e-commerce returns, online returns

E-commerce Returns and Refunds: A Best Practice Guide

Call me finicky, but one of the first things I check before I hit the “Buy” button on an e-commerce site is their returns policy. And it’s not just me. Studies indicate that 66% of online shoppers do exactly the same thing. They insist on reviewing a store’s returns and refunds policy before deciding on a purchase. 81% of these “reviewers” will only go ahead with the purchase if the store offers free returns.

Spending time on crafting a returns and refunds policy is not just a way to check off all the boxes on e-commerce must-haves. It’s also a way to invest in your brand and its future stickiness.

A well thought out, flexible returns policy is essentially a vote of confidence by a retailer in its own product.

E-commerce Returns and Refunds: Should We Even Care?

Returns are a dreaded part of every retail story, but e-commerce stores seem to have it much worse than their brick and mortar counterparts.

Research shows that at least 30% of all e-commerce orders end up being returned, as against just 8.89% of brick and mortar sales.

A number of factors contribute to this significantly higher rate of returns for e-commerce stores. These include (but are not limited to):

  • Products not matching their online descriptions
  • Wrong items shipped out
  • Items damaged in transit
  • Problems with fit and/or product quality
  • Gift items that are returned
  • The customer changed her mind and no longer wants the product
  • Fraudulent returns

Things get more complicated as the cost of processing returns gets tacked on to the cost of the lost sale. Data from UPS suggest that the cost of processing returns can range from 20% to 65% of the cost of goods sold.

The holiday season is one of the worst periods for online returns. What with a sizable proportion of holiday purchases being bought as gifts for friends and family, the probability of returns goes up significantly. E-commerce returns are expected to hit £1 Billion during the holidays in the UK alone. With an e-commerce market that is over three times the size, US retailers can expect a proportionately larger returns and refunds tab in the aggregate.

Where We Stand Now

So how seamless do online retailers make the whole process of product returns?

Not very, if you go by the data. Over half of online shoppers are dissatisfied by the online returns processes they’ve used.


e-commerce returns, online returns

A third of them even expect to see a prepaid shipping label in the box, just in case they need to send the item back.

Managing the logistics of returns is one thing. The process of refunding shoppers the money they spent on the item being returned is far from smooth either. Though retailers are definitely getting better at processing refunds faster than before, they still fall short of customers’ expectations.

e-commerce returns, online returns


Whereas most customers expect refunds to be processed in under a week, fewer than one in five retailers manage to process refunds that quickly. What impact do you think that has on customer retention, loyalty and customer lifetime value?

Will a Lenient Returns Policy Lead to a Higher Rate of Returns?

As Craig Adkins, former VP of services and operations at Zappos once told FastCompany

“Our best customers have the highest returns rates, but they are also the ones that spend the most money with us and are our most profitable customers.”

The footwear retailer claims that their most valuable clients – the one’s with the highest lifetime value, presumably – have a shockingly high return rate of 50%.

Zappos is not an anomaly. A study published in the Journal of Marketing showed that stores that offer free returns see customers spend up to 457% more than they did before initiating the return. The converse was true too. Repeat purchase spending dropped by 75 -100% for customers who were asked to pay for return shipping.

It’s time to read the writing on the wall. A lenient returns policy clearly pays for itself in improved future sales.

Best Practices to Manage Your E-commerce Returns and Refunds

Clearly, many retailers are not doing a bang-up job of managing online returns right now. Empirical and experimental evidence have shown the strong positive impact a customer-focused returns policy can have on repeat purchases and customer lifetime value.

Here are a few best practices that will help your online retail operations reduce the rate of returns as well as better manage returns that happen anyway.   

1.     Build Great Product Data

One of the biggest reasons for online returns is the dissonance between what the customer expects the product to be and what it actually is. Bridge this gap by creating product data that does justice to your products. Work on accurate product titles, detailed product descriptions, size guides, matching your product’s attributes to those of the channel you’re listing it and so on.

Bonus: Here’s an example of how a retailer grew online sales by simply improving their product data.

Another awesome benefit of solid product data? Better discoverability – on search engines, marketplaces, you name it.

2.     Encourage Customers to Leave Product Reviews

This is an extension of the product reality vs. customer expectation theme. You can help new buyers make more informed purchase decisions by allowing existing buyers to leave their reviews on your product pages. Not only does it instill faith in your brand and products, it also helps from a Search Engine Optimization (SEO) perspective.

When shoppers know what to expect from a product from first-hand users, the likelihood of them returning those products drops substantially.

3.     Improve Order Fulfillment Accuracy

As mentioned earlier, shipping the wrong item (wrong variant / color / size) is an important cause for online returns. Invest in an order fulfillment platform that sources the right data from your online channels (your own site, marketplaces, search engines and more) and transmits that data onward correctly to your fulfillment centers or drop ship partners. An automated system at this stage eliminates the possibility of errors due to manual intervention and miscommunications.

4.     Decide Where to Ship a Returned Item Based on Product Categories, SKU types

We saw earlier that shoppers expect their refunds to be processed within a week or two at the maximum. Accepting returns to your warehouses or physical stores directly, regardless of whether the item was fulfilled by you directly or by a drop ship vendor helps speed up the returns and refunds process.

However, don’t use this as a thumb rule for all your SKUs. Returns for certain product categories like large, bulky items can be managed better by having them shipped directly to the supplier or drop ship partner. A robust fulfillment platform like CommerceHub allows suppliers to accept returns and seamlessly notify the retailer about the return. This way, all the retailer needs to do is worry about processing the refund, the actual logistics of effecting the return gets handed off to their channel partners.

5.     Consider Setting up an Online Returns Management Portal

An emerging trend among many retailers these days is to not include a return shipping label in the box, but have an online portal that manages all returns instead. A centralized portal ensures a consistent, convenient user experience for shoppers. It allows retailers to offer their shoppers more control over the returns process, as well as a variety of return options – UPS, FedEx, USPS, return-to-store – to pick from.
Another perk is the flexibility to modify your returns policy without having to update the same information on packing slips and inform suppliers and drop ship partners each time. Depending on the SKU being returned, you can also direct the returns to be shipped to a different store or warehouse location than the original source location of the SKU.
A centralized online returns system also eliminates the possibility of drop ship suppliers packing the wrong returns label with a particular SKU. Want to allow a user to exchange an item for another one in your catalog? An online portal with live inventory feeds is your easiest answer.

6. Offer Competitive Return Deadlines

If return policies matter so much to shoppers, retailers need to make it their business to compete on flexible return deadlines. Ideally, your return deadlines should meet or exceed Amazon’s 30-day returns policy. It’s also a good idea to specify separate deadlines for New and Used items for certain product categories.

And you don’t need to worry about getting an avalanche of returns with longer deadlines than before. Research shows that a longer return deadline actually decreases the rate of returns. While it may seem counter intuitive initially, this phenomenon is explained by what the researchers at the University of Texas call “the endowment effect”. They argue that the longer the customer possesses an item, the more attached to it they get. This makes it less likely for them to return the product to the retailer. Thank you, long return deadlines!

7. Allow In-Store Returns

This is for all you omnichannel retailers out there. Why not have your customers come straight to your own stores, instead of forcing them to trek to the nearest UPS or Fedex store to return their purchase?  62% of shoppers are more likely to shop online if they can return those items in-store.

Not only does that circumvent the cost of return shipping and the hassle of pre-paid return shipping labels, it also offers you a chance to make an additional sale when the customer is in-store making their return. According to the UPS Pulse of the Online Shopper Study 2016, 70% of shoppers who return items in-store, make an additional purchase when at the store.  

Granted that in-store returns may not work for all product types, but it’s definitely a valuable service to offer for most product categories.

8. Clarify Acceptable Return Conditions, Documentation Required

Different countries (even states) have their own laws governing product returns. Make sure your policies have you covered for all the regions that you operate in.

Things like the condition in which you’ll accept a returned item (new, unused, with all accessories?) or the paperwork that should accompany a returned item (Tags? Original packaging? User manuals? Warranty cards? Invoices?) are typically essential to include but easy to forget. This becomes even more important in case of certain product categories like perishables, undergarments and the like.

9. Who Pays for Return Shipping?

It’s a best practice to cover return shipping on products that are eligible for returns. Close to 75% of retailers will take care of return shipping costs for their customers. So rest assured, you’ll be in good company.

You can offer customers the option of printing out a return shipping label from your website or online returns portal. If for some reason, you choose to charge customers for return shipping, remember to specify upfront how much return shipping will be.

While on the topic of shipping costs, it is helpful to clarify in your returns and refunds policy whether you’ll be refunding the original shipping cost that the customer paid when making the purchase.

10.  Communicate Returns Policies Clearly

Having the best returns policy is of no use if shoppers are unable to see your policies easily while they’re shopping. Make it a point to include returns policies in easily findable locations on your product pages.

Include a page on your site that instructs shoppers how to get started with a product return. This page will ideally have details about what items can be returned, what number to call or link to access in order to initiate a return, which address to ship the item back to, what documentation to include and every other detail that goes into sending an item back to your warehouse in the easiest way possible.

Set expectations in advance by specifying the expected time it’ll take to process refunds. While refund processing time depends on the payment method used, ideally refunds processing should not take more than 14 business days. Clarify when you’ll start processing the refund – as soon as the return is initiated? On receiving the returned item at your warehouse?

Compete better by ensuring that the return policies on your website match or better those offered by e-commerce leaders like Amazon and eBay. This gives you an edge over them and, as we’ve seen earlier, flexible returns policies help, not harm e-commerce revenues.

11. How About Product Exchanges?

Can items be exchanged? Not every customer is dissatisfied with their purchase. Maybe they just want a different size or color of the product that they originally bought. Fiscally, it’s a good idea to allow customers to exchange products. An exchange, while being a type of return, impacts your balance sheet to a far lesser degree than an outright return does.

Outline in simple language the process of effecting a product exchange. Will it be a return, followed by a refund and a new purchase or a simultaneous process of return and exchange, all carried out online? Whatever the case may be, spell it out in as many words to potential shoppers.

12.  Manage the Issue of Fraudulent Returns Delicately

Despite your best safeguards, the prospect of fraudulent returns is unavoidable. The good news is that fraudulent returns account for a very small percentage of total returns (about 3.5% of all returns) and can be kept under control with the right policies.

Retailers typically see instances of fraudulent returns on high value items. Charging a small restocking fee for large, used, or high-value items is one way to discourage fraudsters. Another option is to encourage shoppers to return the items in-store where your staff can examine the item being returned before going ahead with the transaction. Many retailers keep close tabs on their returns data to see if there are certain product categories, customers or even specific stores that have higher return rates.


Returning to Returns and Refunds

It is understandable why retailers are terrified by the specter of returns and refunds. It is an expensive, resource-intensive process, that eats into your profitability. But the success of online retailers like Zappos and Warby Parker is testimony to the fact that a smart, customer-friendly retail returns policy pays off in the long run.

Need help with managing your returns? Reach out to our team of e-commerce fulfillment experts and we’ll help you out.