How to calculate ROI in automated returns management
JP Arnaud-Marquez
·October 4, 2022
It’s probably no secret that, since the onset of the pandemic in 2020, online shopping has skyrocketed. In fact, Statista projects that by 2025, 25% of all retail sales across the globe will be in ecommerce.
The average ecommerce return rate for any online retailer lands anywhere between 20-30% of all transactions. Returns happen for many reasons: poor fit/wrong size, mistaken purchase, and returned gifts. These are just a few reasons why the returns process can be so unpredictable for online vendors.
Naturally, to offset the costs of returns and exchanges, we believe it’s certainly wise to optimize your site/app to help you reduce your return rate. For example, offering exchanges, as opposed to returns, as well as store credit options is a solid start. You could even present realistic sizing charts (coupled with 5-star customer reviews in regards to fit), or develop an Augmented Reality option for prospective buyers to literally see your product in their space before taking a gamble.
However, despite your best efforts, at some point your customers will inevitably need to return a purchase. And, as the adage goes, the best offense is usually a solid defense. Automating your returns management process is the ultimate way to fortify your ecommerce business’s operations. Even better? Doing so will net you a sizable ROI – in many ways.
Here’s what you can expect.
Operations efficiency ROI
Let’s just say it: returns just suck. They eat up way too much of your teams’ time. A recent Shopify study revealed that just shy of 50% of ecommerce professionals feel that returns are a massive pain point for their customers. The bottom line? The returns process is a customer touchpoint that can make or break brand loyalty, as well as the likelihood of the customer returning.
Here’s the real question: just how much can a poor returns process hurt both your customers and your business? Largely, it depends on your set up. Typically, returns are complicated. But let’s do a quick math problem to guestimate the impact. Imagine that, on average, each return your business accepts takes roughly 10 touchpoints for your team to resolve.
Now, let’s say that each of these touchpoints takes approximately 12 minutes for individual team members to address, investigate, and resolve. That’s 2 hours of precious time and productivity lost to one not-so-simple return. Think of the ways you could better utilize their time – and how it impacts you. It’s also money out of your pocket.
However, these problems (both fiscal and operational) can be mitigated. Engineering an automated returns management process will allow you to create a stronger workflow for your team. In fact, Loop’s automation capabilities can eliminate a majority of unnecessary customer touchpoints as well reducing task-completion time for individual employees.
In fact, when you apply an automated returns management system to your ecommerce operation, you don’t just simplify task-taking delegations. You directly impact your bottom line in multiple ways. Using Loop will allow you to create a simple, smooth, and easy returns process. Your internal team wins; your customers win.
Plus, Loop reduces your need for live customer support. And, in doing so, further reduces annoying touch points and makes returning or exchanging items much simpler and more streamlined for customers. Plus, your customers can self-service their returns and track them. Not only do you empower them to be in control, but you also get the returned items back to your warehouse quicker.
Customer experience ROI
Whether you operate under the assumption of The Customer is Always Right or not, you can’t overlook the numbers. The penultimate deciding factor that influences whether or not a potential customer will buy from your brand is if you offer free returns or exchanges. If you need any proof, consider that roughly nearly 90% of buyers decide to switch to your direct competitor following a poor experience from you. Right or wrong, the customer(s)’ experience can sink your proverbial ship.
Additionally, consider that we live in the social media age; no news travels faster than bad news–especially on social media and ecommerce platforms. Did you know that more than 50% of buyers will share their negative experience with over five people? That’s a total of six possible customers – and think of all the folks they might tell.
That said, there is a positive side to all this, too.
The digital marketplace can also be your best pipeline if your customers share positive experiences from your brand. If you need any proof, consider that 90% of customers’ purchasing decisions are made after reading positive reviews. And, ultimately, what a solid customer experience means in the eCommerce world is that customers with good experiences become repeat customers. They also encourage their friends and family to do the same, as well as complete strangers.
According to Dimensional Research, ecommerce businesses that offer sound purchasing experiences can expect 52% of their customers to become return customers. Creating a positive experience for customers doesn’t mean just offering good products with accurate descriptions. It also means optimizing your returns process and alleviating customer pain points.
Employing Loop’s automated returns management system for your ecommerce shop will enhance all of your customers’ returns and exchange experiences. And while this will be helpful for your returns/exchange team, it’s even better for your buyers. They’ll show their appreciation in many ways: leaving positive reviews (which attracts more customers) and by becoming repeat customers.
Using Loop also enables you to deliver stronger customer experience as the customers can flexibly process the return at their convenience and leisure by using self-mailing and/or drop-off locations. Loop can also give you the ability to offer various exchange/return options, further customizing a better customer experience.
Inventory management and supply chain ROI
Automating your returns and exchanges process with Loop’s technology has even more benefits than making customers and your teams happy. You’ll have better access to your data – knowing how many items are in inventory, how many are en route, and how much more you need to order from your suppliers – allowing you to leverage your in-house assets to be put to better use. Imagine freeing up your returns/exchange teams’ day-to-day responsibilities and the impacts it can directly have on other staff, especially those managing your inventory.
You can also further scale your business by reducing hands-on returns and the punishing, grueling hours your team members spend restocking your inventory. And, on top of all that time wasted? Don’t forget the countless analyses your inventory managers have to complete to determine how much your supply chain has been impacted due to restocking and other issues.
Using Loop will allow you to orchestrate the input and output information you depend on at much faster speeds and with greater accuracy.
Financial ROI
When we consider the aggregate effects of efficiency, customer experience, and inventory/supply chain management, we can calculate all the ways in which returns/exchanges hurt our operations efficiency.
But the other crucial impact is what your shareholders care about most: your bottom line being in the red or green.
In addition to alleviating in-house and customer headaches, adopting a returns management software can save you money and even become its own valuable revenue stream due to the sizable ROI.
Some of this may be obvious. Of course, you save money by streamlining your entire shop’s and warehouse’s operations. You also save some cash by eliminating the need for your employees to waste their hours (i.e., the money you pay them for their time) on resolving time-consuming customer pain points that could otherwise be solved by a click of a button.
Another crucial concept to consider: by offering various, flexible, customized return and exchange options, you’ll increase your customers’ brand loyalty. Happy customers become repeat customers, excited to buy more of your goods. Happy customers also attract additional, prospective (happy) customers by sharing their experiences online and singing your praises.
And because Loop makes it so easy to exchange products or receive store credit (including a bonus credit incentive, if you like), many more customers opt for exchanges over refunds. In fact, our merchants retain 40% of revenue from returns, on average.
Lastly, consider the notion of your customer acquisition cost (CAC). You will be able to lower your customer acquisition costs by way of happy buyers. If a satisfied customer buys from you again, you can practically halve the original CAC. Consider it as a 2-for-1 (maybe even higher?) deal.
And having these happy customers share their experiences by leaving either positive reviews of your business – or better yet, your products – online, you’ll continue to build a cadre of loyal patrons for a fraction of the cost. Because in many ways, satisfied customers do your marketing for you.
Wondering how much money you can start saving by using automated returns management? Book a demo with Loop today.
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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.