Best in class ecommerce returns: Shipping Fees + More
Carly Greenberg
·October 18, 2024
The returns touchpoint is where lifelong customers are won and lost. In this article, we’ll focus on best practices for building a great returns experience that will help you increase long-term customer retention—while also protecting your profit margins.
Why returns management matters
More customers are making purchases online than ever before—which also means they’re returning more products than ever before. On average, return rates for ecommerce purchases hover close to 18%, but can amount to around a quarter of all purchases in the apparel category.
Online product return rates are significantly higher than in-store return rates (around 5%), owing to a variety of reasons—many of which have nothing to do with the customer’s attitude towards your brand. Particularly when it comes to apparel and footwear, many returns are attributable to sizing issues: For instance, the product was too large or too small on the customer, or they simply didn’t like the fit. Like it or not, many customers also take part in “bracketing”—purchasing multiple items with the intent of only keeping one, after trying them all on.
If your returns policy is overly strict, you’re likely to alienate customers from shopping with you. Too generous, and you’ll risk falling victim to policy abuse and fraud that can significantly impact your bottom line.
To strike that just-right note when it comes to managing returns, you’ll need a streamlined, well-managed returns process that’s powered by automation. By setting the right return terms and conditions, you’ll be able to maintain healthy profits while boosting your customer loyalty.
Here’s how to do it.
Building a best-in-class returns process
Win over new customers with generous return policies
Your return policy is a marketing asset. Our data suggests more than 60% of first-time customers check your return policy before they buy. Used correctly, your policy will give first-time customers confidence to purchase from your brand. In fact, a recent study suggests that 81% of consumers need to trust your brand before they’ll buy anything.
To that end, you can build customer confidence by having a transparent return policy and educating your shoppers with clear terms. Another tactic is to offer an extended window of time to return a product for any reason, even if there’s nothing wrong with it. While some brands offer just 14 days, others offer 45 days—a generous period of time that gives shoppers more time to consider their purchase.
Depending on your business model, you may require products to be returned in like-new condition with the tags still on—or you can take a tip from retailers like Allbirds, which encourage shoppers to try out the products and return them even if they’ve been worn. This approach can help you win over more new customers, but can also cost more due to returns that can’t be resold, so consider your priorities carefully.
Optimize for exchanges during the return process
Some brands may want to reduce refunds as a top priority. There’s a good reason for that: refunds can often signal the end of a relationship. That’s really bad news if the relationship just started (like first-time customers). Not only are you losing the sale, but you’re also losing the acquisition cost, shipping, and fulfillment costs.
The best way to reduce refunds is to operate with an exchange-first mindset. By nudging customers toward exchanges, you’ll naturally reduce refunds. This will help you retain more customers (and revenue) and keep people engaged with your brand longer.
Happier engaged customers lead to more positive reviews, more referrals, and higher LTV. With Loop, there are a number of features that encourage customers to opt for exchanges. With intelligently placed fees or bonus credits, customers can be nudged toward exchanges even further: Brands on Loop retain up to 80% in revenue by leveraging these features to drive the desired outcome.
Look at it this way: if you have an average shipping cost of $10 and an average order value of $100, one customer led to exchange is worth 10 customers charged a return shipping fee.
Implement intelligent return shipping fees
Charging return fees is a simple way to recoup costs from your customer. But beware—charging shipping fees may have an adverse effect if done incorrectly:
- First-time customers may be less likely to make a purchase after reading your return policy.
- Existing customers may be less likely to exchange when returning a product.
- Unless your products are perfect, this could also lead to post-purchase dissonance.
If you use a returns management solution like Loop, the Dynamic Fees feature gives you flexibility and control to intelligently charge shipping fees on exchanges, store credit, and refunds - giving you the flexibility to learn over time.
If you are set on reducing costs no matter what, here’s your best practice:
Experiment with shipping fees + measure retained revenue each month
Still interested in reducing costs by using shipping fees? Use Dynamic Fees and run an experiment! You might find that focusing on reduced costs leads to lower ROI overall.
- Month 1: $10 fee on exchanges + $10 fee on store credit + $10 fee on refunds
- Month 2: $5 fee on exchanges + $5 fee on store credit + $10 fee on refunds
- Month 3: Free exchanges + Free store credit + $10 fee on refunds
- Measure Month-Over-Month: Total Shipping Cost Savings + Total Retained Revenue = ROI
Offset your return shipping fees
If you’re looking for a way to protect your profit margins without disrupting the customer experience, Loop’s new Offset feature can help.
When using Offset, you can ask customers at the point of purchase whether they’d like to pay a small fee upfront for a free return later. By asking them to pay a few dollars now, you can guarantee them a free and simple return process in the event that they decide to send the product back, for a lower fee than you’d otherwise charge on return shipping.
This option helps your brand account for the fact that many of your customers will use your return policy as an opportunity to try on items at home and send them back. By preemptively offering them a low-cost return, you’ll be able to recoup more of your reverse logistics expenses while giving your customers peace of mind and a great brand experience.
Discover how you can Offset return costs
Learn moreCustomize your return policies based on different variables
It’s important to note that one size doesn’t fit all when it comes to returns. By using a returns management platform like Loop, you can easily set up different workflows based on different variables to ensure the right outcome for each return.
Consider these examples:
Offer returnless refunds
If an item isn’t likely to be resold, it’s not worthwhile for either your business or the customer to bear the return shipping costs—so offer your shopper a returnless refund instead, enabling them to keep or donate the item while receiving their refund or exchange credit.
Free return shipping for VIP members
For loyal customers who’ve joined your VIP rewards program, consider offering free return shipping as a perk for hitting a certain spending milestone. Loop makes it easy to segment this audience group, so they can ship back their returns for free as part of a premium loyalty experience.
Require inspections on fraud-susceptible items
By analyzing your Loop data, you’ll be able to flag products or categories that are particularly susceptible to return fraud or abuse. When customers are returning such items, you can put controls in place such as requiring a physical inspection before providing their refund to eliminate the business risk associated with the returned product.
By streamlining your ecommerce returns process with intelligent automation, you’ll be able to deliver a superior experience for your shoppers while cutting operational costs and boosting revenue retention.
Ready to learn more? Get a demo of Loop.
In this article
Stay in the loop
Subscribe for product updates and Loop's biweekly newsletter.
Retain more revenue with Loop today
With Loop, your brand can offer everything from refunds to direct exchanges to shopper incentives and more. Even better? These exchanges build your business.