About 30% of D2C ecommerce transactions end in a return, and many of your competitors offer free return shipping and a generous return window. That has you wondering, should I be offering free return shipping too?
When it comes to the question of who pays for return shipping, you or the customer, there are a few variables to consider. There are pros and cons to both approaches.
Brands who charge return shipping see returns as a cost center, looking to minimize expenses. While not wrong, the brand you have been keeping your eye on who does offer free returns is thinking very differently.
Those companies who do offer free returns see it as an investment in the customer relationship. They view the returns process as an extension of the shopping experience and use free returns to reduce perceived risk at purchase. A JDA study found that 62% of customers are frustrated when they’re asked to pay for return postage and packing, so offering free returns is a way to get more initial sales that may otherwise fall through due to return shipping costs.
There is actually a hybrid way of handling returns that we have seen be incredibly effective: charge return shipping only for refunds to encourage more exchanges and continued customer relationships.
Don’t charge return shipping on exchanges. Ever. Period.
It’s pretty simple: you’re investing in a customer relationship that will continue beyond this transaction, creating more revenue in the long run.
Create strong customer relationships
Trust is the foundation of strong customer relationships.
Can the customer trust that their experience with your brand will be consistent? That your products will be of high quality? And, if problems arise, can they trust your brand to make it right?
Take that idea of trust and apply it to the context of exchanging an item. When a customer requests to exchange, they still want your product—just a different version of it. But by charging for shipping on exchanges, you’re sending the following messages:
- The burden of this problem falls on the customer
- You don’t value their loyalty to your brand
- Saving a few dollars matters more than your customer’s needs
If you charge the customer to get the right product, you’ll erode trust. Fast.
An easy and free exchange process signals that you value your customers and will take care of them the next time they shop with you, which is likely given that 62% of shoppers would shop again from a brand offering free returns or exchanges.
Optimize for retained revenue
We recommend paying return shipping for all return types where revenue is being retained and the customer relationship is kept alive. We call this your revenue retention rate.
The shipping cost is a small additional investment to encourage a customer to remain a customer. Especially when you consider that just a 5% increase in your customer retention rate can lead to a 95% increase in profitability.
A 5% increase in retention can lead to a 95% increase in profitability.
When your customer is looking for a refund, we recommend that you charge return shipping. This counterintuitive advice has helped Loop merchants save lots of money and create more repeat purchases. Let us explain.
Charge return shipping on refunds to disincentivize them
A request for a refund likely signals the end of a customer relationship.
At this point, you can use return shipping charges to encourage customers to exchange. You don’t want the shipping charge to damage the amazing customer experience you have built to this point, so make sure that you don’t surprise them. Your return policies should be clearly listed and outlined to customers before they make a purchase, so that they understand the process to make a return or exchange.
Above, a brand is using bonus credit (incentive) and a shipping fee (disincentive). These two tactics used in tandem are powerful at changing customer behavior.
Here’s how we have seen the brands we work with set these tactics properly.
Position the fee properly
People hate fees, especially if they are not able to easily understand what the fee is for. If you make it clear that this fee is only applied to a refund, your customers become much more accepting of it. They can easily avoid the fee by accepting store credit for a future purchase or by using the value of the return to shop for something new.
Here’s just how effective it was for the footwear brand highlighted below.
Over two months of charging a “shipping fee,” exchange rates climbed 25.4% and refund rates lowered by 28%.
Charging return shipping on REFUNDS ONLY drove the refund rate down 28% while increasing the exchange rate by 25.4%.
Offer a bonus credit to those looking to refund
One of the best parts of Loop is the ability to offer a bonus credit to customers who are willing to exchange a product. This bonus credit gives the customer additional purchasing power above the value of what they’re returning.
This reward becomes even more powerful when combined with the shipping fee charged on a refund. When a customer is looking to refund an item, they must turn down the $10 bonus credit if they don’t wish to grab a new product. If they select a refund, they pass on the gift and have to pay the shipping fee.
Bonus credit works best when it is the same value as the shipping fee.
You get the best results when the bonus credit and shipping fee are the same amount. It allows customer service representatives to position the credit as giving the shipping fee to the customer to shop with if they wish to do so.
The hybrid approach to return shipping fees
The best long-term strategy is to make returns free for your customers. Free returns create stronger relationships, increase initial conversions, and become an investment in customer lifetime value.
However, charging return shipping on refunds only is a tool you have to drive your exchange rate up and refund rate down.
No matter who pays for return shipping, make sure that you deliver exceptional customer service through every step of the experience so that you can delight your customers and ensure that they purchase from your brand again.
We would love to show you how much value this strategy can create in your returns flow. Just get in touch with our team.