How to convert refunds into exchanges and retain more revenue
Carly Greenberg
·August 22, 2024
Seeing a high return rate for your ecommerce store? Don’t worry: It doesn’t mean there’s anything wrong with your products.
When making an online purchase, shoppers don’t have the option to test out or try on products in advance of buying them. As a result, they tend to look for brands with flexible return policies, giving themselves a trial period to determine whether they want to keep a product or not. In some industries, ecommerce return rates can go as high as 30%.
While you can—and should—look for ways to lower your return rate, there’s another important tactic you shouldn’t overlook: Converting refund requests into exchanges.
How to optimize for product exchanges
Often, when a shopper requests a return, they liked the product, but something about it didn’t quite meet their needs. Maybe the top was too small, or the color of the dress didn’t match the shoes they planned to wear.
If your brand defaults to refunds on all purchases, the shopper would need to send the item back, get a refund, and then purchase the item again in a different size or color—but odds are, they probably won’t. That process involves too many steps, and by the time they’re prepared to make a purchase again, they may have already found something from another brand that caught their eye.
Instead, it’s important to re-engage with them right when they’re considering returning an item. Here’s how:
- Use a self-service returns portal: By enabling your shopper to log into a self-service portal, you can put an “exchange” button right next to your “refund” button, making it a seamless process of swapping one item for another. You can ship out the replacement item instantly, ensuring an optimal customer experience. (Putting a hold on their card in case they don’t return the original product in the allotted timeframe will help you protect your profits.)
- Incentivize shoppers with bonus credit: Did the shopper skip over the exchange button and head straight to a refund request? You’ve still got a trick up your sleeve: Bonus Credit. By offering your shopper access to a store credit bonus above and beyond their original spend if they opt for an exchange, you’re likely to incentivize them to take another look at your store and choose a new item. In this case, shoppers often spend above the value of the original purchase + Bonus Credit, adding upsell revenue to your bottom line.
- Curate product recommendations based on their return reason: Make it easy for shoppers to swap out products they don’t want for ones they do. When a shopper requests a return, you can set up a questionnaire to determine the reason, and then offer curated product recommendations based on their answer. If the customer bought a pair of shoes a size too small, your returns portal can pull the next size up from your in-stock inventory, or recommend the same shoes in different colorways if the same style isn’t available in their preferred size. If the shopper didn’t like the product style, your portal can surface recommendations of similar products that were popular with other shoppers. By showcasing relevant products they’re sure to love, you’ll be able to re-engage them more easily.
Why exchanges matter to your business
Customer retention is critical to building a sustainable business. Every customer that comes back to your store is one less shopper you need to spend money luring in—it costs five times more to acquire a new customer than it does to market to an existing shopper.
But when a shopper requests a refund, that often means the end of their journey with your brand. By optimizing for an exchange over a refund, you’ll not only be able to retain the value from that transaction—you’ll be able to retain the customer relationship. Optimizing for exchanges will lead to increased customer loyalty and higher lifetime revenue from shoppers who would have otherwise churned, helping you increase your profit margins and reduce your spend on customer acquisition.
Leveraging best-in-class technology to optimize for exchanges
Converting refund requests into exchanges is much easier when you have the right technology tools in place to manage the process.
With Loop, you can:
- Create customized returns policies for different item categories or SKUs, helping you automate workflows without relying on customer support
- Offer seamless Instant Exchanges that enable shoppers to effortlessly swap an item for a variant exchange
- Use Shop Now & Later to let shoppers keep their refund money as store credit, or apply it towards any other item in your store
- Incentivize upsells with Bonus Credit to apply to a higher-value purchase
These features give you the tools you need to convert refund requests to exchanges and retain more revenue from your transactions. At Loop, we’ve helped more than 4,000 brands unlock over $843M in retained revenue, with some brands retaining more than 50% of total revenue through exchanges and upsells.
Want to join their ranks? Get in touch for a product demo.
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With Loop, your brand can offer everything from refunds to direct exchanges to shopper incentives and more. Even better? These exchanges build your business.