Returns and refunds are a part of doing business online. Deloitte estimates that with a product return rate of 30 percent, that by 2022, retailers can expect 13 billion units, worth $573 billion, to be returned annually.
Customers might be unsatisfied with their order for a number of reasons—it arrived damaged, they ordered the wrong size, or it simply didn't meet their expectations. So they ask for a replacement or for their money back. Many buyers will also purchase multiple versions of the same item, knowing it will be returned. For example, a customer might buy multiple sizes of the same pair of pants and use their home as a “change room” to determine the right fit. This practice is known as bracketing and has become a more common practice since the pandemic.
Without a proper system for handling returns, these requests can eat up a lot of time, energy, and money with hours spent on customer service emails and spikes in shipping expenses for replacement products, especially after the holidays.
The good news is that it’s never too late to address the problem. With a great return policy and the right system in place, returns can be transformed from a dreaded aspect of commerce into an opportunity that actually generates new profits for your business and increases customer loyalty.
But before we dive into how to write a return policy for your store and implement a system to handle requests, let’s talk about why it’s so important to get returns right.
Table of Contents
What is a return policy?
Return policies are the rules a retailer creates to manage how customers return and exchange unwanted merchandise they purchased. A return policy tells customers what items can be returned and for what reasons, as well as the timeframe over which returns are accepted.
Why have a return policy?
A fair return policy builds trust between a business and its customers. In fact, offering a clear and consistent way for customers to return a purchased item can increase conversion and repeat rates.
Still, getting a return request can be painful both financially and emotionally.
Refunding a customer’s order can result in a loss of profitability, and knowing that someone disliked your product can be disheartening for business owners who strongly believe in the benefits of what they sell.
For these reasons, it can be tempting to ignore the reality of returns and exchanges and leave the mounting problem unaddressed.
As you'll see, doing this would be a mistake.
The pitfalls of a poor return policy
Over time, however, customer complaints about your return policy can start to filter onto social media, showing up as comments under your ads or even in Google searches about your business. This is where a poorly implemented returns system starts to negatively affect your overall reputation as a business. If bad sentiment about the buying experience starts to spread online, it is likely you will see a drop in conversion rate.
Processing every return manually and dealing with customers on a case-by-case basis can also be expensive for your business operations and exhausting for customer service staff. If the time and expense to process a return isn’t monitored and optimized, it can even prevent you from scaling your business.
At some point, most businesses will need to figure out a solution for returns that benefits themselves and their customers.
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The advantages of a customer-centric return policy
Many innovative businesses have recognized that a customer-centric return policy is a powerful marketing tool.
According to Pitney Bowes, 54% of buyers are unlikely to buy a product they want if the retailer has a poor or unclear return policy. That’s why many brands now advertise “free,” “easy,” and “no-hassle” returns to increase conversion rates and online purchases.
A return policy that benefits the customer is often the differentiator between businesses with a strong repeat purchase rate and those that rely on one-time purchases only. As the cost to acquire customers rises, many businesses are looking at how to retain customers and increase their lifetime value.
Although a return may not make a business profitable on first purchase, a better customer experience is more likely to lead to a higher retention rate and long-term revenue growth.
Lastly, your reputation will benefit most from offering easy returns to customers. According to Nielson’s Global Trust in Advertising Report, 66% of people surveyed trust consumer opinions posted online. These positive customer reviews and word-of-mouth recommendations about the buying experience will pay off as free marketing for your business that will allow it to thrive in the long-term.
Setting up a return management system
If you’re running an ecommerce business, you’ll want to put a return management system in place to manage returns in your store. Having an easy process can take the pain out of returns for both the business and its customers.
Whether you’re receiving your first return request or are trying to repair a flawed process, your return management system can immediately help cut down the customer service hours spent on returns.
What is a return management system?
A return management system helps you handle returns for your customers. It lets customers initiate a return, receive a pre-paid label and ship the return without taking up too much time. A return management system also helps you manage and track your returns by relisting approved items back into your inventory and monitoring the financial impact of returns on your bottom line.
How do you set up a return management system?
Fortunately, merchants can communicate their return policy and process directly on their online store and use Shopify to manage the return behind the scenes.
With Shopify, you can:
- Create a self service return process. Clearly communicate on your online store the best way for a buyer to contact you about a return, whether that’s via email, on the phone or through a messenger solution.
- Send automated notifications. Send customers automatic updates and notifications throughout the return process
- Send shipping labels. Use Shopify Shipping, to automatically email a return shipping label to your customer, as soon as the return request is created. Merchants who use Shopify Shipping also benefit from discounts with carriers for both outbound and return shipping. Return labels are "pay on scan", which means return labels are only charged once they've been used.
- Restock inventory: Merchants can track the return from their customer, restock the returned inventory and make it available for sale again on the online store.
- Refund customer: Once the item is returned, merchants can refund the customer with a click of a button to their original payment method.
Return labels are automatically emailed to customer as soon as the merchant clicks “create return”
Merchants can manage a return from the original order, keeping all order history in one place. Once the returned item is received, the buyer can easily be refunded using the original payment method.
Get started with return management
Watch this video to learn how to create a customer-friendly return policy, share it on your online store, and create a return process that makes it easy to manage returns behind the scenes.
How to write a return policy (+ free return policy template)
Given that 96% of people would shop with a retailer again based on an “easy” or “very easy” return experience, let’s look at how to write a great return policy.
The first step to setting up a system to handle returns is formalizing your policy so you can communicate it clearly to your customers. A written return policy allows you to treat all requests the same and avoid the tendency to handle things on a case-by-case basis, which is often less productive and more expensive.
Policies will vary depending on the logistics of your ecommerce business and the products you sell, but every policy should cover the following basics:
- What items can be returned
- What items can be exchanged
- What products are “final sale” (i.e., non-returnable, non-exchangeable)
- When things can be returned or exchanged (i.e.. 30, 60, or 90 days past purchase date)
- In what condition can items be returned (i.e., lightly worn, with tags still on, original packaging, original condition, etc.)
- What products can be returned for (i.e., store credit, refund, a product of equal value, etc.)
- How to initiate a return or exchange (i.e., an email address to contact or a web page to visit)
Note: If your store is using other sales channel, be mindful that these marketplaces have their own returns policies. What you state in your retail return policy may not apply if using these channels.
Ecommerce return policy template
Below is a basic template for a return policy that can be adapted to fit your business. Just replace the bolded text with your own policy and use the lists as a guide to ensure you don’t forget to include any important information:
If you’re looking to return or exchange your order for whatever reason, we're here to help! We offer free returns within 30 days of purchase. You can return your product for store credit, a different product, or a refund to the original payment method.
Please note the following exceptions to our return and refund policy:
Below are some examples of common exceptions:
- Discounted items are final and cannot be returned or exchanged
- Returned items must have tags still on and be returned in original product packaging
- Returned items must have no visible signs of wear or use
To initiate a return, please complete the following steps:
Your steps should be laid out clearly, linking to relevant pages, such as your online portal.
- Reply to your order confirmation email to request which products you would like to return
- Print the prepaid return shipping label that you will receive by email
- Send all items back to us using the label provided
The following are add-ons with more information that you may want to include:
- How long it takes to receive your refund, replacement product, or store credit
- Any shipping fees the customer will need to pay
- Any return restocking fees the customer will need to pay
- How you handle lost or damaged returns
- Contact information for your business if the customer has more questions
TIP: Don't feel like writing your return policy? to create a return policy that protects your store and builds trust with shoppers.
Where to put a standard return policy
It’s not enough to have a well-written return policy—you must also make sure customers see it before they buy. When talking to a frustrated customer who is trying to return an item marked as final sale, simply telling them it’s their fault for not reading the policy is unlikely to resolve the issue.
Include links to your policy in several hard-to-miss places throughout your website to save time going back-and-forth with customers who did not see the policy. A few key places to list your policy include:
One great return policy example comes from Chubbies, an online clothing retailer. The brand includes return questions in its website chat window. You can also start a return with one click.
If the return policy is clearly outlined on your website so it can’t be missed by customers, the right expectations will be set before the purchase is made. There will likely be some customers who are unsatisfied with your store's policy, but hiding the policy in fine print only leads to a lack of trust.
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Strategies for more profitable returns
An unavoidable consequence of offering returns to customers is that it’s not cheap. Although you can cut down on customer service hours with an app, the shipping fees associated with returning a product and restocking it can still threaten your profitability.
However, there are a few ways to minimize your losses while still offering returns to customers.
1. Turn returns into exchanges
The difference between returns and exchanges is most prominent when looking at profitability. When a customer returns a product for a refund, the business usually loses money on the customer acquisition and return shipping costs, plus it needs to refund the customer any profit made on the original order.
With an exchange, the loss is often less impactful. With strong product margins, offering a replacement product instead of a full refund can keep your business cash flow positive.
A common way to encourage exchanges over returns is by only offering to cover the cost of return shipping if the customer chooses to exchange the product.
When presented with the three options above, the choice to get a store credit or new product may be more appealing to those who have not fully sworn off your brand. Convincing customers to give your brand a second chance with a new order can also help improve lifetime value, as they are more likely to come back and purchase again if they are satisfied the second time around.
Chubbies takes this extra value-add for exchanges a step further, by offering an additional $10 in purchase value if customers decide to buy a new product with their return credit:
By only making the exchange option more valuable, and not penalizing customers who just want to return, Chubbies creates a positive customer experience for everyone, while encouraging more customers to choose exchanges instead of returns.
2. Sell product warranties
When a customer chooses to return a product for a refund, one risk a company often takes on is whether or not it will be able to resell the item.
It can sometimes take up to two weeks for a product to re-enter stock after a return is initiated, and the time spent in transit and unpacking can often leave it damaged. If the product is expensive, replacing it might not be an affordable option.
For more expensive items, companies may want to consider selling product warranties to customers. Warranties protect businesses against paying to replace damaged products and avoiding disputes over who is to blame.
Warranties can be sold through an app like Clyde, which can be added to your website to put the decision to protect the order back in the customer's hands:
Warranties like this can also have the potential to unlock a new revenue stream for your business, since the providers often offer a commission on all premiums sold. That way, your customers are protected for a longer term and your business collects a little extra revenue instead of paying for damaged goods.
3. Upsell or cross-sell on exchange requests
One ecommerce returns best practice is to upsell or cross-sell on exchange requests. Although exchanges are usually more profitable than returns, their profitability can be narrow depending on the product and its margins. If exchanges are still costly, it might be a good idea to look at upselling or cross-selling on exchanges.
When a customer comes back to your website to use their store credit, there is an opportunity to show them new products they did not purchase the first time around that compliment what they’re exchanging for.
Various Shopify apps can be used to show customers related products at checkout.
Make sure to adjust your shipping policy for returns. In cases where customers cover the cost of shipping, it may make sense to allow them to add more products to their cart to reach a free shipping threshold. Upselling is also possible when you know the reason for the exchange and can make a personalized recommendation for a higher priced item that addresses the specific needs that weren’t satisfied on their first purchase.
For example, if a customer is returning a digital camera because they found that it was too heavy, you can recommend a lighter-weight version that might have a higher purchase price but resolves the issue they had with their first order.
Looking at every return as a new opportunity to increase order value by upselling or cross-selling, the incentive to convert more returns into exchanges becomes clear.
Making the most of your return and refund policy
No matter how much effort you put into your product and customer experience as you grow your business, chances are you will still encounter a few unsatisfied customers along the way.
How small businesses decide to deal with these unsatisfied customers is an important factor in the staying power of your brand. A company that figures out a relatively painless shipping strategy to handle return requests is more likely to retain its customers and have them come back and purchase again or, better yet, tell their friends.
Writing a clear return policy that feeds into a well-thought-out return and exchange system—and regularly optimizing it to make it more efficient—is a powerful way to cut costs and potentially turn a bad customer experience into a net positive outcome for your business.
Illustration by Pete Ryan
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Return policy FAQ
Is a return a refund?
No. A return is when a customer sends an item back to your store or warehouse. They usually have to return an item before they get a refund. A refund means giving the customer all or some of their money back for an unwanted item.
What is a return and refund policy?
A return and refund policy is an agreement between customers and your business regarding returns and refunds. It can include the following information:
- How many days they have to return a product
- How you give refunds, whether through credit card, debit card, or replacement
- Who pays the shipping charges for returns
- What you offer refunds for
- How many business day it takes to receive a refund
Are refunds legally required?
Depending on your country and state laws, you can technically have a no refund, no return policy. But a no return policy can make customers distrust your brand and abandon a purchase.
How do I make a return policy?
- Create a return policy that builds trust with customers.
- Be clear and concise when writing your return policy.
- Don't demand things from your customers.
- Make your return policy easy to find and access on your website.
- Make sure your teams know your return and refund policy.
- Take responsibility for mistakes.
- Give examples of your policy in action.