back to a retailer cannot be resold due to condition. As a result, a lot of return items wind up being sold to liquidators, wholesalers and resellers. These returns are often sold for 10 cents on the dollar.
So, let’s look at the two types of returns and some illustrative examples to fully quantify the cost of returns:
- Resellable Returns
- Make up 75-80% of all returns
- These are the type of returns you want. Could have been returned due to fit or just did not like the item
- No physical damage; can be repackaged and sold as new
- Unsellable Returns
- Make up 20-25% of all returns
- These are the types of returns you do not want. Could be damaged or defective
- Only worth a fraction of what the item originally was worth
Now, let’s look at three different examples:
Example 1: A buy and sell transaction. No return.
Example 2: A buy and sell transaction with a return that is resellable.
Example 3: A buy and sell transaction with a return that is not resellable.
As you can see, returns can wreck your business if you are not careful. In Example 3, where you can’t resell the product as new it has essentially erased three positive sales from Example 1. Therefore, it is critical you know your return rate (both resellable and unsellable) and have a strategy behind returns.
Developing a Return Strategy
Okay, so now you know the importance of having a clear return policy and understand the financial impact returns can have on your business. It is now imperative you build a strategy around returns. First, let’s look at this infographic put together by Invespro as there is a lot to consider when developing a returns strategy.
- Know your industry and expected return rate. Clothing and footwear’s return rate are going to be drastically different vs. electronics.
- Ecommerce vs. Brick-and-mortar. You can expect return rates 3x higher online vs. store purchases. It is inherent to the business model. In store you can touch and experience the goods. Online can be a crapshoot and the expectation is “I’ll just return it if I don’t like it.”
- Having a lenient returns policy online can lead to repeat customers. The easier you make it for a customer to be satisfied the more likely he/she will return to your business.
- Having your online return policy clearly defined and prominently placed on your website is imperative. Two out of every three customers read the return policy prior to making a purchase. If the customer cannot find your policy or if there is ambiguity in the policy, it can and will affect your conversion rate negatively.
- Continuously work to understand why your customers are returning your products. Return reason code data is extremely valuable and should be easy to obtain from your customers. If you can find commonality threads on why your products are being returned you can take action to mitigate some of the returns.
- Have a plan on how to handle your returns and turn them back into a revenue generating source. You can have the greatest strategy in the world; you are still going to have ‘x’ number of returns. What you do with those returns can have a huge improvement on your bottom line.
Lessgistics has personally dealt with over 10 million returns across multiple large organizations. Our experts can help you craft your returns strategy and start turning your returns into a revenue generating source. We also have options in-house to process, quality check, and resell your returns. Get in touch with us below!