Ecommerce

4 Things to Know About Ecommerce Returns to Minimize Lost Profits and Keep Customers Happy

How do you know what's the right return policy for your online business?
4 Things to Know About Ecommerce Returns to Minimize Lost Profits and Keep Customers Happy
Image credit: AdrianHancu | Getty Images
Guest Writer
Founder of ShipRush, part of Descartes Systems Group
6 min read
Opinions expressed by Entrepreneur contributors are their own.

Many small businesses are merchants selling on Amazon and other marketplaces. A 2017 BigCommerce study reported that marketplaces account for 45 percent of online sales. Sellers need to know how to manage product returns in this environment.

Related: 6 Steps to Building a Million-Dollar Ecommerce Site in 60 Days

More marketplace exposure means more sales and more returns. More complex, however, is offering the return policies required by the marketplaces. For example, Amazon now requires third-party sellers to accept “automatically authorized returns.” This means merchants must accept returns without having any direct contact with the customer, exactly when many businesses try to resolve customer issues to preclude returns. There are, however, ways to improve control of online returns in the face of changing customer expectations and marketplace practices.

As disappointed gift recipients begin returning their unwanted merchandise, here are four strategies online retailers can use to tighten the returns process:

1. Return policies can no longer be an afterthought.

Marketplace policy changes give merchants the opportunity to rethink how they handle returns. According to a recent UPS study, 66 percent of customers say they check return policies before making a purchase. A well thought out returns policy is critical to good customer relations. Sellers need to decide whether to offer one return policy -- for example, Amazon’s -- or different policies for each marketplace/channel or for various product offerings (e.g., low-end versus high end).

Related: 10 Things You Must Do to Grow Your Online Business in the First Year

Some businesses I’ve talked to set policy based on the most generous marketplace policy. If sellers choose an “Amazon-style” return policy with instant returns and free shipping, this can be promoted up front as part of a company’s brand. Clearly, a simple online returns process helps drive sales and cement customer loyalty -- and overlooking the returns opportunity can be costly.

2. A free returns policy might not work for some sellers.

Returns can have a big financial impact on profits. Depending on the industry, return rates can be very low or very high. Book and video returns can run 2-3 percent, while clothing and jewelry can run upwards of 30 percent. Companies should right-size return policies based on industry standards and actual return rates. A 2017 Internet Retailer study found that 75 percent of all ecommerce purchases ship for free but only 11.8 percent of all returns do.

Related: How to Save Thousands on Your Next Ecommerce Project

Businesses with healthy profit margins can build the cost of returns into a product’s price. Charging restocking fees or not accepting online returns is less common but, for certain products or industries, it makes financial sense. For example, companies selling new laptops might find a restocking fee may be the only way to support thin margins. Sellers need to evaluate whether the return policy of a particular marketplace works for them. Clothing subscription services like Stich Fix expect a high volume of returns because consumers receive new fashions regularly based on personal profiles -- keeping only what they want and returning the rest. Stich Fix defrays returns costs with a $20 stylist fee, similar to a restocking fee.

If a seller has a low return rate, return-less refunds offer another option. It costs around $5 to receive a returned item and another $5 to check its viability for resale and/or disposal. For orders of less than $50 or infrequent returns, it might make sense to offer return-less refunds.

3. Sellers should right-size returns automation based on business needs.

Merchants with high return rates may need a great deal of automation. Small businesses with fewer returns often manage them in-house using cloud-based shipping solutions that simplify printing or electronically creating return postage labels that customers print themselves. Barcodes on labels quickly identify customer records and product numbers to speed the return process, cut down on errors and save time.

Related: The Small Business Guide to Thriving in the Amazon-Whole Foods Era

Integrating with internal systems is important for large retail operations with high return volumes. Returned packages sitting on the warehouse floor cannot be effectively put back into stock without the right system in place. Connectivity must flow from the customer to the warehouse to the shipper into marketing, sales and accounting.

For companies with few internal fulfillment resources, a third-party processing service can help. Merchants need to weigh the benefit vs. cost of using fulfillment and returns processing by marketplaces or third-parties. Another way to manage returns if there aren’t in-house resources is to monetize returns by sending returned merchandise directly to a reverse logistics partner that liquidates inventory.

4. Returns cut into profits so preventing them is key.

Good customer service helps avoid unnecessary returns by solving a customer’s problem with support, rapidly replacing missing/damaged items or making exchanges. But, heading off an unnecessary return is hard when marketplaces allow automated returns with no merchant contact.

Related: 3 Things You Should Consider Before Listing Your Products on Amazon

To combat this, sellers should use “scan based” return labels when possible. With these labels, the merchant is only charged if the label is used. Some merchants report that 10 percent or more of the requested returns are never actually sent in, making scan based return labels an instant money saver.

Providing customers with current, accurate product information is also important. By connecting ecommerce marketplaces to internal order status, pricing and inventory processes, customers know if a product is in stock and when it will ship. Detailed product descriptions and quality images help to avoid misunderstandings. Customer feedback/review functions provide even more information to support making the right choice. Finally, it’s useful to track which products are returned and why. Develop a “reason for returns” report by manufacturer and SKU. This allows vendors to troubleshoot and avoid future returns.

Changes in return policies by Amazon and other marketplaces are an opportunity for ecommerce businesses to take charge of returns. Online sellers can use this as a chance to create better customer communication and loyalty, address how returns affect the bottom line and streamline logistics.

Related Video: How to Get Your First 100 Sales on Amazon

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