Understand the high cost of ecommerce returns and average return rates, then learn strategies to leverage your return program to attract customers and reduce costs.
Handling returns isn’t the most enjoyable aspect of running an online store. However, every ecommerce business needs to create a clear, thoughtful return policy and keep customer satisfaction and customer loyalty levels high.
Want to create a returns process that’s ideal for both your ecommerce website and customers? Below, we’ll explore ecommerce returns data and factors to consider as you build or re-examine your policy, and then go over 10 best practices for handling customer returns.
Table of Contents
- Not Every Return Program Is Right for Your Business
- Building Your Ecommerce Return Program: Factors to Consider
- 10 Best Practices for Your Ecommerce Returns and Refunds
- Ecommerce Return Software Worth Considering
- Take Ecommerce Customer Support to the Next Level With Gorgias
Not Every Return Program Is Right for Your Business
Although every ecommerce website deals with returns, return policies look very different from one site to another. Some businesses choose to offer a full refund on online returns, while others offer store credit in exchange for returned products. Some businesses provide free return shipping on product returns, while others pass shipping costs to customers.
Ultimately, a good return program fulfills the goals of your company without being too costly to operate or too difficult for your customers to find, understand, or use.
Enterprises and large businesses are more likely to offer free, no-questions-asked returns as a means of brand-building and promoting a better customer experience at scale. It may also be more profitable and productive than operating a stricter or more complex program. Customer service teams save significant time, which is key with a larger customer base and inventory volume.
Smaller businesses, by contrast, may benefit from a less generous program. According to data from CNBC, the average return represents 30% of the purchase price. For businesses operating on tight margins, this cost may be too much to swallow. Instead, many smaller businesses choose to offer stricter return policies, such as charging for shipping or only offering store credit.
Of course, there are downsides to stricter return policies. Namely, many customers expect hassle-free returns, and 79% of consumers want free return shipping. If you choose to implement a stricter ecommerce return policy for your online store, maintaining customer satisfaction and a high customer retention rate may be more of a challenge.
In the end, there’s no one-size-fits-all return program. You’ll need to crunch the numbers and take into account how much each aspect of your policy could impact your bottom line. We’ll examine some of these costs in the next section.
Once this is done, enter the details into our return or refund policy template generator and edit your new policy as needed.
Building Your Ecommerce Return Program: Factors to Consider
Let’s take a closer look at the most important factors to consider when it comes time to create or update your store’s return policy.
The High Cost of Ecommerce Returns
According to The National Retail Federation (NRF), ecommerce returns are a “major driver of the overall growth of [retail] returns.” Online returns more than doubled from 2019 to 2020, with consumers returning nearly $102 billion in merchandise bought online.
Although the COVID-19 pandemic and rise of online shopping can explain some of the increase, ecommerce returns have been rising for years. There are four main categories of return-related expenses that combine to make up the high cost of ecommerce returns:
- Cost of refunding customers: The first and most obvious expense associated with offering a full refund on returns is the loss of profit your business incurs. This means that any additional expenses you incur, such as return shipping and restocking returned products, will lead to a net loss for your company.
- Cost of additional shipping: If you choose to cover the shipping costs on returned products, the cost of printing a return label and paying for shipping will add up as well. If it’s an exchange rather than a return, you’ll have to pay for shipping on the replacement product(s) as well.
- Cost of sorting and reshelving returned items: These expenses can be substantial depending on the types of products you’re selling and the exact logistics of your ecommerce operation. Some businesses offset these expenses by charging a restocking fee on returned items, typically 15-20% of the item’s price.
- Cost of not meeting customer expectations: While the financial element of handling returns is important, you should also consider the impact of your return policy on your brand image and customer satisfaction. A poor returns experience can easily lead to a lost customer and negative reviews. The long-term costs of dissatisfied customers may be more damaging to your company than the costs of offering a more generous return policy.
If you’re looking for fresh ideas to reduce the cost of returns and exchanges, read our blog to learn how gift cards and loyalty points could be key.
Ecommerce Return Rate Benchmarks
According to data from Invesp, 30% of all products ordered online are returned, compared to only 8.89% of products that are purchased from a physical store. Here’s a snapshot of retail return rates by industry (online and in-store) from an NRF and Appriss Retail analysis of 40,000 stores:
As you can see, the data varies widely by industry, among other factors. A good general benchmark for ecommerce returns is 20-30%. The important takeaway here is that if your return rates are much higher than these averages, there may be issues you need to address.
Top Reasons That Customers Return Products
Here are the leading reasons why customers say they return products according to Invesp:
- 23% of returns are due to customers receiving the wrong item
- 22% of returns are due to the customer receiving a product that doesn’t match the product description or image
- 20% of returns are due to customers receiving a damaged product
- 35% of returns are due to unspecified reasons
There’s also the fact that 58% of consumers intentionally buy more items than they plan to keep. Customers are increasingly using return programs as an easy way to test out or try on ecommerce products, which leads to more returns overall.
Looking at these statistics, it’s evident that it’s possible for ecommerce stores to drastically lower the number of returns with the right adjustments. By ensuring that you’re shipping quality, undamaged products, providing detailed descriptions and images that perfectly match the product, and shipping the right product to the right customer, you could potentially reduce or eliminate up to 65% of all online returns.
10 Best Practices for Your Ecommerce Returns and Refunds
We’ve talked about what’s at stake with your return policy and recent industry benchmarks. Now, let’s go over 10 helpful strategies to optimize your returns and refunds process.
1. Understand the Federal and State Laws Governing Returns
Certain aspects of your store’s return policy aren’t up to you to decide. According to the Federal Trade Commission (FTC), if a customer receives a defective product, you’re required by law to issue a refund.
There are also a variety of state laws governing how returns and refunds must be handled. The major requirement is that you have to post your return policy in a clear, conspicuous place, but some laws go further.
In Minnesota, for example, stores are required to display their return policy in a boldface font set at a minimum size of 14 points. If these standards aren’t met, the store is required to offer cash refunds for acceptable returned items, regardless of their policy.
Research your state’s or country’s laws or work with a lawyer while designing your ecommerce return policy to avoid legal issues.
2. Make Your Return Policy Easy for the Customer to Find
According to data from Invesp, 67% of shoppers check a store’s return page before making a purchase decision. Whatever your ecommerce return policy happens to be, you need to make it easy for customers to access, whether they’re on a mobile device or desktop.
Creating a dedicated return policy page on your website — and providing a link to this page on every product page — ensures your return policy is highly visible. You can also add it to your FAQ page and your chatbot scripts. Briefly informing customers of your return policy at checkout is another effective option to consider.
3. Reduce Returns by Providing Important Details on Every Product Page
Product pages are the heart of any online store, and it’s essential that they provide customers with a complete and accurate description. As we noted earlier, nearly one-quarter of returns are due to products not meeting customers’ expectations or lacking key information in the first place.
Make sure your description includes size, dimensions, color, weight, care instructions, and any other relevant info. Beyond written text, you can show customers exactly what they’ll get with tools like interactive 360-degree images or videos. You can also provide your products next to other common items to give an idea of size and scale.
4. Build a Return Policy That’s Easy to Understand
In addition to making your return policy easy for customers to find, it’s also important to design a return policy that’s easy to skim and understand quickly. No customer wants to hunt through 20 pages of fine print to see whether there are return shipping fees.
Even if you decide to publish a lengthier, more complex policy somewhere on your website for legal purposes, you should still provide customers with a condensed version of your return policy. Think about the key bullet points like return shipping instructions, deadlines, and criteria they have to meet to qualify.
Making sure that customers fully understand your return policy before they make a purchase helps avoid confusion — and angry customer emails — later on.
Use our free Return Policy Template Generator to get started. We’ve used our experience working with thousands of online stores and partnering with leading ecommerce platforms to build a simple, reliable template.
5. Build Trust by Focusing Your Return Policy on Customer Acquisition
When over two-thirds of shoppers pause to check out a store’s return policy before buying, your policy may be their first accurate impression of your brand. So, a strict or unforgiving return policy could end up hurting your customer acquisition goals. It could scare away first-time customers that don’t yet trust your business enough to purchase without knowing they’ll be able to easily return products if they’re dissatisfied.
By contrast, a transparent and thoughtful return policy can go a long way toward fostering trust with your customers and ultimately boost the number of new customers that your store acquires. Think about your buyer personas and acquisition goals to develop the right program. This can also inform your brand’s tone of voice throughout the policy.
6. Reduce the Cost of Refunds by Building an Exchange-Based Return Policy
A straightforward way to reduce the return and refund expenses is to offer an exchange-based return policy or promote alternative refund options like store credit via gift cards or loyalty points.
Although exchanges may come with reshelving fees, they keep the customer’s dollars circulating in your ecommerce store. Gift cards, for example, offer an opportunity to increase your customer’s average order value (AOV).
Imagine a customer with a $25 gift card. They want to use the full value of their card in one transaction, so they buy something slightly more expensive, like a $26.50 sweater. With that, you’ve raised AOV by 6% on a simple credit-based return, and you can scale this up across your business for hundreds or thousands more per year.
7. Offer Free Shipping Whenever Possible
We mentioned earlier that 79% of consumers value free return shipping when making a purchasing decision. Nearly half of online retailers currently offer this no-cost option. While it can be painful to absorb these costs, offering free return shipping is important if you want to meet customer expectations and keep up with the competition. If you’re looking for ways to reduce your return expenses, requiring that customers cover return shipping should likely be a last resort. Another option is to set a threshold for free shipping, such as a $40 pre-tax order value.
8. Always Track the Costs of Your Returns and Adjust Accordingly
Tracking the costs of your returns can also allow you to make informed decisions around your return process, from hiring more customer service team members to trying different shipping carriers. This figure should be estimated before your policy is implemented and re-evaluated on a regular basis afterward when you have real data to crunch.
By carefully tracking the cost of your returns, you can determine whether you need to make adjustments. For example, if you determine that your return policy is eating up too much of your store’s profits, you may test a shorter return window or store credit options. Or you may determine that a reverse logistics process could streamline work and lower costs as well.
9. Make Your Return Program a Part of Your Marketing Strategy
Customers love a convenient, hassle-free returns process, and if that’s something you offer, you can use it to promote your brand and earn a reputational boost.
Consider Amazon’s return policy. Customers shopping on Amazon know that they have the option to return products — no questions asked — for a full refund. The peace of mind that comes with this guarantee is a big part of why Amazon has been able to build such a high degree of trust with its customers. It should come as no surprise then that Amazon actively promotes the benefits of its return policy to attract potential customers.
If your business boasts a generous, transparent, or stress-free return program, let your customers know about it. This could be an incredibly effective email or social media message during shopping-heavy periods like Black Friday and Cyber Monday.
10. Make Returns Possible by Both Shipping and In-Store Returns (If You Have a Brick-and-Mortar Location)
If you have an online store as well as a brick-and-mortar store, you’ll want to make it possible for customers to return products by either shipping them to you or bringing them to your physical location.
The reasons why this is beneficial are twofold. For one, offering customers more return options will only help improve your customer satisfaction rates. Convenience is top of mind for online shoppers. Second, returns processed in-store are less costly than returns that are processed online since you don’t have to pay for return shipping.
Ecommerce Return Software Worth Considering
The right ecommerce return software can go a long way toward making your return process more efficient and affordable. Here are some of the top-rated tools:
- ReturnLogic: ReturnLogic works to simplify the returns process and improve your inventory management through automation, like automatically processing requests and sending status updates. ReturnLogic also provides you with detailed analytics you can use to streamline your business.
- Loop: Loop is an “exchange-first” solution designed for Shopify stores. It provides customers with an on-demand returns portal for managing their exchange-based returns or traditional refunds.
- Returnly: Returnly provides customers with a portal where they can return and exchange products independently without needing to contact your customer support team. Returnly also claims to be the only returns software solution that allows customers to receive the right product before returning the wrong one.
- LateShipment.com: LateShipment.com is an all-in-one platform for managing customers’ post-purchase needs, including order updates, shipping, returns, and exchanges. It allows you to track return shipments across carriers and offers valuable insights into your shipping costs.
Take Ecommerce Customer Support to the Next Level With Gorgias
If you’re ready to build an efficient and effective returns process for your online store — that’s also backed by the latest returns software — Gorgias can help.
Our platform streamlines your returns process, integrating return software solutions like Loop, Returnly, and ReturnLogic and empowering you to offer top-quality customer service from a single, convenient hub. We also provide detailed developer documentation to build your own Gorgias integrations.
To learn more about how Gorgias can help you create a returns process that leverages the power of automation and in-depth analytics, book a demo today.