The costs of returns: Data-backed solutions that lower costs
Vaishali Ravi
·January 6, 2025
While product returns may be a common part of doing business, they can rack up huge costs for your ecommerce business.
Last year, nearly $744 billion worth of retail merchandise was returned in the United States, but ecommerce businesses were hit the hardest, with an average return rate three times higher than brick-and-mortar businesses. For merchants in the apparel category, around 22% of all online purchases end in a return.
For brands, it’s important to calculate all of the associated costs of processing returns, so that you have better visibility into your operational costs. Armed with this data, you’ll be able to identify ways to optimize your processes and improve your margins.
In this article, we’ll dive into all of the costs that contribute to returns-related expenses—and explore what you can do to keep them under control with the right returns management solution.
Shipping costs
Does your brand offer free returns? It’s a good way to keep customers happy, but it comes at your brand’s expense, as overall mailing service charges increased by an average of 7.8% in July 2024. And, whether or not you’re footing the bill for return shipping fees, you’ll be on the hook for the additional costs related to transporting the returned item back to your warehouse or distribution center.
How to curb costs:
Many retailers are doing away with free return shipping: In fact, 40% of brands now charge fees for at least some forms of returns, helping them keep costs in check. As such, customer expectations around returns are shifting, and now, a premium returns experience is more important to them than free returns. By implementing Loop’s Offset product, you can deliver on that expectation: Offset is an option in your customers’ shopping cart, encouraging them to pay a small fee now in order to offset returns costs and get access to free returns later. Offset helps retailers create a cash buffer that they can use to protect their margins against high return shipping fees.
Offering omnichannel returns is another way to save on reverse shipping fees, without impacting your shoppers’ experience. Using Loop’s point of sale solution, you can enable your shoppers to bring their returns back to a brick-and-mortar store or other drop-off location, eliminating shipping fees. This strategy has the added bonus of increasing foot traffic to your stores, which can result in higher rates of exchanges and upsells.
Processing fees
Once a returned item has arrived at your location, you’ve got work to do. Consider the time and labor costs for your team members to inspect, clean, and repackage the item. They may need to replace damaged or missing packaging, and they’ll need to update the inventory system with the item’s data. F. Curtis Barry estimates the processing fees associated with inspecting and restocking a single return to be around $3.90, though it can go up considerably from there based on the item type. How to curb costs:By using automation and seamless integrations, you’ll be able to reduce the time and labor needed to process returns. Using AI inspection tools can help you automatically gauge an item’s condition from a photographic scan, and determine your course of action. By integrating your returns solution with your 3PL, order tracking, and warehouse management solutions, you’ll have 360-degree visibility around your reverse supply chain, so you’ll be able to make informed data-driven decisions about how to handle returned products.
Inventory losses and depreciation
Next, consider the fact that many returned items are not in sellable condition, and will be a total writeoff, or they must be listed as refurbished or “open box” items at a significant discount if they can’t be restored to original condition. Seasonal items that are now out of season will also need to be heavily discounted or sold to a third-party liquidator.How to curb costs:Have you considered launching your own secondary marketplace? Loop offers integrations with branded resale solutions like Trove and ReCurate, which enable you to create a branded marketplace for “pre-loved” items that can’t be resold for the original price. This option helps you create a new line of revenue for products that would otherwise be disposed of, while empowering your brand to bake sustainability into your supply chain.
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Customer support costs
If you’re processing returns manually, your customer support team is going to be spending a lot of time reviewing return requests, approving Return Merchandise Authorizations (RMAs), and communicating with customers around their returns. These costs can be highly variable, depending on your brand’s return volume and your customer support team wages. As one example, the UK dog products brand Bully Billows estimates it spent over £20,000 (more than $25,350 USD) in returns-related customer support time per year before onboarding with Loop.How to curb costs:Using Loop’s Workflows, you’ll be able to set up automated trigger actions based on various conditions to help you determine the right course of action for each return—without any manual intervention from your CX team. Shoppers can initiate their own returns in Loop’s self-service platform, and answer pre-set questions to share the return reason and return condition. From there, Loop can guide the customer through next steps, whether that’s a refund or exchange, or determining that the item is not eligible for a return based on the shopper’s responses.
Technology and infrastructure fees
Think about the tech stack that you’re using to support your returns process, and audit its returns-associated costs. You’re likely paying for returns management software, and on top of that, you’ll need to pay for engineering support to integrate your returns solution with your inventory management platform, shipping carriers, 3PLs, and other tech vendors. When you issue a refund, you’ll also be charged a transaction fee each time by your payment processor. These costs will be highly variable based on your tech stack, but likely run to thousands of dollars per month. How to curb costs:Remember our return shipping solution, Offset? Offset is available in two models, Offset Free and Offset Flex—and by choosing Offset Free, you can offset the returns software and reverse logistics fees associated with your returns program by giving Loop control over your Offset revenue. (Want more control over your returns program? Then go with Offset Flex.)
Customer churn
One of the hidden costs of returns is tied to the loss of future revenue from customers who decide not to shop with your brand again. When a shopper processes a return, their odds of coming back to your brand are low—which means you’ll be on the hook for customer acquisition costs to replace each shopper that you’ve lost. It can cost anywhere from five to seven times the cost of retaining a customer to acquire a new customer.How to curb costs:This is an area where Loop really shines. That’s because Loop’s Shop Now & Later products incentivize shoppers to choose exchanges and store credit over refunds. They’ll be able to browse through your store’s entire real-time inventory, and apply their credit towards a new purchase without needing to complete another shopping cart checkout. The process is so seamless that around half of all returns end up as exchanges or upsells, helping merchants retain revenue they otherwise would have lost—and hold on to valuable customers who’ll be likely to shop there in the future. On average, first-time buyers who went through a Loop return place a repeat purchase 23 days earlier than other leading return providers.
Disposal fees
If returned items can’t be resold, your brand may need to pay for disposal or recycling costs, including the cost of transporting or shipping the items from your warehouse to the disposal center. The cost of disposal can vary by industry, but for electronics, disposal can often cost from $10 to $50 per item.How to curb costs:Loop’s dynamic routing functionality enables your brand to automatically calculate the most cost-effective path to the product’s end destination—bypassing your warehouse entirely if the product isn’t in resale condition. That means you can set up conditions to determine whether an item should be sent to a recycling plant, donation center, or disposal location, helping you plot out the most eco-friendly and cost-effective destination and shipping route for each type of returned item. You can also delight your customers by offering ‘keep item’, for items you know cannot be restocked.
Returns fraud
Finally, consider the fact that close to 14% of returns are fraudulent. This can involve taking advantage of return policies by wardrobing or bracketing—or more deceitful practices such as returning stolen or counterfeit goods, or “empty box” returns. In total, returns fraud in 2023 led to $101 billion in losses for retailers.How to curb costs:At Loop, we’ve seen enough returns to know which ones are legitimate and which ones are likely to be fraudulent, and we’re passing that knowledge along to our merchants. Our fraud detection tool has analyzed millions of returned item transactions to build algorithms that identify “high risk” return behavior. You’ll be able to use the model to automatically veto, or manually review, return requests that have a high likelihood of being abusive or fraudulent—helping your brand protect your profit margins without negatively impacting the returns experience for the vast majority of your shoppers.
The costs of returns can be sky-high—but with the right returns operations solution in place, you’ll be well-equipped to slash your reverse logistics expenses, and enhance your operational efficiency with automation and revenue-retaining features. Plus, you’ll be able to delight your shoppers with a best-in-class returns experience that will help you boost your brand loyalty and customer lifetime value, so you’re adding revenue as well as cutting costs. With Loop, you’ll be able to effortlessly transform your returns process from a liability to a cost-saving highlight of your brand.
Ready to transform your returns experience and build your brand sustainably? Take a look at what Loop can do. Book a demo today.
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