Returns management — the process of handling product returns — can help an ecommerce business maintain profitability and improve the customer experience. This practice is a win-win for ecommerce retailers and customers alike. Yet, few retailers spend time streamlining this important aspect of their operation. In this guide, we’ll break down how streamlining returns management will make it easier for Shopify merchants and other ecommerce stores to improve their profitability, serve customers, and keep costs to a minimum. Read on to learn how to make your returns management process more efficient and boost customer satisfaction.
Returns management is the process of handling product returns. This can include everything from processing returns, to generating a return label for each return, to providing a free returns experience for customers. Shipping a returned product back from the customer is referred to as the reverse logistics process. Returns management is important for all eCommerce businesses, regardless of their size. Whether you are a small business owner or a large corporation, understanding returns management is essential for providing a positive customer experience and improving your bottom line.
Returns can often be complicated: from the merchant's perspective, returns can happen for a number of reasons. A product could be returned because it’s defective, doesn’t meet the customer’s needs, or was sent incorrectly. Categorizing each return and selecting the appropriate response to meet customer needs is a complex operation. Fortunately, returns management software and best practices can help make the returns management process much easier for warehouse staff and smaller ecommerce companies alike.
Returns management can be a challenge for any ecommerce business. In 2020, an incredible 1 in 12 purchased products was returned. That’s a lot of moving products to keep track of and inventory to update. This complex operation comes with a few hurdles that all ecommerce retailers must figure out how to overcome. Here are five that can cause a major headache for your online store.
The average rate of retail product returns reached just over 16% in 2021, meaning that more than $761 billion of merchandise ended up back in stores and warehouses. A high volume of returns can lead to increased costs, reduced customer satisfaction, and the risk of lost sales. The more returned goods you have to process, the more it will cost you in terms of time, labor, and resources. Plus, if returned products are not processed properly, there’s a chance the inventory could be lost or damaged — further increasing costs. If you start to see the volume of returns tick up, ask your team: “Are the same items being returned over and over? Is this happening in large volumes?” If the answer to these questions is affirmative, you may have a bigger problem.
Companies that don’t have a returns management system risk creating a process that’s inconsistent and inaccurate. An inconsistent and inaccurate returns process can lead to increased labor costs, as employees have to spend more time figuring out the right way to process returns. It can also lead to increased inventory costs, as damaged or lost inventory has to be written off.Likewise, if an ecommerce company does not have a clear and concise customer returns policy or if it does not process returns in a timely manner, it may be in violation of consumer protection laws. This can lead to fines and other penalties.Ensuring consistency and accuracy can be difficult without the right returns management tool.
Customers have come to expect generous return policies, especially free returns. But, returns can strain your budget – using resources from customer service, warehousing, logistics, and accounting. Additionally, ecommerce merchants are often working with slim margins and will need to recoup whatever value possible from each returned item. That’s not even counting the rising instances of returns fraud. Balancing the need for customer satisfaction while battling rising costs is one of the most difficult parts of returns management.
Returns management is a central part of reverse logistics; once a return is received, the retailer must decide what to do with the product. This means sending the item for refurbishment, resale, or recycling/disposal. But, with so many products coming in each day, managing inventory accurately can be a big challenge. “What happens after an item is returned can be a major obstacle for ecommerce retailers. Operations, who are closest to the process, consider the lead time between receiving a return and restocking it as one of their biggest challenges,” wrote consulting firm Pitney Bowes. Inventory management is a costly pain point for ecommerce stores, one exacerbated by product returns. In 2021, bad decisions in the retail industry around inventory planning led to $300 billion in lost revenues due to markdowns, one report found. Another report found that out-of-stock orders cause $634.1 billion in annual losses for retailers.
An online store will often rely on third-party logistics companies to help with online returns, especially if there’s no option for in-store returns. Unfortunately, this adds a new layer of complication, as the ecommerce business is reliant on the partner to help process timely returns to customers. Managing ecommerce returns requires predicting when there could be a bump or lull in returned items — such as around the holidays — and allocating time and resources accordingly. Too few people on staff during a high-volume return period will cause delays and result in angry customers. Too many staff during a low volume returns period means wasted resources.
As you approach the challenge of improving your returns management operations, start with what you can control. There are two types of product returns: controllable returns and uncontrollable returns.
An effective return management process can make a big difference in reducing the negative impact of uncontrollable returns — and put you in the driver's seat for reducing controllable returns.
The first step towards improving returns management efficiency is to evaluate your current returns management process. Examine your returns policies, procedures, and systems to identify areas for improvement. Look for any bottlenecks or inefficiencies in the process that may be causing delays or customer frustration. Key performance indicators like time to process returns, the cost of returns, and the level of customer satisfaction are good sources of information.
Once you have evaluated your current process, you can start to optimize your returns management strategy. This includes things like developing a clear returns policy, simplifying the returns process, and providing clear communication to customers. A clear returns policy can help dramatically improve customer satisfaction and can even help manage return requests. Companies that have clear return policies can actually improve customer retention by establishing a predictable, reliable returns experience. Some key elements of a return policy are return instructions and requirements, reasons for returns, exceptions, types of returns, and time frames. Learn more about writing an effective returns policy in our guide, “How To Create A Returns Policy For Your Shopify Site”.
Automation is one of the easiest ways to optimize reverse logistics workflows and improve inventory management. Automating the repetitive and time-intensive parts of the returns process adds consistency to your operation, streamlines returns and frees up staff for more high-value tasks. There are a number of software programs designed specifically for returns management. These programs can help business owners to create return merchandise authorizations (RMAs), process returns, and keep track of return inventory in a central, cloud-based system. Other reverse logistics software offers a customer portal; barcode functionality for routing items for resale, refurbishment, or EOL; organize workflows for supply chain restocking and third-party logistics; and reporting and analytics to ensure your initiative are actually cost-effective and more efficient.
Inconsistencies and mistakes in the returns process and order fulfillment do happen — and can cause problems for your reverse logistics process. Training your staff to remedy these mistakes (and, hopefully, avoid them altogether) will mitigate some of the risks of controllable returns. Train your staff on returns policies and procedures to ensure they are equipped to handle customer inquiries and complaints. Focus especially on customer service skills to ensure that your staff can handle difficult situations with empathy and professionalism.
Include regular re-trainings and software-specific workshops to ensure everyone can use the tools at their disposal to make returns hassle-free.
Finally, track whether the interventions you’re making have the impact you desire. Many software solutions offer real-time returns data to help you continue to streamline your operations. Get the insights you need to plan ahead for the holiday season, improve profit margins, and save your bottom line. Use this data to identify areas of improvement and implement changes to improve efficiency and customer satisfaction.
Ultimately, the returns process is a key aspect of the customer experience; ignoring the returns experience can mean bad news for your bottom line. Handling return requests with efficiency and professionalism will improve your customer retention as well as your profit margins. Start by examining your returns data to understand where there could be confusion or a bottleneck. Ensure you offer a clear return policy that customers can find reliably without contacting your customer service. Then, dig into return requests to learn if you need to make improvements to your inventory management, logistics, or elsewhere in your supply chain. RichCommerce makes it easy to look under the hood and understand how to streamline your returns management operations. With tools and analytics to help you be proactive about your return rate, RichCommerce partners with Shopify merchants of all sizes. Get a 14-day free trial to try RichCommerce for yourself by clicking on the button down below.