How to handle returnless refunds: Balancing profits & customer needs
Vaishali Ravi
·December 30, 2024
Customer returns are par for the course in any ecommerce business, with more than 17% of ecommerce product sales ending up in returns.
But reverse logistics can be expensive and complicated. And in some cases, the math doesn’t add up. In fact, Gartner found that companies can lose up to 50% of their profit margin on the reverse logistics costs associated with processing a returned item.
In situations where it can be more expensive than it’s worth to process a return for a customer, consider offering them a “returnless refund” instead.
In this article, we’ll look at what that means and consider which scenarios might make sense for offering a returnless refund.
What is a returnless refund?
A returnless refund refers to the process of giving a customer their money back for an unwanted item, while allowing them to keep or donate their item.
Amazon first introduced the concept of a returnless refund in 2017, and it’s gained popularity across the ecommerce world in the years since. Brands including Target, Walmart, Chewy, and Wayfair are among the many that offer returnless refunds in certain circumstances. Depending on the product type, sellers can automatically process refunds for customers who request returns, without requiring the shopper to send the item back to their warehouse.
This can help sellers avoid spending money on return shipping costs in situations where the product is damaged or defective, and won’t be eligible for resale; or in cases where the cost of returning the item is too high to justify in comparison to the value of the item.
In these cases, the seller can write off the value of the item as a loss, and provide the customer with a refund without initiating a return.
This strategy can help sellers reduce the need to manage reverse logistics, and help them win customer goodwill.
When a customer is approved for a returnless refund, they’ll receive their refund back immediately. By honoring their request for a refund, you’ll be able to boost their confidence in your brand and show that you stand behind your values. That makes it more likely they’ll continue shopping with your brand in the future.
Types of products that make sense to offer returnless refunds on
When should you give your customer their money back without requesting the product in return?
Here are a few types of products that may qualify:
- Single-use products
Some products, like cosmetics, aren’t resellable for safety or hygiene-related reasons. If you ask your customer to return them, you’ll need to discard them anyway. Instead, let shoppers keep the products that don’t work out for them. They may end up passing them along to a friend, who’ll become a fan.
- Minimal value products
Let’s say the face value of a product is only $5. It would likely cost at least that much in return shipping to send the product back, bringing you to a net zero. In this case, it makes sense to tell the customer to keep the product, donate it, or recycle it.
- Bulky items
On the other hand, think of large items like mattresses or pieces of furniture. Due to their size, they’re expensive to ship back to your warehouse. In this situation, it often makes more sense to ask the user to donate or recycle the item. Also, keep in mind that the customer may not be equipped to repackage the item, so you’ll need to send out a team to pick up the product for recycling or donation. All of this is part of building a return policy that will help your customers gain confidence in your company’s products.
- Damaged products
If a product arrives to the customer damaged, you can evaluate photos or videos of the item to see if it’s worth trying to make a repair and then resell the product, depending on its value. If the product isn’t able to be repaired, or if the repair cost is more than it’s worth to ship back and resell the product, you should consider offering a returnless refund.
- Worn products
Some brands make a point of offering customers time to try out their products to make sure they’re a fit for them. Allbirds, for instance, gives customers 30 days to try out their shoes, encouraging customers to wear them out in the wild. Of course, that means if the customer decides the shoes don’t suit them, the shoes will already be used and can’t be sold to another customer. Even so, Allbirds will accept the shoes and recycle them, providing the customer with a full refund. Brands that offer this type of policy can encourage new customers who are unsure about a product to give it a risk-free try, so even though you might lose a little bit on the returns side, you’ll likely win over new customers who might not have made a purchase otherwise.
How to set up your returnless refund policy
Some returnless refunds result in the product being sent to a donation or recycling center, rather than being resold — while others are true returnless refunds, where the customer is encouraged to keep the item while getting a full refund for the product.
In situations where the item will be donated or recycled, it makes sense to share this with customers on your return policy. But in cases where the customer will get to keep the item, you’re better off telling customers about it on a case by case basis. After all, it’s important that the policy isn’t publicized to give customers the opportunity to abuse it.
You might set conditional rules for offering returnless refunds, based on the shipping cost compared to the value of the item. Or, in some cases, you may require a manual inspection via photos to review the condition of the item to determine whether you’d like the customer to ship it back.
By using an automated returns solution like Loop, you can set up workflows that recommend an option based on the item cost, condition, reason for return, and other factors. In most cases, that means the customer will be able to immediately receive their money back if the item is deemed eligible for a returnless refund, helping you to elevate your customer satisfaction levels.
Using a returns management solution provides a streamlined, hands-off approach to managing your returnless refund policy. Decisions about whether to request an item back or offer a returnless refund are algorithm-based, with real-time calculations based on what’s best for your business’ bottom line. Automating your returns decisions can help you reduce CX time spent on managing returns, while ensuring that every customer is treated fairly.
The benefits of returnless refunds
For merchants, returnless refunds offer you the opportunity to build customer goodwill at minimal financial cost to you—while supporting your brand’s sustainability initiatives and deterring fraudulent return practices.
Building a stronger relationship with your shoppers
If a product is cost-prohibitive to return or cannot be resold, a returnless refund offers you the opportunity to write off the cost of the product while offering the customer a full refund, which helps to preserve the value of that relationship.
Customers who can immediately get a refund for their product are more likely to buy from you again. If they encounter a frictionless experience, they may recommend your brand to their friends and family, and consider making another purchase. In fact, you might even consider offering them a returnless exchange: They won’t have to send back the initial product, but you’ll send them a replacement that will better fit their needs.
If the customer accepts an exchange, they’ll be continuing their customer relationship with your brand, which is likely to result in more lifetime customer revenue, more customer referrals, and lower new customer acquisition costs. Despite taking a small loss on writing off the initial product, you’ll be able to drive much more ongoing revenue in the long run from that customer relationship.
Driving environmental sustainability
Returnless refunds are also more environmentally sustainable than asking a customer to ship back the product. Especially if the product is large or bulky, encouraging donation or recycling can reduce greenhouse gas emissions and help you avoid contributing to the landfill waste problem.
Instead of creating more trash, you can ensure that your unwanted products are used to support communities in need by encouraging your shoppers to donate products directly to pet shelters, homeless shelters, and other community resource groups in their areas.
Eliminating unnecessary fees
Finally, if you already know that you’re not going to be able to resell a product, then why request it back? Whether you or your customer would be on the hook for reverse shipping fees, the returnless refund model eliminates the unnecessary expenses of packaging and shipping fees for a product that’s likely to end up in a landfill once the return is complete. When you don’t have a plan to resell a returned product, it simply doesn’t make financial sense to force the customer to send it back to your warehouse.
Preventing returns abuse with returnless refunds
In general, brands’ returnless refund policies aren’t publicized, and for good reason. With roughly 14% of all returns being fraudulent, merchants are rightfully worried that shoppers will deliberately purchase items to get a returnless refund so they can profit from the generous returns policy by either keeping or reselling the item.
While there is potential for abuse of an overly generous refund policy, your brand can use discretion to decide when to offer returnless refunds, and when to stand by your traditional returns policy.
For instance, while you might offer returnless refunds to long-standing customers who have a good track record with your brand, you may ask a new customer to ship back their item for a return to prevent the likelihood of policy abuse. Loop’s order tracking makes it easy for both the shopper and merchant to see the status of the return, so the customer will know when they’re on track for a refund or if there are any issues with the request.
You can also make use of Loop’s Fraud Detection model to understand “high-risk” refund requests based on our algorithm, and either decline those requests or request a manual review, rather than automatically approving the request. By using our machine-learning model to track the data associated with return requests, you can be generous with your well-intentioned customers, while preventing policy abuse from those who are trying to take advantage of your terms.
Improve margins on returns with Offset
What should you do about those gray-area transactions, where a product is slightly too valuable to let the buyer keep it, but you’ll barely break even after return shipping costs?
Don’t assume you need to offer your shoppers free return shipping to keep them satisfied. The tide has steadily been turning towards customer-paid returns, with more than 40% of brands now charging customers for return shipping fees.
By charging a return shipping fee, you’ll be able to recoup expenses to help you turn a profit on reselling your returned products. With Loop’s Offset product, you can encourage shoppers to pay a small fee upfront at the time of purchase, in exchange for free return shipping if they need it later. This helps you build a cash cushion to protect against reverse logistics costs, while giving your shoppers access to a premium and predictable returns experience. By offsetting your returns costs, you’ll be able to deliver a great experience to your shoppers without absorbing the high costs of return shipping.
Optimizing the returns experience
Looking beyond returnless refunds, it’s important to put a strategy in place to optimize your customers’ post-purchase experience. By using an automated returns solution like Loop, you’ll be able to develop streamlined, intuitive workflows that make it easy for customers to process returns, and use conditional logic to determine when to request a return or when to issue a refund without receiving the product back to your warehouse.
Loop also incentivizes customers to request an exchange instead of a return, which can help you retain more revenue and encourage a long-standing customer relationship.
To learn more about how Loop can help you drive loyalty and customer satisfaction, get in touch with our team.
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