19 min read

ECommerce Returns and Refunds: Best Practices

Jake Rheude

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You’ve worked hard 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 eCommerce returns working against you, rather than for you?

eCommerce returns

One major factor that dictates where online shoppers make purchases is whether you have a clear and generous eCommerce returns policy. Studies have shown that solid return policies increase sales without increasing the volume of returns. Furthermore, Web Retailer reports that, if your eCommerce business has at least 40% repeat customers, you are likely to have 50% higher sales than online retailers for whom repeat purchasers make up only 10% of their sales. In other words, repeat customers are vital to your business.

But returns can be costly. The National Retail Federation found that 18.1% of items purchased online in 2020 were returned. In most cases, returns mean you’ve paid for shipping to and from a customer without getting a sale, plus returned merchandise can’t always be resold, and those costs hit your bottom line.

However, there are ways you can leverage returns to support the health of your online shop while keeping your customers happy. Work with your 3PL to discover ways to optimize the return process.

As the NRF report pointed out, “Your best shoppers often make the most returns,” so creating an excellent returns experience can increase your sales in the long run.

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ECommerce 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 eCommerce returns are likely to be lower than the average. But your eCommerce returns rate can go up by as much as 50% above normal after the holidays. In 2020, the NRF estimated the cost of holiday returns alone at $101 billion.  Returned holiday gifts can be a big headache for eCommerce retailers. In addition, clothing and shoes are returned at the highest rate year-round, because customers often buy multiple sizes with the intention of returning items that don’t fit.

Average eCommerce return rate

A recent study of consumer behavior in the UK found that eCommerce returns were as high as 23% for women’s clothing but just 4% for beauty products, with an industry average of 15%. Just a few years ago, many sources were estimating eCommerce return rates as high as 30% and, which high return rates may be the norm for some online retail categories or brands, it seems that a smaller share of online shoppers are sending back their purchases. That downward trend could be due to consumers growing savvier about online shopping and eCommerce websites using a variety of new tools such as virtual reality to help customers learn about products before they buy online.

Still, it can be painful to give refunds for 15% 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 eCommerce returns as a core part of your customer retention program.

ecommerce returns

Easy eCommerce 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. Half of the eCommerce consumers in a 2019 survey named an easy returns process as their definition of a positive online shopping experience. And returns are even more important if you want to expand into international eCommerce. If you make returns simple, most customers will buy from you again.

Online shoppers research their purchases and gravitate to shops with transparent policies. A UPS survey found that 44% of U.S. consumers have returned an item they bought online. Consumer experience with those returns will affect decisions about whether to buy again from that retailer. In fact, your customers’ returns experiences could have almost as big an effect on your repeat business as the initial sales experience.

How much will the average eCommerce return rate cost your business?

Shopify reports that eCommerce 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 an average eCommerce return rate of 15% to 20% 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 eCommerce returns, calculate the average eCommerce return rate for your own business. If it’s below 15%, 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 eCommerce return rate is simply part of your cost of doing business).

If you’re not tracking your eCommerce 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 eCommerce returns affect your profit margin can help you keep your business profitable.

The hidden cost of free returns

Free shipping on eCommerce returns is almost as appealing to online shoppers as free shipping when they place an order. But free returns can cost your business by creating an incentive for consumers to buy extra items with the intent of returning some. If you sell apparel, that isn’t all bad, since the ability to try clothes on at home may give consumers the confidence to make a purchase. A 2017 study by Narvar found that 40% of online shoppers had ordered extra items that they planned to return. Many online shoppers won’t buy an item if they have to pay for return shipping, but these consumer desires come with hidden costs: online retailers often have to raise prices to make up for the expense of eCommerce returns.

Pro tip: Does your pricing should cover the cost of returns? Regular reassessment of your eCommerce returns rate will help you adjust your prices. 

The eCommerce 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 eCommerce 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 eCommerce returns simple, you can actually increase customer retention and loyalty. People who return purchases are likely to be repeat customers, and almost all customers who had a good experience with an eCommerce 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 eCommerce return policy.

12 Best Practices for Your ECommerce Returns and Refunds

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

1)  Your eCommerce returns policy should be easy to find

Your return policy 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 eCommerce return policy easy to find on the desktop and mobile versions 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. That can lead to increased sales. Plus, setting clear expectations about returns before purchase also means you get calls to customer support, which saves you time and money.

2) Include clear deadlines in your eCommerce return policy

Even though your eCommerce return policy was an important part of the buying decision, many of your customers didn’t expect they would have to return something.  Don’t write your policy in dense, legalistic language, and do give a deadline so your customers return their purchases quickly. 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 eCommerce 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. And, the sooner an unwanted item comes back to you, the more opportunity you have to resell it.

3) Accept eCommerce returns via shipment or in store, if you have one

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

Many of your customers prefer to return in-store, so give them that option. Plus, 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.

Retail store open

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 items from their last order for return. 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 a quicker turnaround for you and, by helping your customers quickly and easily return a product, you increase the chances that a returned item will be in suitable condition for resale.

In addition, an online returns portal may protect 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 warehouse 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 eCommerce businesses because the costs can easily add up and hit your bottom line. But free shipping on returns is expected these days. Most consumers say that free return shipping as important to their purchase decisions. So, while not paying for return shipping might save you some cash, it could cost you in customer loyalty.

If the cost of return shipping is too much for your business, get creative. For example, you could split the difference with your customers and offer a flat rate for returns. Or you could offer free returns if items are sent back within a narrow time frame, and add a return fee for late returns.

6) Copy your return policy from the pros

You could find out through trial and error what return policies work for your business. Instead, borrow some experience from the experts — other eCommerce retailers. You’ll have to tweak things once you put your eCommerce returns policy into practice. But you get a head start when you build on the experience of others. 

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

Managing ecommerce fulfillment

7) Illustrate your returns process

We are all overwhelmed by how much content we need to absorb in our hyper-connected world. If your eCommerce returns policies are spelled out in a page of fine print, your customers’ eyes will glaze over. That is the opposite of the transparency that’s essential to a successful returns policy. Instead, make your policy easy to understand with graphics, icons, and images to help your customers easily understand how returns work for your products.

Also, 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 eCommerce return policy isn’t just a good business practice – it’s the law. Under U.S. federal law, you must accept back any 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 the embarrassment and the appearance of being shady by keeping on top of the latest legal requirements for eCommerce returns.

returns processing

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 discount. Make sure that your retail prices include enough margin to cover your operating expenses, including the cost of returns.

10) Re-engage customers

Don’t consider a return the end of the line with your 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 customers to keep the relationship alive.

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

11) Continuously review and update your eCommerce 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.

RMAs help speed the returns process

12) Use eCommerce 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 that. Show empathy when a customer expresses frustration, and you may 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.

Return Policy Examples

You don’t have to look far to find examples of great eCommerce return policies. Way back in 2010 (a century ago, in internet years), online shoe retailer Zappos 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 (now owned by Amazon) offers free shipping on returns and gives customers a whole year to send back shoes that don’t work out.

Another excellent example is Estée Lauder, which 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 that 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 eCommerce returns policy. To get you started, here are five policies you might want to use to govern your eCommerce returns.

5 winning eCommerce 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.
processing returns

Reverse Logistics During COVID-19

A discussion of returns is no longer complete without addressing the delays caused by the COVID 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 ongoing pandemic, a national shortage of truck drivers, and extreme weather events will sometimes slow down supply chains, including returns.

Your eCommerce business needs to be prepared to adjust to the unexpected, sometimes very quickly. While eCommerce has grown faster than ever, supply chain problems persist. A robust reverse logistics operation that can adapt to meet changing circumstances is your best protection against business disruptions.

An ideal policy to deal with eCommerce returns delays is the same as your returns policy in general: transparency and communication. 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.

ECommerce Returns FAQ 

What is a return and refund policy?

A return and refund policy is a policy that retail merchants create that dictates the rules that buyers must follow when returning products and requesting refunds. Return policies “should specify whether the customer will receive a refund, store credit, or exchange. A good return policy balances customer satisfaction with the operational and financial needs of the business. It should be easy to understand, customer-friendly, and facilitate a seamless return process. This includes providing clear instructions for initiating a return, offering pre-paid return labels, and ensuring prompt processing of refunds or exchanges once the returned items are received,” said Amaete Umanah of Amaete Art Shop.

What information should I include in my return policy?

“A good return policy balances customer satisfaction with the operational and financial needs of the business. It should be easy to understand, customer-friendly, and facilitate a seamless return process,” Umanah explains. “This includes providing:

  • clear instructions for initiating a return
  • offering pre-paid return labels
  • ensuring prompt processing of refunds or exchanges once the returned items are received”

What is return abuse?

“Return abuse is a situation in which customers take advantage of a company’s return policy for personal gain. This can include “wardrobing,” where customers purchase items for one-time use before returning them, or “serial returning,” where customers consistently buy and return items. Such practices can lead to financial losses and inventory management challenges for e-commerce businesses. At Amaete Art, we faced the challenge of balancing our commitment to customer satisfaction with the need to minimize return abuse. To achieve this, we implemented a few strategies:

  1. We added detailed product descriptions and high-quality images for all our wall art pieces to ensure customers have a clear understanding of what they are purchasing, reducing the likelihood of returns due to unmet expectations.
  2. We established a return verification process, inspecting all returned items for signs of use or damage. This helps us identify cases of return abuse and take appropriate action when necessary.
  3. We adopted a customer feedback system that allows us to better understand the reasons for returns, enabling us to address any product or service issues and reduce return rates.

By putting these measures into place, we have successfully maintained a customer-friendly return policy at Amaete Art while minimizing return abuse and its associated challenges,” Umanah concludes.

Reverse logistics expert

Create an eCommerce Return Policy that Works for Your Business

When you draft or revamp your eCommerce returns policy, the most important thing is to find a reverse logistics process 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.

Red Stag Fulfillment helps eCommerce businesses minimize returns and reduce costs. Our accuracy guarantees and low error rate means your customers get the right items in every order. On the rare occasions when we make a mistake in eCommerce fulfillment, we fix the error and we pay you $50.

Of course, customers will still make returns for other reasons. We speed your reverse logistics by evaluating returned items in the warehouse to help determine if they can be resold. We can even take photos of returns so you can see their condition. So talk to Red Stag Fulfillment when you’re ready for top-notch fulfillment and eCommerce returns processing.

More about eCommerce returns:

Make Returns Work For You


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