This blog post is recently updated on April-30 2019.
Return and refund policy can be an annoying aspect of e-commerce, as it can cause a loss of profit and a lot more extra effort. In this guide, we will talk to you about amazing practices you can implement to boost profitability and reduce stress.
In your quest to get your online shopping platform up and running fast, you may end up ignoring an important aspect – your return and refund policy. Click To TweetYou may have successfully launched an online shopping platform and done everything to differentiate you from the competition – right from having amazing quality products, appealing images on the website, unbeatable prices, and seamless shopping experience to offering top-notch customer service, and more. Yet, you may still have one key factor working against you – a non-existent or ambiguous return and refund policy.
Many may not know it but having such a policy in place serves as the most important factor when it comes to choosing an online shopping platform. If you don’t believe mere words, consider these 2018 figures that substantiate it:
- A whopping 80% of shoppers won’t buy from you again if they find your returns policy inconvenient.
- About 66% of customers evaluate a return/refund policy prior to making a purchasing decision.
- Against 75% of e-commerce purchases, a mere 11.8% of all returns ship free.
If you need further proof to understand why such a policy is really crucial for your business, read what Statista says.
According to Statista estimates, return deliveries in the US alone by 2020 would cost $550 billion, which will be 75.2% more than the previous four years. What’s a bigger worrying factor for e-commerce business owners is that the figure neither includes inventory losses nor restocking expenses.
Having a clear, customer-friendly return and refund policy isn’t just a sure-fire way to make your customers happy. It can also encourage your happy shoppers to spread positive words about your business where they share their experiences of your return or exchange policy. This will not only get you to repeat customers (your happy shoppers) but even some new customers (the friends and others in the network of your happy customers, who read their experiences and feel encouraged to visit and buy from you). If you’re wondering why you need to repeat customers, it’s because it’s cheaper to get your existing customers to make a repeat purchase than finding new customers. This explains the following figures:
Businesses with 40% repeat customers enjoyed almost 50% more revenue than their counterparts that had just 10%, repeat customers.
If you wonder what would make people more likely to shop online, the results of a survey conducted by Walker Sands displayed below will give you the answers, which again indicate how important returns and refunds are:
Why Plan your Return and Refund Policy the Right Way?
Unless you plan your return/refund policy properly, they can turn out to be unmanageable beasts by attacking profit margins aggressively, flatten your conversion rates, and eventually threatening your business.
In fact, returns can be expensive – costing 2-3% of total online sales, thus damaging your profits. And in case you are too generous, you may face the brunt of it by having customers milking your policy to their benefit. That was exactly what happened with L.L. Bean.
The company had a legendary lifetime return policy, which some customers interpreted as a lifetime product replacement program. As a result, they expected refunds for heavily worn products they have used over several years.
Others who bought the products via third parties (e.g. at yard sales) also sought refunds. All these made the company finally scrap its legendary lifetime return policy and offer a refund within 1 year of purchase if the customer wasn’t 100% satisfied.
There isn’t anything to lose heart though. There are ways you can leverage return/refund policy in both yours’ and your customers’ best interest.
Top 4 Situations that your Return and Refund Policy Should Address
Regardless of how your returns/refunds work, you can take multiple steps to reduce the stress. But before you start work on that, it’s important to know and remember the most common reasons that compel customers to return products.
Package arrived damaged
With the massive number of packages moving around the world through delivery services, it is no surprise that many products get damaged during transit.The screenshot below sums it up perfectly.
As a business owner, you can ensure dealing with a reliable and experienced shipper who would ensure that products are properly packaged to protect products them from getting chipped, broken, or damaged otherwise.
Having additional protection for the products (such as filling the empty spaces within the parcels with sealed air, Ranpak paper, etc; using stretch wraps along with bands or straps, etc) is a good practice. If you are interested in knowing more about protecting your shipments, here are some tips to follow to deliver undamaged products:
- Securely packaging your parcel for transit is absolutely vital.
- Make sure that your shipping labels are securely fastened on to the item.
- Book with a reputable courier.
- Provides total coverage with bubble wraps for products that require impact protection.
- Use air cushions to provide protection for objects rolling around.
Three things to note when choosing the packaging are:
- Know your ECT: The ‘Edge Crush Test’ rating tells you about the capacity of the box. Single-walled boxes may be good for small and medium-sized products, while bigger products should only be shipped in double-walled corrugated boxes.
- Degree of fragility: The fragile products need a little more protection during the product delivery process.
- Isolating liquids: If shipping liquids such as perfumes, aerosols, etc., you need to separate them by using padded poly bags. When possible, ship these types of items separately.
Wrong product shipped
E-commerce is the biggest industry these days with millions of products being ordered every hour globally. According to Statista, an estimated 1.8 billion people all over the world purchased goods online in 2018. The same year saw global e-retail sales touching the 2.8-trillion USD marks, while projections predict the growth to reach up to the 4.8-trillion USD mark by 2021.
If you are running a successful online business, which receives an impressive number of orders every day, mistakes are likely to happen. But if it accounts for a large percentage of your returns, then it is good to review your warehouse practices. At the same time, owning up your mistakes too is important. Else, you may have angry customers like the one below posting negative reviews online.
Here’s a checklist that would help you to check on your inventory management and shipping processes:
- Always have SKU numbers, barcodes and product specifications. This ensures no mistakes are made when delivering products as thousands of orders can be made for the same product. With different SKU numbers, it’s easier to deliver the right product to the right shopper.
- Use multiple vendors as inventory management also means vendor management. Having highly-in-demand products can be difficult, especially if you don’t have enough storage for them. Hence, it often makes sense to commission a second vendor for the product as a back-up plan.
- Forecast inventory demands as it helps to form the base of predicting your inventory requirements and the storage space you need.
- Bin location is a smart way to access the most accurate information about the product location. Having a bin location leads to quicker product finding. It is useful for warehouse inventory management process to be clutter free.
- Avoid mixing up SKUs as it may lead to a great disaster. Mixing up different SKUs into a bin location increases the time in locating and picking up the desired item.
Malfunctioned product delivered
Although it accounts for a very small percentage of the return reasons that your return and refund policy may need to deal with, it’s still a concern among the global eCommerce industry. For the customers, it could be an ugly experience, as the screenshot below shows.
Make sure to train your team to troubleshoot issues with the products you sell to ensure timely solutions are provided for the malfunctioned products.
Ensuring a timely solution to the product operation issues can save your time and money. Here are a few tips to ensure no malfunctioned products are delivered:
- Check the products before sending them to customers.
- Use appropriate packaging for product safety during the shipping process.
- Install safety equipment at the warehouse to prevent cartons from falling off palletized loads and breaking open.
Hire knowledgeable staff at the warehouse, who are aware of the entire shipping and delivery process.
Product doesn’t meet buyer expectations
The biggest problem with online shopping is that no way is available to closely inspect the item before making a decision. Usually, this leads to misinterpretation and shoppers ending up with something that is unable to meet their expectations as the image below shows.
In-depth and clear documentation can be the ideal solution for it. Keep in mind these tips:
- Take multiple images from a different angle and provide the option to zoom in to view finer details.
- Visible customer reviews are great support for buyers when placing orders. It lets them stay prepared for the quality of the product they’re going to receive.
- Sizing chart is another great way to ensure proper product delivery. When selling a variety of sizes, make available an easy-to-use sizing chart on your site. It helps you to ensure your customer receives the right size the first time round.
- The description should be clear and well-written using an easy-to-understand language. Incorporate tabular technical specifications as well as a written summary for each item you sell.
11 Best Practices of Return and Refund Policy
It is a fact that a large number of online retailers are not doing a bang-up job of managing online returns. Several studies have shown that having a strong and positive return & refund policy can be helpful for having repeat purchases and customer lifetime value (CLV). In fact, 40% of an e-commerce store’s revenue in the US is attributed to repeat or returning purchasers.
Followings are 11 best practices to help you with online retail operations and reduce the rate of returns as well.
Make it so simple, a kid can understand
Before you make your services live and the products available to be sold, it is pertinent to keep in mind that the return and refund policy should be clear and easy to understand. Avoid using technical terms and extremely complex language. Instead, make it so simple that even a kid in kindergarten can understand it.
Compare the given website return pages and see how beautifully the second one has defined the return and refund policy:
And here comes the LoveHoney, making things easier.
- Make sure to mention the following information in the return and refund policy:
- How do customers get the return label?
- Do customers need to return product in its original packaging?
- Is it required to be in original condition?
- If wear and tear are acceptable, make sure to mention.
- How will they get refund? In their PayPal account (or other gateway)?
Here is an example from “Modavanti” on how all customers’ queries can be answered through your refund and return policy page.
Improve Order Fulfilment Accuracy
We all know that the main cause of online returns is shipping the wrong (wrong color/variant/size) or faulty items. Make sure to invest in an order fulfillment platform that helps you with the right data from your online store that is transmitted onwards properly to your dropship partners or fulfillment centers.
Utilizing an automated platform or software helps eliminate the possibility of errors due to miscommunications and manual intervention.
You can take inspiration from Red Stag Fulfillment that won an award in 2016 for the Best Fulfillment Service. A key reason behind the company’s popularity is because it promises (and delivers) reliability and speed, thus ensuring you don’t need to worry about your customers getting mad.
Here are a few strategies to help you speed up order fulfillment process:
- Classify your inventory to ensure faster and accurate handling.
- Use systems for better visibility into all aspects of order fulfillment.
- Automate the process to avoid mistakes during while handling manually.
Ensure Product Data Accuracy
As mentioned earlier, the biggest reason for online returns is the dissonance between what customers want and what is actually delivered to them. For example, if a buyer orders a pair of shoes, with the size of UK 6, but is delivered US 6 sizes, he or she will surely return the item. Imagine another situation where you order new furniture that matches your interior décor but end up getting two extra chairs of the wrong size, color, and design – exactly what happened to Robert Kendall.
Bridging this gap between what customers expect and what’s finally delivered to them can be the right step to ensure reduced returns and do justice to your customers. At the same time, make sure that your return and refund policy addresses such issues promptly, in case they arise, to retain customers. Additionally, keep a check on the product details listed on your e-commerce store like product titles, descriptions, size guides, and also match your product’s attributes to those of the channel you’re listing it.
Check below an example of a perfect product description page:
Set up Online Returns Management Portal
Most online shopping websites are following the trend to not include a return shipping label in the box, but use a portal that manages the returns instead.
This seems to be a great choice for retailers as a centralized portal ensures a convenient, consistent user experience for buyers. This gives more control to buyers over the return process along with a variety of return options such as FedEx, UPS, USPS, etc.
With a centralized online return system, you can eliminate the chance of drop ship suppliers packing the incorrect products when returning or delivering a product with a specific SKU.
An online portal with automated live inventory feeds is a better choice when you want to allow users to exchange an item for another one in the catalog.
Another perk of using an online return management portal is the flexibility to modify returns policy without informing suppliers or updating them on packing slips each time. Using this system, you can also direct the returns to be shipped to a different store.
Decide Where to Ship a Returned Product
Customers appreciate if refunds are processed within a week or two at the maximum. The best way to ensure a timely refund is to accept returns to your warehouse directly. Whether the item was fulfilled by a drop ship vendor or by you directly, this process helps to speed up the returns and refunds process.
However, make sure not to use this process for all your products as the products with bigger sizes can be managed better by having them delivered directly to the dropship partner or the supplier.
Provide Multi-channel Returns
If you’re a multichannel retailer, allowing shoppers to purchase from different suppliers and platforms, it makes sense to provide multichannel returns facility. For example, if you have both physical stores and online stores, give shoppers the freedom to exchange or return products from either the website or brick-and-mortar store.
Allowing shoppers to go through only a single return method (e.g. phone) can be tiresome for buyers, which we believe is a grave mistake on part of the seller. So, your return and refund policy should be framed while keeping this aspect in mind.
Consumers appreciate the flexibility and convenience offered by the online stores for a refund and they will be more likely to shop with a store that has something additional on offer for them.
Keep Customers Informed
Just the way online shoppers appreciate the progress of their order, they like to get informed about the return and refund request too. Let them know when their product will be received for return and when the refund will be processed.
It will let them stay stress-free about their refund process request and they won’t bother to chase this information through your customer service team. Thus, it will save a lot of time for your buyers as well as your sales team.
If not possible, at least let them know about the minimum time you’d take to refund:
Offer Free Returns… and they’d love it!
Of course, it won’t be free for you. You may need to pay for product delivery and also when the product is picked for return, but the investment is a worthy one. A leading online footwear platform, Zappos.com, disclosed that people buying the most expensive shoes from them have a 50% return rate.
If the number scares you, here’s another shocking piece of news – Zappos.com disclosed that customers started spending up to 457% more than they did before after it offered free returns. Also, the repeat purchase spending took a beating by 75% for consumers who were needed to pay for return shipping.
In case you offer free returns, let your return and refund policy display it prominently. After all, if you have it, you should surely give it a loud shout!
You may take a cue from Zappos on how to do it.
Offering free returns is great, but no one will know about it unless you shout about it or get buyers informed of it. Mention the information on product listing page so that customers know about this when they buy, just like displayed in the image below:
In order to make the shopping experience better for your online buyers, don’t make your policies difficult to find. If you have it, displaying it on the frontend influences purchase decisions, especially if shoppers aren’t 100% sure at the checkout.
Give Them Enough Time
Be as liberal as possible with your return and refund policy. For online buyers, return windows are becoming more important, and they have an increasingly larger choice of places to buy. So, refrain from trying to be smart with a tricky return policy and ending up losing your customers to your competitors.
You should know that customers will make mistakes for sure, especially when they are buying online and aren’t sure about the quality/size/dimensions/color etc. Perhaps that explains why 30% of all products ordered online are returned, which is more than three times of what happens (8.89%) with brick-and-mortar stores.
It’s always good to provide enough time to your shoppers for returning their purchased items. For example, if someone is buying a gift and having a busy time (think the holiday season), 14 days might not be enough time to make a decision on a return.
Let’s take an example of a mattress, which is an extremely personal thing. Your buyers may not know if the purchased mattress is a good choice or not. And with a default 14-day return policy, your shoppers may end up being disappointed with your services.
Wondering what can you do?
You may let them have a 30-day return period instead, which gives them adequate time to arrive at a decision to return the product (if they want to). Having such a clause in your return and refund policy would make them more than happy to buy from you again (think repeat customers!) and even do some free publicity on your behalf in their circle of family, friends, neighbors, colleagues, etc.
Check the example below that showcases how smartly Hyphen – the mattress manufacturing company has ensured a better return policy where they’re providing 100 nights’ guaranteed guilt-free sleep time.
Make return Process Easy to Initiate
You should ensure to provide a simple and one-page checkout process to make buying easy and fun for your shoppers. At the same time, you should make the returns a positive experience for them.
Let’s share a relevant story to drive home the point: A sales professional (Sally) from New York City purchased a cool t-shirt from an online platform that she thought would look great on her. She went through the checkout process and was fascinated so much with the product that she didn’t bother to read the return policy, which was the biggest mistake.
The platform offered a 10-day return policy and that too through an email request only. Sally tore the packing and threw the slips she got with the product and unfortunately didn’t even have time to try her new t-shirt.
After a few days, when she checked the apparel, she found it a bit loose. Now, she didn’t have the product ID number and even the return duration had expired.
You won’t surely make your customers feel like Sally. That’s why your return and refund policy should be easy to understand, and if possible, be displayed prominently (at least the key elements) on the product listing page. Also, make sure to display a graphical step-by-step description of how to return the items just like done by Amazon below:
Initiate Refund or Replacement ASAP
In nearly 65% cases, customer returns are for genuine reasons. It is better to have a speedy resolution to a return, refund, or replacement. It will ensure that your customers don’t worry about purchasing from you in the future.
Remember – if they have a good time buying from you, they’d keep coming back to you for more.
Amazon takes its customers seriously and ensures building great relationships with its buyers. As a reason, it has put in place a well-thought and strategically designed return and refund policy as displayed below:
Take a look at the detailed information provided to reduce panic when something has to be returned. For example, if a customer has purchased something with the COD (Cash on Delivery) option, they’d need to wait for at least 10 days before they enter the panic mode. However, Amazon doesn’t let them worry as refunds are processed much faster than the maximum time displayed on its website.
When you own an online shopping business, you’re likely to deal with product returns and refunds quite often. Click To Tweet But if returns are a pain point in your organization, make sure to implement the above-mentioned 11 best practices of return and refund policy as they will not only keep your customers happy and coming back, but even save you a lot of money, time, and effort which may have otherwise been spent addressing and handling returns and refunds.
Make sure to craft your refund and return policy in such a way that it protects your bottom-line as well as your legitimate and loyal customers.
FAQs on Return & Refund Policy
A whopping 80% of shoppers won’t buy from you again if they find your returns policy inconvenient.
About 66% of customers evaluate a return/refund policy prior to making a purchasing decision.
Against 75% of e-commerce purchases, a mere 11.8% of all returns ship free.
Returns can be expensive – costing 2-3% of total online sales
Following are some of the reasons why shoppers return and want refund:
Packages arrive damaged
Wrong products shipped
Malfunctioned products delivered
Product doesn’t meet buyer expectations
a) Improve Order fulfillment accuracy
b) Ensure product accuracy
c) Decide where to ship return product
d) Provide multi-channel returns
e) Make return process easy and free
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