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You’ve done everything to differentiate yourself from the competition. You offer superb products and top-notch customer service coupled with exceptional order fulfillment. That all adds up to unbeatable value for your customer. But is your policy on e-commerce returns working against you, rather than for you?

e-commerce returns

One major factor that dictates where e-commerce customers choose to shop is the existence or lack of a fair and comprehensive return policy. Studies have shown that generous return policies increase sales without increasing the volume of returns. Furthermore, Web Retailer reports that, if your e-commerce business has at least 40% repeat customers, you are likely to have 50% higher sales than online retailers who have 10% repeat purchasers. In other words, repeat customers are vital to your business.

But returns can be costly. Chain Store Age reported on a study by HRC Advisory which shows that investments in e-commerce infrastructure such as supply chain upgrades and online returns takes 2 or 3% off the top of e-retailer sales. This investment hits your bottom line. However, there are ways you can leverage returns to support the health of your online shop and keep your customers happy.

Sections in this guide:

E-commerce Returns by the Numbers

Your return rate will depend on the type of item you sell and the type of customers you sell to. If you have lots of repeat customers who know your merchandise, your e-commerce returns are likely to be lower than the average. But your e-commerce return rate can go up by as much as 50% above normal after the holidays.  Returned holiday gifts can be a big headache for e-commerce retailers. In addition, clothing and shoes are returned at the highest rate year-round, especially because customers often buy multiple sizes with the intention of returning items that don’t fit.

Average e-commerce return rate

Because of the variation in e-commerce return rates, it’s hard to pin down an industry average. In 2016, CNBC reported that retailers often have e-commerce returns as high as 30%, and clothing sites can see e-commerce return rates as high as 40%.

It may be painful to give refunds for almost a third of the orders you ship and to pay for return shipping on top of it. But returns are an important service you provide for your customers. Think of e-commerce returns as a core part of your customer retention program.

e-commerce return rates

Easy e-commerce returns are key to repeat sales

While online reviews are an important way to inspire consumer trust in your business, an online purchase is still a risk for the consumer. Two-thirds of shoppers want to know what your return policy is before they click the buy button. This is even more important if you want to expand into international e-commerce. If you make returns simple, most customers will buy from you again.

A 2019 survey by UPS found that e-commerce shoppers research their purchases and gravitate to shops with transparent policies. The study found that 36% of online shoppers had made a return in the previous three months. And 73% said that their experience with returns would affect their decision to buy again from a web retailer. The returns experience could have as big an effect on your repeat business as the initial sales experience.

How much will the average e-commerce return rate cost your business?

Shopify reports that e-commerce returns are predicted to cost online retailers a collective $550 billion. If you want to understand what that means for your bottom line, you can take the average e-commerce return rate of 30% and multiply that by your expected sales volume in the coming year. Don’t forget to deduct the cost of restocking, return shipping (if you pay for it), and merchandise that’s lost or damaged.

If you have data on your past e-commerce returns, calculate the average e-commerce return rate for your own business. If it’s below 30%, give yourself a pat on the back; you’re doing better than most. If it’s higher, it might be time to implement strategies to reduce your return rate (unless you sell sized items like apparel; then a higher e-commerce return rate is simply part of your cost of doing business).

If you’re not tracking your e-commerce return rate, it’s time to add that metric to the key performance indicators (KPIs) you monitor in your business. A clear understanding of how e-commerce returns affect your profit margin can help you keep your business profitable.

The hidden cost of free returns

Free shipping on e-commerce returns is almost as important as free shipping on the initial order. A 2012 survey found that 96% of respondents see free shipping on their orders as an incentive to buy. In addition, 87% prefer to shop at sites that offer free returns.

But free returns can cost your business. Almost a third of shoppers buy extra items with the intention of returning some of them, according to research by Barclaycard. A more recent study put this number higher, at 40%. The Barclaycard survey found that 47% of shoppers won’t buy an item if they have to pay for return shipping. These consumer desires come with hidden costs: 20% of online retailers have raised prices to make up for the expense of e-commerce returns.

Returns are part of your overhead. Your pricing should cover your overhead as well as your cost of goods sold. An honest assessment of the cost of your e-commerce returns will help you figure out whether you need to adjust your prices. 

The e-commerce return experience can lose or win customers

When you calculate the cost of free return shipping and a liberal refund policy, don’t forget to include the opportunity cost of lost business when you make returns difficult. Many customers won’t buy from your online store again if they have a bad experience with e-commerce returns. This trend is most pronounced among millennials: more than half of them will shun your site if you hassle them about a return.

Customer service for backorders

On the flip side, if you make e-commerce returns simple, you can actually increase customer retention and loyalty. Logistics Matter reported that people who return purchases are most likely to be repeat customers, and almost all customers who had a good experience with an e-commerce return said they would buy from the site again.

The fact that customers may actually like your business more if you recover well from a mistake such as a damaged or mispacked package is called the service recovery paradox. You can use this to your advantage with a generous e-commerce return policy.

12 Best Practices for Your E-commerce Returns and Refunds

Implementing a great e-commerce return policy isn’t rocket science. Here are 12 best practices to reduce your e-commerce return rate and increase customer loyalty.

1)  Your e-commerce returns policy should be easy to find

Whatever your return policy may be, it should be clear, easy to read, and easy to find on your website. Whether it’s an FAQ section or a clearly laid out web page, you should include prominent links that make your e-commerce return policy easy to find on your web and mobile site.

Having a return policy that’s clearly worded and easy to find builds trust with your customers and leaves less room for frustration as they figure out when and how to make returns. This trust can lead to increased sales. Clear expectations in your return policy also means you get fewer people calling your call center about returns, which saves you time and money.

2) Include clear deadlines in your e-commerce return policy

Even though your e-commerce return policy was an important part of the buying decision, most of your customers didn’t expect they would have to return something.  Don’t make your policy so dense that an advanced degree is required to make sense of it and do give a deadline, so your customers get it done. Don’t hide your deadline in the fine print; state it prominently, in bold type in more than one place on your returns page.

A clear e-commerce returns policy that sets expectations for the time period during which customers can return an item allows your customers to understand what’s required of them in the returns process. They are less likely to blame you for a return that goes wrong if they know your return deadline in advance.  

A clear timeline for returns can also help you predict revenue, since you can book the profit for sales that are older than the return deadline with no fear that you’ll have to give a refund.

3) Accept e-commerce returns via shipment or in store, if you have one

Not everyone has both an e-commerce shop and a brick-and-mortar store, but if you do, you’ll get a big benefit in customer satisfaction when you allow buyers to make e-commerce returns at your physical location.

Many of your customers prefer to return in store, so give them that option. Plus, as pointed out by NChannel, an in-store return is an opportunity for an upsell. More than two-thirds of customers will buy something else when they come in to make a return. When a customer returns one product, you can show them why another might be better, and you might even convince them to make that purchase.

4) Make return labels easy to print

When you provide an online portal that makes returns easy, you save time for both you and your customer. Let customers view their orders and select which items they are returning. From there, it should just take a click to print a return label.

By making the return process simpler, you help your customers make their returns more quickly and with less hassle. Faster returns also mean quicker turnaround for you. By giving your customers the incentive to quickly and easily return a product, you spend less time with reduced inventory. That allows you to get your merchandise into another customer’s hands more quickly.

In addition, an online returns process protects you from return fraud. Some customers will try to take advantage of returns by claiming that everything is in the return box when it isn’t. Others may be confused. To overcome these issues, create a return list showing all the items being sent back. Ask your customer to print the list and put it in the box with the returns. This pick list will help keep your customers honest and make it easy for fulfillment staff to determine if the return is in order.

DIM weight pricing affects large parcels

5) Pay for free return shipping

Returns are one of the biggest pitfalls for e-commerce businesses because the costs can easily add up and hit your bottom line. But free shipping on returns is expected these days. As reported by Web Retailer, 88% of consumers surveyed rate free return shipping as “important” or “very important” to their purchase decisions. So, while not paying for return shipping might save you some cash, it could cost you customers.

If the cost of return shipping is too much for your business, get creative. For example, you could state in your return policy that you’ll pay for return shipping on orders over $50. This could encourage your customers to purchase a few extra items to bump themselves over the limit while ensuring that you aren’t spending more on return shipping than the value of the items.

6) Copy your return policy from the pros

You could find out through trial and error what return policies work for your business. Instead, why not borrow some experience from the experts – other e-commerce retailers? You’ll have to tweak things once you put your e-commerce returns policy into practice. But you get a head start when you build on the experience of others. 

Visit e-commerce sites you like and study their return policies. Steal the parts you like from successful online retailers to create your own e-commerce returns guidelines. BigCommerce has compiled some great tips and examples to give you a head start.

7) Illustrate your returns process

We are all overwhelmed by how much content we need to absorb in our hyper-connected world. If your e-commerce returns policies are spelled out in a page of dense, fine print, your customers’ eyes will glaze over. This is the opposite of the transparency that’s so important for a successful returns policy. So do what you do on your other pages and make your policy easy to understand with graphics, icons, and images. In addition, graphics give cues to help your customers easily understand how returns work on your site.

A well-designed page about your returns policy is a chance to make a human connection with your customer. Graphics play an important role in creating that connection. You can even use graphics to inject a little humor into an otherwise dry subject.

8) Understand the laws governing returns

Your e-commerce return policy isn’t just a good business practice – it’s the law. Under US federal law, you must accept back merchandise that is defective. In addition, customers have three days to change their minds about products that cost at least $25. Additional state laws may also apply to your returns policy. Save yourself embarrassment and the appearance of being shady by keeping on top of the latest legal requirements for e-commerce returns.

9) Watch your profit margins

Returns can erase your profit on sale items, so consider a returns policy that excludes products you sell at a steep discount. Make sure that your retail prices include enough margin to cover your operating expenses. The cost of returns is an operating expense, so include that in your pricing calculations.

10) Re-engage customers

Don’t consider a return the end of the line with you customer. That customer was interested enough in your business to place an order; there’s a good chance you can lure them back. After a return, re-engage with your customer to keep the relationship alive.

If you handled the return right, you left your customer with a warm, fuzzy feeling. That person could become a loyal and profitable customer. 

11) Continuously review and update your e-commerce return policies

Online retail changes continuously, and your return policy should as well. It’s not enough to track your returns; use the data you gather to keep your return policies relevant to your customers and your business. If your returns spike, figure out why, and adjust your strategy accordingly.

12) Use e-commerce returns as an opportunity to show customers how much you care

You might find returns frustrating and demoralizing, but you should never let your customers see this. Show empathy when a customer expresses frustration, and you can turn their anger into gratitude. Thank your customers for doing their part in completing the returns process.

Your positive attitude and terrific customer service will be a big factor in turning returns into future sales and winning loyal customers.

e-commerce returns checklist

Return Policy Examples

You don’t have to look far to find examples of great e-commerce return policies. Way back in 2010 (a century ago, in internet years), online shoe retailer Zappos had already figured out that the customers who make the most returns were also the ones who made the most purchases. Shoe fit is tricky, so Zappos needed a return policy that would reassure customers that they wouldn’t be stuck with shoes they didn’t like. The site offers free returns and gives customers a whole year to send back shoes that don’t work out.

Estée Lauder turned around its returns program by creating a system for processing unwanted makeup and perfume. The company’s $1.3 million investment in scanners to put returns back into stock paid off. Harvard Business Review reported the effort led to a savings of $500,000 in labor expenses. It also created a secondary market for the returned products with annual revenue of a quarter of a million dollars.

You don’t have to be a giant brand to have a great e-commerce returns policy. To get you started, here are five policies you might want to use to govern your e-commerce returns.

5 winning e-commerce return policies

  • Be transparent. Put links to your returns policy in prominent locations on multiple pages. List your customer service contact information near the top and bottom of the page. Allow your customers to track returns and refunds the same way they track their orders. Send email confirmation. Transparency will win you a lot of good will.
  • Include the form of the refund in your policy. Be clear about what kind of refunds you offer, such as a refund to a credit card, exchange, or store credit. It’s important for your customer to know what kind of refund they can expect before they buy your product.
  • Set a time limit for refunds. Giving your customers between 30 and 90 days to send back a purchase is plenty of time, in most cases. A time limit will make your inventory management easier and reduce your losses on returns.
  • Keep it positive. Yes, it’s a return policy, but it doesn’t have to be full of harsh and punitive language. Keep your tone light and friendly, while you communicate the information your customers need.
  • Be flexible. Put a reasonable time limit on your returns that makes sense for you and your business – but don’t be a stickler. Allow your customer service reps some discretion. If a customer wants to return an item on day 32 of a 30-day return policy,  honor it. Little considerations like this go a long way.

Reverse Logistics During COVID-19

A discussion of returns is no longer complete without addressing the delays caused by the 2020 global pandemic.

Reverse logistics – the part of your supply chain that handles return shipping and stocking – is supposed to process returns quickly and efficiently. You need speed to meet customer expectations. However, speed is not always possible.

The pandemic and the fear of transmitting infection has forced many eCommerce fulfillment centers to slow down returns. Packages may be quarantined after they arrive at the warehouse. The extra time ensures that the packages are virus-free before workers handle them.

As scientists have learned more about COVID-19, they have come to the conclusion that fomite transmission (touching objects then touching your face) is not the way the virus is most likely to spread. In fact, you probably can’t catch coronavirus from a package. But warehouses need to keep workers safe and healthy, so it makes sense to take no chances.

Recent events have highlighted the fact that your eCommerce business needs to be prepared to adjust to the unexpected, sometimes very quickly. After initial supply chain headaches, eCommerce has bounced back and is thriving. A robust reverse logistics operation that can adapt to meet changing circumstances is your best protection against business disruptions.

Managing ecommerce fulfillment

An ideal policy to deal with reverse logistics delays is the same as your returns policy in general: transparency. Let customers know that the returns time frame has been extended and why. When you tell consumers what to expect, you reduce their anxiety and increase their patience.

Create an E-commerce Return Policy That Works for You

When you draft or revamp your e-commerce returns policy, the most important thing is to find a policy that works for you and your customers. If you provide the service and convenience your customers expect, you will retain their business and grow yours.

Reverse logistics expert