Returned item fees, explained
Vaishali Ravi
·October 7, 2024
In ecommerce, retailers need to factor in the post-purchase process when it comes to the cost of doing business. That includes packaging, shipping, and post-purchase customer support, of course—but it also includes the costs of returns if a customer decides not to keep their product.
Close to 18% of online purchases end in a return, and it can cost around 66% of the original purchase price to process a return. For many businesses, it’s simply not sustainable to cover these costs—so some retailers are using returned item fees as a way to protect their profit margins.
What are returned item fees?
A returned item fee refers to a charge that an online retailer may impose on a customer when they return a purchased item. This fee is meant to cover the costs associated with processing the return, including restocking, repackaging, inspecting the returned goods, and handling any reverse logistics operations. It’s also sometimes known as a “restocking fee.”
Generally, return fees are not charged in cases where there is something wrong with the product, such as damage in shipping or a manufacturer defect. However, such fees may be applied in cases where the customer returns the item because of a poor fit or style preference, or because they simply don’t like the product.
Returned item fees can vary based on the type of return: Retailers might charge $6 to return a pair of jeans, for example, but $100 to return an unwanted sofa, as their reverse shipping charges are much higher.
Should my brand charge returned item fees?
Many retailers are hesitant to charge returned item fees, priding themselves on delivering a great customer experience. And customers appreciate free return shipping: In fact, almost two-thirds of shoppers say that they’d be much more likely to shop with retailers that offer free returns, with no packaging required.
However, increasingly, brands are pulling back on free return shipping—it’s now the exception, not the norm. In fact, 81% of retailers now charge returned item fees for some forms of returns.
If you start charging returned item fees, you’ll be in good company, and you’ll be better positioned to cover your reverse logistics costs.
However, you can also consider some alternative strategies to help you protect profit margins without hurting the customer experience.
Alternatives to returned item fees
Specifically, consider these options:
- Buy Online, Return In-Store (BORIS)If your brand has both an online and brick-and-mortar presence, it can make sense to charge a shipping fee for customers who choose to mail items back, while allowing them to return in-store for free. This option enables you to easily inspect and re-stock the merchandise, with no need for expensive shipping fees.
- Returnless refundsWith the high cost of returning items, it can be a toss-up whether you’ll recoup your expenses through resale or not. For items that don’t make financial sense to resell, you can offer “returnless” refunds, encouraging the customer to keep, donate, or give away the unwanted item, while processing their refund.
- Offer return shipping protectionUsing Loop’s new feature, Offset, you can encourage customers to pay for return shipping protection for a small fee (e.g., $2 or $3) at the time of purchase. This protection will ensure that the shopper has access to a convenient, free, no-hassle return later if they decide to send back the product, while helping you improve your cash flow to cover the cost of reverse logistics.
- Offer free return shipping or bonus credit when managing exchangesWhile you might charge a returned item fee if a shopper requests a refund, consider waiving the shipping fee or offering a bonus credit for shoppers that choose an exchange or store credit instead. You’ll be able to convert more returns to exchanges, and the value of retaining your customer is worth far more to your brand than the return shipping fee.
Offset your return costs
Learn MoreNot all returns should be treated in the same way, but using the right technology to help you manage them can help you stay on track. By using a best-in-class returns management solution like Loop, you can effortlessly set up customized return policies that can both deliver a superior customer experience and help your brand protect its profit margins. You’ll be able to set and enforce guidelines based on the item category, return reason, condition, and other variables, ensuring that you’ll always be able to strike the right balance between customer satisfaction and revenue retention.
Ready to learn how Loop can help you build a better returns experience? Get a demo.
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