Customer returns are par for the course in any ecommerce business with about 20% of 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 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 while allowing them to keep or donate their item.
Why would you do this? Depending on the item, it can make good economic sense. UPS found that the cost of returning an item can often be 20% to 65% of the cost of the item sold.
Amazon first introduced the concept of a returnless refund in 2017, and it’s gained popularity across the ecommerce world in the years since. Depending on the product type, sellers can automatically process refunds for customers who request returns, without requesting the item back.
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.
Customers who are approved for returnless refunds will receive their money back immediately, giving them a positive experience with the transaction.
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, they’ll end up discarded anyway. Instead, let them 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 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 do an evaluation 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.
The benefits of returnless refunds
For merchants, returnless refunds offer you the opportunity to build customer goodwill at minimal financial cost to you.
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.
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 may help others in need.
While there is potential for abuse of an overly generous returnless refund policy, your brand can use discretion both on an individual item and an individual customer basis. For instance, you might offer a returnless refund to a long-standing customer, while you may request that a new customer send the item back to get a refund. By taking steps to be generous when it makes sense based on the incident and the customer, you’ll be able to grow your customer relationships and encourage loyalty and referrals.
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.