Why Your Returns Policy (or Lack of One) Is Hurting Your ECommerce Store

Take It Back: 3 Ways a Smart Return Policy Can Help an Ecommerce Business Grow

There are two “R” words no business owner wants to hear: return and refund; but without a strategic approach to customer returns and refunds, your ecommerce site could be jeopardizing relationships with customers and setting itself up for bad online reviews. Here are three keys to a return policy for ecommerce sites that can help your business make more money, not lose it.

Worldwide, consumers return about $642 billion in goods every year; equivalent to the total sales of Wal-Mart, Target, Best Buy, Gap and Macys combined, and it’s more than two times the amount of consumer holiday spending projected for this year. For clothing retailers, a whopping 10 percent of their sales come back in the form of customer returns, dramatically impacting the cost of goods sold and cutting into profit margins.

Without question, customer returns have the potential to negatively impact ecommerce revenue. Sub-par items that result in customer dissatisfaction, returns and refunds will not only erode profit margin, it can also wipe out customer trust and damage customer relations. While it’s likely that you take this into account when choosing which products and services to offer on your site, it’s also likely that sooner or later a customer will want or need to return something anyway.

No matter how carefully you choose which goods to sell, some will be returned. If you don’t have a return policy in place when this happens, the result can be damaging to your business reputation as well as customer relationships, especially if a customer leaves the transaction feeling that they were treated poorly or left holding the bag. On the other hand, if you have taken the time to put a strategic customer return policy in place, you can end up with positive results in customer relationships, reviews and future transactions even if your business bears the cost in the short term.

3 Keys for a Customer Return Policy That Can Help an Ecommerce Business Grow

  1. Know the Law

Your customer return policy must be constructed along applicable federal and state laws or you could be putting your business in legal jeopardy. For instance, federal law provides for a 3-day “cooling off period” giving buyers the right to cancel transactions for sales of $25 or more made at a home, workplace or dorm; or sales of $130 or more which occur at temporary selling locations like convention centers, fairgrounds or restaurants. In addition, each state has its own regulations regarding returns and refunds; Findlaw.com provides a list of return and refund laws by state on their website. You can also check your own state’s website for any regulations that apply to all businesses or specifically to ecommerce sellers.

  1. Take a Long-Term View

The law is one thing; customer relationships are another. A return policy that leaves customers feeling like they have done something wrong, feels confrontational or even combative, or forces them to justify their decision to return something beyond a simple explanation, will nearly always produce negative feelings. Customers might decide to stop buying from your site. Worse, customers might decide to take their feelings public and post a negative review about your site online or use their social networks to stir up a public outcry against your business.

Taking a long-term view argues for a lenient customer return policy, and one that accounts for the cost of shipping. What’s more, training employees and handling each return in a positive manner can turn a potentially negative customer interaction into a positive one. If a return transaction leaves customers feeling that you have done them a favor, they are much more likely to want to keep doing business with you. Depending on how awesome they believe your business to be, a customer return transaction can even end up providing your site with positive online reviews, word-of-mouth marketing and new referrals.

  1. Go the Extra Mile

When customers return items or request a refund on goods or services, making the transaction as hassle-free as possible is the first step; however, there is nearly always another action you can take to improve customer relationships and your business. Following up on product or service returns and refunds can take you on a journey of discovery that ultimately helps you improve your business; what you learn from customers might reveal:

  • A product or service flaw which can be addressed or which necessitates removal or replacement
  • Whether customer education before the sale and online content is sufficient to ensure success or set appropriate expectations
  • If your return policy produced a negative or positive experience for the customer
  • Gaps in employee training where customer service can be improved before, during or after a sale

In addition, it’s important to remember that customers won’t always tell you the true reason they decide to return something or request a refund. Customers might reveal more information or tell you the real reasons they returned something in the safer environment of a post-transaction survey than they would during the transaction when they might fear your refusal or a confrontational situation.

A return policy is no more than a contingency plan deployed on a small scale. In other words, when things don’t go to plan, what happens next? When you approach your ecommerce site’s customer return policy from a strategic standpoint, you have the opportunity to turn what feels like a short term loss into a long-term gain.

What about you? What’s the funniest or oddest reason a customer has offered when making a return or requesting a refund? Tweet your story to us at @KabbageInc or leave it in the comment section below – we’d love to hear from you!

Want to dig deeper?