One of the most common things we hear at Loop is “I love that return tactic you shared, but my CFO would never go for that.”
So we decided to bring in Dave Wardell, CFO of Chubbies Shorts, to better understand how he and other financial-minded leaders actually view returns. Check out our top learnings below or listen to the full podcast episode.
How Chubbies Shorts has evolved its return experience
When Chubbies Shorts first launched in 2011, the business relied on manual returns. This was standard for most ecommerce brands at the time because the technology to support a better process wasn’t available. As a result, there wasn’t a way to view returns as anything but a cost center and a terrible customer experience
Over time, as better data and technology emerged, Chubbies Shorts evolved the way it approaches returns. After partnering with Loop, the way Chubbies started thinking about the returns experience changed as well.
“Now we view returns as another touchpoint with the customer,” says Wardell. “So let’s make it the best we can and not make it into an automatically negative experience where we mitigate risk.”
Not only does Wardell view returns as a non-negative, but he and the team actively use their return process to maximize the business’s most important metric: profitability.
3 ways Chubbies increases profitability through returns
1. Reduce net 0 customers
Every customer is going to make a return at some point in their relationship with your brand. According to Wardell, this is to be expected and not harmful to your business. What is bad for your business are your net 0 customers.
These are the customers who purchase once and refund once. In this situation, you’re not just losing out on the cost of the product. A refund also includes costs associated with customer acquisition, shipping, labor, and opportunity. While we call them net 0 customers, losing that one relationship actually has a net negative impact on your profits.
On the other hand, a 5% increase in your customer retention rate can lead to a 95% increase in profitability. It’s clear why Wardell recommends reducing the number of net 0 customers that come through your business. But how exactly do you accomplish that? Use recommendation number 2.
2. Encourage exchanges over refunds
One way Wardell and the Chubbies team minimizes net 0 customers is by pushing people towards exchanges over refunds. While exchanges might still cut into profit, they still result in dollars being left over. More importantly, the LTV of the customer is now a positive instead of a negative number.
In fact, the team at Chubbies Shorts started digging into data about the relationship between LTV and returns. In the early stages of their analysis, they’re already seeing a 10% uplift on exchanges versus refunds when it comes to LTV.
There are many strategies you can use to turn refunds into exchanges. One of our personal favorites at Loop is to offer free return shipping for exchanges but not for refunds.
For those who are cringing at how their CFOs might respond to the idea of free return shipping, Wardell offers some helpful context. According to him, the obvious answer for CFOs is to say ‘no’ to free return shipping. However, this automatic response ignores two very important factors:
The competitive landscape: The “Amazon effect” is real. Today’s customers expect free shipping on returns, and ignoring that fact is equivalent to burying your head in the sand. So even if you don’t agree with offering free return shipping, you’re putting yourself at a competitive disadvantage by not doing so.
The relationship with the customer: Wardell also reminds people that ecommerce brands always need to be thinking about LTV - and exchanges play a huge role in that. As he explains it: “if you only look at one transaction, you’ll miss the entirety of your relationship with your customer.”
3. A mindset shift
A simple mindset shift from viewing your returns as a source of profit instead of costs can do wonders for your brand. With this approach, Chubbies Shorts has seen a more than a 100% increase in LTV for customers who have experienced returns compared to those who haven’t.
Wardell also shares an example of when the brand intentionally turned returns into a profit center. Historically, when Chubbies Shorts customers wanted to make an exchange, they could only select one item to swap out.
Recognizing that this limited the flexibility of the returns experience, the team decided to change their Shopify shopping cart to enable customers going through Loop return flow to exchange for multiple items. So instead of being limited to swapping out a pair of swim trunks for another similarly-priced pair of swim trunks, customers could use their exchange credit to get a pair of sweat shorts and t-shirt instead. This small change significantly expanded options for shoppers and frequently inspired them to purchase above their original spending amount.
As a result, Chubbies Shorts’ rate of upsell per return increased by 50%. This strategy is one of many ways that Wardell and his team are turning their returns into a profit center.
Hopefully, this post helps you understand what matters to CFOs like Wardell when it comes to returns. By speaking the same language as your finance team and focusing on the metrics that matter to them, you’ll be able to secure their buy-in for your return strategy. Want to hear more from other ecommerce experts? Subscribe to our podcast The Exchange.