Are Free Returns Cost-Effective? Developing a Strong Ecommerce Return Policy

A well-crafted ecommerce return policy isn’t just a safety net for your customers, it's an important aspect of your total business strategy that reflects your brand’s reliability and influences potential buyers' decisions. Does that mean that businesses should absorb costs associated with returns, and encourage customers to take advantage of easy returns when they need to? In this blog, we’ll explore the costs and viability of offering free returns, and help you create a return policy that works for your business and buyers.

Understanding the Impact of a Free Return Policy

Here’s an eye opening statistic: 30% of all ecommerce purchases are returned (compared to less than 9% for physical retail), and a whopping 79% of all online shoppers now expect free shipping for returns. However, offering free returns can be a double-edged sword. Free returns can boost customer trust and potentially increase sales but they can also bring added expense that cuts into profit margins.

• Increased Sales: Clients are more likely to purchase if they know they can return items without incurring costs—they are especially likely to buy more/multiple items if an easy return policy is in place.
• Brand Trust: Offering free returns builds trust in a direct way—if anything goes wrong with a purchase, customers know they will not be liable for the expense.
• Potential for Abuse: A lenient return policy can sometimes lead to abuse, but interestingly, also leads to more purchases.
• Profit Margins: Free returns can be the tipping point into unprofitability if margins are already tight.
  

Strategizing Your Ecommerce Return Policy

Creating a return strategy requires a balance between customer satisfaction and maintaining healthy margins/healthy resource allocation. Here are the key pillars of an ecommerce return policy:

• Time Frame: Decide on a reasonable time frame for returns, typically between 30 to 60 days.
• Condition of the Product: Clearly specify the condition the product must be in to be eligible for a return (unopened, undamaged, etc.).
• Return Shipping: Consider if you will offer prepaid shipping labels for returns or if the customer will be responsible for the shipping costs. Some merchants also supply return packaging, saving the customer considerable hassle but incurring more costs. Designing product shipment packaging which can be easily repurposed for a return is a good solution to this expense.
• Restocking Fee: Do you wish to offset extra costs associated with the return by charging a restocking fee? Many sellers post a significant restocking fee as a deterrent to returns, but this risks creating a poor impression of customer service.
• Refund Method: Determine whether you will offer refunds, store credit, or exchanges for returned items.

Communicating Your Policy Clearly

Transparency is essential for building customer trust. Ensuring your ecommerce return policy is communicated clearly on your website, with all the terms and conditions laid out in an easy to understand manner, is the baseline. Return policy should also be featured as a conversion driver. Letting customers know that there is minimal risk in any purchase will help them feel more confident in clicking “Buy Now.”

• FAQ Section: Create a detailed FAQ section answering all possible questions related to returns.
• Easy Accessibility: Make the return policy easily to find and read, preferably linked on every page, including product pages and footers.
• Customer Service: Train your customer service team to explain the policy clearly to customers and be ready for common questions.
• Promotions: Use your return policy as a sales hook in promotional materials like emails, banners, and social posts. Free returns are a huge selling point for any offer.

Taking Advantage of The “Refund Effect”

A Harvard Business Review study found that many shoppers treat funds they receive from a return as already “lost” and are more likely to spend that money again on a replacement or new item. To leverage this trend, merchants should consider incorporating a form of upsell messaging along with return communications. This might come in the form of product suggestions, coupons, or feedback surveys to help shoppers connect with a more satisfying item.

Feedback and Improvement

If you want to know how to reduce returns, ask your customers directly what about the experience could be better. Encouraging feedback from customers on their return experience can offer real insights into areas of your business or products that need improvement.

• Feedback Forms: Incorporate simple feedback forms during the return process to gather customer insights. Don’t require essays, but ask specific questions and encourage honest answers.

The goal is to create a ecommerce return policy that is both customer-friendly and cost-effective.

Remember that a well-articulated return policy isn’t just a tool for customer satisfaction—it's also a clear representative of your brand’s reliability and commitment to quality service. Take the time to develop and continually refine your return policy, and look at associated costs as an investment in building long-term customer relationships.