A formula for a free returns policy

Returns, exchanges and refunds are all a part of the modern eCommerce experience. But what was once considered a dreaded aspect of online shopping is now an important touchpoint in the customer journey — and one that can drive customer satisfaction, loyalty and more revenue for your business.

Here are tips to do it well, and formula to ensure your markups cover operational costs on returns.

Tips for your return policy

Provide mail-in and in-store options: If you have a brick-and-moar location, consider offering in-store returns for online purchases — 62% of shoppers report being more likely to buy when they can return in-store! It also provides an opportunity to drive additional foot traffic, issue an immediate refund for your customer, and save the sale by encouraging shoppers to browse other items.

Provide refund optionality: Returns don’t always have to result in a full refund. However, it is best practice to default to returning the full purchase amount to the original payment method. As a way to save the sale, we recommend offering exchanges or store credit to keep the revenue on your books. No matter what you decide, it’s most important to be transparent about how and when the return will be processed and if certain merchandise has exceptions (more on that in our guide!). Lastly, be sure to train your staff so if you do offer multiple options, they know when to offer each alternative.

Offer free returns & exchanges: Shoppers expect lightning-fast service and hassle-free returns, and not just from Amazon. By covering the cost of both outbound shipping and reverse logistics, you show you’ll go the extra mile to serve your customers. It also decreases the likelihood of shoppers purchasing multiple items with the intent of returning some to save on cost (otherwise known as “bracketing”). The savings incurred avoiding the reconciliation on those returns are passed right on to you.

A formula for free returns

Use this formula to ensure your markups cover operational costs on returns: (Returns rate) x (returns operating costs) = additional margin to add to retail price for all customers.

For example, if it costs $10 to cover reverse logistics for one return, and approximately 20% of customers return, then bake $2 into retail prices. Ultimately, if free returns don’t financially make sense for your business, be transparent around the costs involved and instead proactively promote the ease of the returns experience you offer.

Interested in more tips? Download our full guide for more tips on building a thoughtful return policy that results in happy customers and more profits for your business.