Return Strategy

Ecommerce returns best practices: Shipping Fees + More

If you're looking for ecommerce returns best practices, stay put. We've spent years developing our approach to returns. Learn how to win with these tips on returns fees + much more.

Let's compare notes. Which of the following statements rings true:

❌ Customers return products no matter what - just a nuisance.

✅ Managing returns & exchanges is a key battleground in modern ecommerce.

If the bold font and green checkmark didn't give it away, we strongly believe the returns touchpoint is where lifelong customers are won & lost. And we're in the business of winning.

We mean that quite literally. We are the creators of Loop - the premiere returns automation solution for Shopify brands. In other words, we've built a business on helping brands manage the returns process using our post-purchase software.

Over just a few years in operation, we've helped brands retain 40% of their revenue through exchanges. That amounts to $325M retained (and counting).

All that is to say one thing: we've got a solid idea of best practices for ecommerce returns. So today, we're going to spill the beans and share our best tips to help you maximize results in the post-purchase customer experience.

The way we see it, there are three main ideologies most brands fit into:

  1. I believe acquiring first-time customers is the most important result for my business.

  2. I believe reducing refunds is the most important result for my business.

  3. I believe reducing costs is the most important result for my business.

In this post, we'll talk about best practices for each approach. We’ll also get into some “no-brainer” returns management best practices that any brand can start using right away.

Or you can listen to our founder Jonathan Poma talk about best practices in this stellar podcast episode:

Best practices for ecommerce returns: 3 ideologies

The ideas here are the culmination of years of meditation on the ecommerce returns process. Oh yea, and the data we've collected after processing millions of returns for some of the top brands on Shopify.

🔥 Hot take: returns are about much more than customer service & returns labels. They are actually a profit center. Read our best practice recommendations below to learn why.

1. I believe acquiring first-time customers is the most important result

If your brand falls into this category, then your main goal with ecommerce returns is clear:

Optimize for website conversion rate

Here’s why: 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.

A little trust goes a long way - a recent study suggests that 81% of consumers NEED to trust your brand before they’ll buy anything.

At Loop we’ve got a ton of data that suggests customers that have submitted a return have higher AOVs, higher lifetime spend, and make repeat purchases faster & more often than those who don’t. For the full breakdown, go here - the stats are mind-bending.

To spell it out, the money you "lose" on the return shipping cost, you’ll more than make up for with increased LTV. One of our favorite brands, Chubbies, increased customer lifetime value 100% by optimizing the returns touchpoint (with a little help from Loop).

If you want to optimize your website for conversion rate, here’s the best practice when it comes to returns:

Recommendation

  • Free exchanges + Free store credit + Free refunds

2. I believe reducing refunds is the most important result

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. So if you’re looking to change destiny by reducing refunds, here’s the best practice:

Optimize for exchange ratio

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, customers can be nudged toward exchanges even further.

Brands on Loop have increased exchange ratios up to 25% by charging fees on refunds only.

Look at it this way: if you have an average shipping cost of $10 and an average order value of $100: → 1 customer led to exchange is worth 10 customers charged a return shipping fee.

Recommendation

  • Free exchanges + Free store credit + $10 fee on refunds

3. I believe reducing costs is the most important result

Charging shipping fees is a simple way to recoup costs from your customer.

But beware. Charging shipping fees can have an adverse effect:

  • First-time customers will be less likely to make a purchase after reading your return policy.

  • Existing customers will 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. It won’t remove all the downside, but you’ll have 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 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

Dynamic Fees by Loop

Loop has always allowed users to charge fees in the returns process. But as of Q3 2021, we've made one major change: users can now charge fees on all returns outcomes.

Previously there were outcomes where it was impossible to charge fees using Loop. This is no longer the case! We made this feature for cost-sensitive brands who are:

  1. Launching an automated returns solution for the first time, or;

  2. Optimizing their existing return policy settings.

Dynamic Fees gives you flexibility and control to intelligently charge shipping fees on exchanges, store credit, and refunds.

Some potential uses include:

  • Drive customer retention and reduce refunds by using fees to encourage exchanges.

  • Create a clear return policy by communicating fees upfront with Flat Rate fees.

  • Capture the exact cost of shipping any product with Label Cost fees.

  • Customize your fee structure for a variety of products with Product Tag fees.

Learn More: Dynamic Fees by Loop Returns

No-brainer returns management best practices

Now let's get to what we know best: refunds, exchanges, fees, and the returns management process. If you’re already a Shopify store using Loop, you know we have some pretty strong views on these concepts.

To be clear, this article won't cover topics like inventory management or reverse logistics. Those are important things to optimize, but it's difficult to advise brands without knowing specifics.

Let's begin by looking at a few no-brainer returns management best practices that every ecommerce retailer should be nailing.

1. Your return policy should shine

Want to handle returns like a pro? Make it easy for customers. It all starts with a clear and enticing return policy. Done right, a return policy can even act as one of your biggest marketing assets.

Setting your brand up for success starts here. One idea: tell your customers whether or not you offer free returns shipping. This can have a huge impact on buyer behavior. After all, 67% of shoppers check a return policy before making a purchase.

Whatever your policy is, make it clear & encouraging to the consumer.

Learn More: How to write a returns policy

2. You should have a dedicated return policy page

Already got a great return policy? Next, make sure it's front and center on your ecommerce website. Don't hide it. Don't bury it in the small print of your emails.

Carve out a dedicated return policy page and make sure it's easy to find.

Learn More: Why you need a dedicated return policy page

3. Define your return window

Some brands opt to restrict customers to a very narrow return window. But that may not be the best course of action. And although a 30-day return window may seem generous, your competition is likely progressing far past that. Take bedding giant Brooklinen for example - their products are protected by a 1-year return policy.

They also offer free returns shipping for all U.S. customers. It might seem odd, but doing that actually drives sales and reduces return rates overall (more on that later).

Learn More: The fallacy of the 30-day return window

4. Lead with exchanges to retain revenue

Considering how much it costs to acquire new customers, exchanges are an easy way to keep revenue in your ecosystem. Not only do you retain revenue, but you retain the customer. By offering exchanges, you're getting another chance at customer satisfaction.

Loop: The Exchange-First Platform for Returns

Wrapping up

When customers send back their return items, one thing is certain: they are engaged. By implementing the best practices laid out above, brands can ensure that engagement isn't wasted.

If you're a Shopify brand looking to master the returns touchpoint, book a demo with our team to learn how we can help. We've created software focused on your user experience as a brand. Every part of the logistical returns process can be managed with Loop.

Put it this way, your customer service team will never need to field questions about the delivery status of their return ever again. We've automated that and so much more. Join us, won't you?

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