eCommerce Returns 101: A Comprehensive Guide for Retailers (2023)

In the world of eCommerce, returns are an inevitable part of the business. While they may seem like a loss, smart retailers understand that effectively managing returns can actually lead to customer satisfaction and increased sales. In fact, A study from UPS revealed that 73% of shoppers say the returns experience influences how likely they are to buy again.

So in this blog post, we will explore the best practices to minimize losses associated with eCommerce returns. By implementing these strategies, you can streamline your returns management process, reduce unnecessary costs, and improve customer experience. Let's dive in!

What is the Return Rate for eCommerce?

eCommerce returns have become a significant aspect of the online retail landscape, especially in the last few years. With digital advances and the COVID-19 pandemic driving a surge in online shopping, return rates have also seen a notable increase. 

According to Statista, the overall retail rate for online and in-store purchases is 10.6% in the US. That means for roughly every ten sales you make, one of them will be sent back.

However according to other industry reports, return rates for eCommerce purchases can be as high as around 30%, compared to 8-10% for brick-and-mortar stores. This trend has only continued as consumers embrace the convenience of online shopping. 

How to Calculate Return Rate for eCommerce?

ecommerce return rate formula

Calculating the return rate is a fundamental step in assessing the performance of your eCommerce business and understanding customer behavior. The return rate represents the percentage of products that are returned by customers compared to the total number of products sold. To calculate the return rate, follow these simple steps:

  1. Gather the necessary data: Begin by collecting the data required for the calculation. You'll need two key pieces of information: the total number of products sold during a specific period and the total number of returns received during that same period.
  1. Determine the time period: Decide on the time period for which you want to calculate the return rate. It can be a week, a month, a quarter, or any other timeframe that aligns with your analysis goals. Ensure that the time period is consistent and allows for meaningful comparisons.
  1. Calculate the return rate: Divide the total number of returns by the total number of products sold during the chosen time period. Multiply the result by 100 to obtain the return rate as a percentage. The formula can be represented as follows:
    Return Rate = (Number of Returns / Number of Products Sold) * 100
    For example, if you sold 1,000 products and received 50 returns in a month, the return rate would be (50 / 1,000) * 100 = 5%.
  1. Analyze and interpret the return rate: Once you have calculated the return rate, it's important to interpret the results within the context of your business. A high return rate may indicate potential issues with product quality, inaccurate product descriptions, or inadequate customer service. On the other hand, a low return rate generally signifies satisfied customers and effective product offerings. By monitoring and analyzing the return rate over time, you can identify trends, patterns, and areas for improvement.
  1. Compare with industry benchmarks: It can be helpful to compare your return rate with industry benchmarks to gain a better understanding of your performance relative to competitors. However, keep in mind that return rates can vary significantly across industries and product categories. Research industry-specific benchmarks or consult industry reports to assess how your return rate compares to similar businesses.
  1. Identify and address underlying issues: If you find that your return rate is higher than desired or industry benchmarks, it's essential to investigate the underlying causes. Analyze return reasons, customer feedback, and product performance data to identify potential areas for improvement. Focus on enhancing product quality, optimizing product descriptions, improving packaging, and providing exceptional customer support. By addressing the root causes of returns, you can work towards reducing the return rate and improving overall customer satisfaction.

Calculating the return rate in eCommerce provides valuable insights into customer behavior and the effectiveness of your business operations. By regularly monitoring and analyzing this metric, you can make data-driven decisions to optimize your product offerings, customer experience, and operational efficiency.

What is the impact of eCommerce returns?

eCommerce return policy
Shopify store Allbirds have a generous eCommerce return policy

As an eCommerce merchant, understanding the impact of returns on your business is crucial for managing operations effectively. While returns are an inevitable part of online retail, they can have both positive and negative implications. In this section, we'll explore the impact of eCommerce returns on merchants like yourself.

  1. Customer Satisfaction and Loyalty: Although returns may initially seem like a setback, handling them efficiently can actually boost customer satisfaction and loyalty. By offering a hassle-free return process, you demonstrate your commitment to customer service and build trust with your audience. Satisfied customers are more likely to become repeat customers and recommend your business to others, ultimately driving growth and revenue.
  1. Operational Costs: Returns can incur additional costs for eCommerce merchants. From processing returns and inspecting products to restocking inventory, there are various operational expenses associated with handling returned items. It's important to account for these costs when planning your budget and pricing strategies. By optimizing your return processes and streamlining operations, you can minimize the financial impact of returns on your business.
  1. Inventory Management: Efficiently managing inventory is essential for eCommerce success, and returns play a significant role in this process. Returns can disrupt inventory flow and lead to overstocked or outdated products. By closely monitoring return patterns and analyzing reasons for returns, you can make data-driven decisions to improve product quality, address common issues, and enhance customer satisfaction. Additionally, implementing inventory tracking systems can help you accurately assess stock levels and avoid inventory discrepancies caused by returns.
  1. Product Quality and Returns Reduction: Returns provide valuable feedback on product quality, functionality, and customer preferences. Analyzing return reasons can help you identify areas for improvement and refine your product offerings. By addressing common issues, you can reduce return rates over time, enhance customer satisfaction, and strengthen your brand reputation. Consider leveraging customer reviews and feedback to gain insights into potential product improvements, and proactively communicate any product-related updates or improvements to your customers.
  1. Return Policy Optimization: Your return policy plays a crucial role in shaping the overall return experience for customers. By regularly reviewing and optimizing your policy, you can strike a balance between customer satisfaction and managing return costs. Transparently communicate your return policy to customers, ensuring it is easily accessible and clearly explains the return process, eligibility criteria, and any associated costs. Adjusting your policy based on customer feedback and industry best practices can help you better meet customer expectations and reduce returns caused by unclear policies.
  1. Analytics and Reporting: Tracking and analyzing return data can provide valuable insights for your eCommerce business. Utilize analytics tools to monitor return rates, identify trends, and understand the root causes of returns. This data can guide your decision-making processes, such as adjusting product descriptions, improving packaging, or enhancing customer support. By leveraging data-driven insights, you can make informed decisions to optimize your business operations and minimize return rates.

Understanding the impact of eCommerce returns on your business allows you to implement strategies that mitigate negative effects while capitalizing on the positive aspects. By prioritizing customer satisfaction, optimizing operations, and leveraging data, you can turn returns into an opportunity for growth and improvement within your eCommerce business.

How to Manage eCommerce Returns: 8 Expert Tips to Minimize Losses

eCommerce returns policy example
Shoe retailer Zappos is known for their amazing returns policy

To handle eCommerce returns efficiently and minimize any associated losses, retailers can adopt various strategies that optimize their processes and enhance customer satisfaction. 

1. Leverage Data Analytics for Returns Management

Data analytics plays a crucial role in effective returns management for eCommerce businesses. 

By studying return data (along with other inventory management metrics like weeks of supply), retailers can gain valuable insights into the reasons behind returns, identify patterns or trends, and make data-driven decisions. With the help of advanced analytics tools, retailers can determine which products or categories have the highest return rates, allowing them to focus on improving those areas. 

Additionally, data analytics can help retailers identify the root causes of returns, whether it's product quality issues, sizing discrepancies, or packaging problems. Armed with this information, retailers can implement targeted strategies to reduce returns, improve customer satisfaction, and improve their overall operations.

2. Use Automation to Streamline Your eCommerce Returns

Automation is a game-changer when it comes to streamlining the returns process in eCommerce. With the help of advanced software solutions, retailers can automate various aspects of returns management, including return requests, label generation, communication with customers, and inventory updates. By eliminating manual and time-consuming tasks, automation improves efficiency and reduces the chances of errors. 

Furthermore, automation enables real-time tracking of return shipments, allowing retailers to proactively manage the returns process and provide timely updates to customers. Overall, automation not only saves time and resources but also enhances the customer experience by providing a seamless and hassle-free returns process.

3. Reduce Costs Associated with eCommerce Returns

Returns can be costly for eCommerce businesses, but there are strategies to help reduce those costs. 

One approach is to establish a restocking fee or a return shipping fee to offset some of the expenses associated with returns. Retailers can also implement thorough quality control measures to reduce the number of returns caused by product defects or inaccuracies. Another cost-saving strategy is to leverage partnerships with third-party logistics providers to negotiate favorable shipping rates for return shipments. 

Additionally, optimizing the packaging process to reduce the risk of damage during transit can help lower return-related costs. By implementing these cost-saving strategies, retailers can minimize the financial impact of returns and improve their bottom line.

4. Prioritize Effective Communication in Returns Handling

Effective communication is paramount when it comes to returns handling in eCommerce. Retailers should ensure that their return policy is clearly communicated and easily accessible on their website. 

This policy should outline the steps and requirements for initiating a return, as well as any associated fees or restocking charges. Prompt and clear communication with customers throughout the returns process is crucial to managing expectations and providing a positive experience. 

Regular updates on return status, refund processing, or exchange progress help build trust and transparency. By prioritizing effective communication, retailers can minimize confusion, prevent potential disputes, and enhance customer satisfaction during the returns process.

5. Build a Sustainable eCommerce Returns Process for Your Business

Sustainability is an increasingly important aspect of returns management in eCommerce. Retailers can take steps to build a more sustainable returns process by encouraging customers to consolidate returns into a single shipment to minimize carbon emissions from transportation. Implementing a recycling program for returned products or packaging materials can also contribute to a greener and more eco-friendly approach. 

Additionally, retailers can consider partnering with donation centers or charities to redirect returned items in good condition. By incorporating sustainability into the returns process, eCommerce businesses can reduce their environmental footprint and align with the values of socially conscious consumers.

6. Employ Reverse Logistics for Efficient Returns Handling

Reverse logistics refers to the process of managing returned products from the customer back to the retailer. It involves various activities such as receiving, inspecting, sorting, restocking, eCommerce warehousing and disposing of returned items. Optimizing reverse logistics is essential for efficient returns handling. Retailers can implement streamlined processes and systems to track returned items, assess their condition, and determine appropriate actions, whether it's restocking, refurbishing, or disposing of the products. 

By efficiently managing reverse logistics, retailers can reduce processing time, minimize costs, and improve overall operational efficiency. This includes having designated areas for returns processing, utilizing barcode scanning or RFID technology for accurate inventory management, and partnering with reliable logistics providers to handle return shipments promptly.

7. Balance Your eCommerce Returns Policy Flexibility and Loss Prevention

While offering a generous returns policy can attract customers and enhance their shopping experience, it can also increase the risk of fraudulent returns or excessive return rates. Retailers should carefully assess their target market, industry standards, and profit margins to determine an optimal returns policy. 

Implementing measures such as return windows, condition requirements, restocking fees, or store credits instead of cash refunds can help strike the right balance. Regularly analyzing return data and monitoring return patterns can provide insights into the effectiveness of the returns policy and allow adjustments to be made accordingly. 

By finding the right balance, retailers can mitigate losses while still providing a positive and customer-friendly returns experience.

8. Prevent eCommerce Returns Before They Happen

Everlane use various strategies to reduce their return rate

Prevention is always better than dealing with returns after the fact. Retailers can implement various strategies to proactively reduce the occurrence of returns. 

One effective approach is to provide comprehensive product information, including accurate descriptions, detailed specifications, and size guides. By giving customers all the necessary details upfront, they can make more informed purchasing decisions and select products that meet their expectations. 

Another strategy is to enhance the product imagery, using high-quality photos from multiple angles to provide a clear representation of the item. Additionally, retailers can invest in user-generated content such as customer reviews and ratings, which provide social proof and give potential buyers a better understanding of the product's quality and performance. 

By focusing on prevention, retailers can minimize return rates and improve customer satisfaction.

9. Address eCommerce Returns Challenges in Global eCommerce

For eCommerce businesses operating on an international scale, handling returns can present unique challenges. Cross-border returns involve additional complexities such as customs regulations, shipping costs, and longer transit times. Retailers should invest in understanding the specific requirements and restrictions of each country they operate in, including return policies, duties, and taxes. 

Clear and transparent communication with international customers is crucial to ensure they understand the return process and any associated costs. Offering localized returns solutions, such as partnering with local carriers or establishing return centers in key markets, can streamline the returns process and provide a better customer experience. 

By addressing the challenges of international returns, retailers can effectively cater to global customers and expand their reach while minimizing losses.

10 eCommerce Returns Best Practices For Better Returns Management

Shopify-based brand Chubbies offer store credit to help retain more revenue

1. Streamline Your Return Policy

A well-defined and customer-centric return policy is the foundation of minimizing losses. Make sure your return policy is clearly communicated on your website and easily accessible. Clearly outline the timeframe for returns, condition requirements, and any associated fees. 

2. Provide Accurate Product Descriptions and Images

One of the main reasons for returns is a discrepancy between the product received and the customer's expectations. To minimize this, ensure that your product descriptions and images accurately represent the item. 

3. Improve Packaging and Shipping Processes

Damaged items are another leading cause of returns. Enhance your packaging by using protective materials, such as bubble wrap or packing peanuts, to ensure the products are well-protected. 

4. Implement Quality Control Measures

Establish a robust quality control process to catch any defects or issues before they reach the customer. Regularly inspect your inventory, conduct spot checks, and test products to ensure they meet your standards. 

5. Provide Exceptional Customer Support

Train your staff and offer multiple channels of communication, such as live chat, email, and phone, to accommodate various customer queries. By providing excellent support, you can resolve customer issues before they escalate into return requests.

6. Encourage Customer Feedback and Reviews

Actively encourage customers to leave feedback and reviews on your website or third-party platforms. Social proof from positive reviews can instil confidence in potential buyers, reducing the likelihood of returns. 

7. Analyze Return Data for Insights

Identify patterns, such as specific products or categories with high return rates, and investigate the root causes. This data can help you make informed decisions about product improvements, packaging, customer support, and other areas that impact returns.

8. Offer Alternative Solutions to Returns

Customers may request a return due to minor issues that can be easily resolved. Consider offering alternative solutions, such as exchanges, store credits, or repair services, depending on the nature of the problem. 

9. Continuously Monitor Industry Trends

Stay updated with the latest industry trends, technological advancements, and best practices related to eCommerce returns. By staying informed, you can proactively adapt your strategies to minimize losses and stay ahead of the competition.

10. Leverage Retargeting and Remarketing Strategies

Implement retargeting and remarketing campaigns as part of your marketing strategy to re-engage customers who have previously made returns. Tailor your messaging to address their concerns, offer incentives for future purchases, and showcase improvements you've made based on their feedback. 

Choose the Best eCommerce returns Software

Several options for returns management software are available in the market, each with its unique features and benefits. This specialized software automates and streamlines the entire returns process enabling retailers to track return requests, communicate with customers, generate return labels, and analyze return data for insights.

Some return management software also integrates with other systems like inventory management, providing a comprehensive solution for handling returns effectively.

Another type of software that can be beneficial is customer relationship management (CRM) software. CRM software allows retailers to centralise customer data, track customer interactions, and provide personalized support throughout the returns process. By having a holistic view of each customer's history and preferences, retailers can deliver a more tailored and satisfactory experience, reducing the likelihood of returns and improving customer retention.

If you are not sure about which software best suits your needs, you may want to consider partnering with a fulfilment provider such as James and James Fulfilment. Not only will they handle all the essential aspects of fulfilment and supply chain management but they also have their own specialized order fulfilment software that encompasses all of the different features above on one easy-to-use cloud-based platform!  

Go Forth & Improve Your eCommerce Returns!

Ultimately, by implementing these best practices, you can transform eCommerce returns from a potential loss into an opportunity to build customer loyalty, improve brand reputation, and drive long-term success for your online business. 

Remember, minimizing losses from eCommerce returns is an ongoing process that requires constant evaluation and adaptation. With a customer-centric approach and a commitment to continuous improvement, you can minimize losses, optimize operations, and create a positive and seamless shopping experience for your customers.

Author Bio

This post was written by James Hyde CEO & Co-founder of James and James Fulfilment. James & James Fulfillment offer online sellers a service that combines super-quick fulfilment, industry-leading customer support, and award-winning technology. Visit their website to learn more about how they can help you better manage your eCommerce returns, delight your customers and grow your business.

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