How to build the right refund policy for your ecommerce store
Kelli Trapnell
·October 28, 2023
As an ecommerce retailer, you’ve likely already built a return policy—but it’s also important to differentiate between your return policy and your refund policy.
In order to ensure customer satisfaction, it’s important to give your customers a generous timeframe to return a product that they’re unhappy with and receive an exchange, store credit, or a replacement. (We recommend a minimum of 30 days.)
But offering a full refund to the shopper’s credit card or alternate payment method often takes a bite out of your online store’s profit margin, and may result in customer churn.
So while it’s important to offer a refund policy as well as a more flexible return policy, the situations in which a purchase may be eligible for a full refund can and should be more limited than your other return options.
In this article, we’ll look at:
- What’s the difference between return policies and refund policies?
- What are some common terms to include in your online store’s refund policy?
- How can you increase customer satisfaction and lower your refund rate?
What’s the difference between return policies and refund policies?
Return policies outline the conditions in which an item can be returned for a store credit, exchange, or replacement. A refund policy, on the other hand, explains how and when you’ll provide monetary refunds to customers that are eligible for them.
A return policy often applies to all purchases made from your ecommerce store, while a refund policy is typically more limited in scope and applies to certain types of purchases, such as those made with a credit card or prepaid debit card. It’s important to distinguish between the two in your ecommerce store’s policy.
Your refund policy may have set conditions, such as a limited time window of 30 days since purchase. Because you’re only likely to accept refunds on items that can be resold at full price, you may choose not to accept refund requests on items that show signs of wear or have been removed from their original packaging, unless they are defective.
Your return policy, on the other hand, may be considerably more generous—after all, you want to ensure that your shoppers have a good return experience so that they’ll maintain a positive relationship with your brand. Some ecommerce stores will accept returns for exchange or store credit for as long as a full year, or indefinitely if the product has a defect.
What are some common terms to include in your online store’s refund policy?
When writing a refund policy, it’s important to be clear and concise.
Common terms to include are a refund window, eligibility criteria (such as proof of purchase and condition), the contact information for filing a claim, and what type of refunds will be applied. It’s also important to define any fees associated with the return or exchange process—many retailers offer free return shipping for exchanges, but may consider a return shipping fee, and even a restocking fee, when the shopper requests a full refund.
Additionally, you should note any exceptions that may apply in special circumstances, such as banning refund requests on “final sale” items.
It’s also crucial to provide customers with a clear route for requesting a refund. That could include links to an online form or a customer support agent, or better yet, a self-service online platform like Loop.
Make sure that you’re aware of any applicable legal obligations when it comes to your refund policy and return process. For example, in the US, customers have rights under the Federal Trade Commission’s (FTC) Cooling-Off Rule, which states that they can cancel an order for any item over $25 within three days, though it doesn’t apply to sales made solely online. Consult an attorney for legal advice on what rules apply to your ecommerce business when it comes to providing full refunds.
By providing customers with an easy-to-understand refund policy on ecommerce returns, businesses can help to avoid conflicts and disputes down the line. A clear refund policy gives customers clarity on what they can expect when returning a product or requesting a refund, and shows that you take customer satisfaction seriously. This is likely to lead to more loyal customers in the long run who will be more likely to recommend you to others.
Consider using a return and refund policy generator to create and customize your policy based on your business requirements.
How can you increase customer satisfaction and lower your refund rate?
All ecommerce businesses would like to lower their refund rate — but don’t confuse that with lowering your return rate.
Shoppers choose to return items for all kinds of different reasons, and it’s not always a reflection on your brand. Maybe they already had a similar item, or just didn’t like the fit or color when they saw it in person.
By making it a seamless process for shoppers to return their items, they’re more likely to have a positive customer experience and give your brand another chance. Using a self-service portal like Loop, you’ll be able to provide shoppers with a menu of options for returning their product, including exchanging it for another variant of the same item; returning it for a full refund if they meet eligible criteria; or exchanging the item for store credit or for any other item in your store, plus or minus the cost difference — without the friction of returning to their shopping cart to checkout. You can even encourage your shoppers to choose an exchange by offering them “bonus credit” to put towards the cost of a new, more expensive item, rather than choosing a full refund.
Using a returns management platform like Loop can help you incentivize your shoppers to consider other choices from your brand, even if they didn’t love their first pick. Loop merchants typically retain 40% of their return revenue through exchanges and upsells, helping you preserve valuable customer relationships that may otherwise churn.
By ensuring that your ecommerce store provides a clear refund policy, as well as a variety of other options for returning products, you’ll be able to make sure that your shoppers can find the right option for them and have a great customer experience—both during the initial transaction and throughout the post-purchase process.
Want to learn how Loop can help you optimize your returns experience and cut down on refund requests? Get in touch for a demo.
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