The Cost of E-Commerce Returns and Why You Should Care

1) Introduction

Creating an ideal post-purchase experience for your online customer comes at the cost of eCommerce returns. It would appear that the only money you would be parting is the cost of the return shipping label. But be assured there’s a lot more to returns costs than meets the eye.

Customer retention may have proven to be the better option for your online store. But you pay a heavy price to offer the liberal return and refund policy every shopper demands. Unsurprisingly, almost 30% of outbound shipments turn into eCommerce returns. This contributes to a sizeable portion of cash outflow.

We live in a time when most new businesses are expected to cope with heavy losses. They will hemorrhage money in the first couple of years. All in order to gain customer trust, conquer their target segment and build their brand image.

But understanding the cost of eCommerce returns can help you limit your expenses. Crafting a unique reverse logistics flow suited to your business will help you optimize your savings.

2) A Breakdown of the Cost of eCommerce Returns

When a product sent to a customer is not of use to them, they are returned to your warehouse. eCommerce returns employs reverse logistics to move the item backward from the customer to your warehouse. This enables you to recoup the product’s value. 

Return costs are not limited to manufacturing and selling costs as it does in outbound logistics. Returned merchandise incur costs on their reverse journey. Costs quickly add up through the supply chain. And expenses pile up across the entire organization.

2.1) Cost of Reverse Logistics

The cost of reverse logistics is kickstarted by the shipping label and can cost you more than the cost of shipping products to customers. This is because packages tend to follow a different set of rules and checkpoints on their way back to you.

While eCommerce businesses often factor in the onward shipping cost while pricing their product, they tend to overlook the cost of returns. The cost of eCommerce returns is important regardless of whether the package is transported across a couple of miles or international borders.

Added to this, you may have to shell out for two onward and one return shipping label when it comes to requests for product exchanges. Although unassuming, shipping labels often can deal a solid blow to your bottom line.

2.2) Cost of Pickup Exceptions

Sometimes, the pickup failure can be due to the driver being unable to make it to the location on the scheduled date or timeslot. Their van may not have the space for the package, or the package may not be ready for pickup.

If the pickup failure is due to the logistics partner, they will reschedule and attempt pickup. However, if the pickup failure is due to the customer, you may have to pay extra for additional pick-up attempts.

2.3) Quality Check costs

Products that are returned must undergo quality checks before they can be assigned various action categories. Products can be designated for resale, repair, or liquidation. 

Products that face liquidation are usually sold at a significant discount because they are deemed unsellable by the company. However, product returns are not always due to poor quality. Sometimes, product returns are simply due to buyer's remorse or change of mind. In these cases, the product is still in good condition and can be resold at full price. 

2.4) Packaging costs

Some shipping partners offer resealable pouches for delivering your products. This is so that your customers can reuse them in case of returns. But the type and dimension may not suit all product types. You may have also found more suitable logistics solutions for your business that do not stock this type of packaging.

Crates, pallets, cardboard packaging, styrofoam peanuts, bubble wrap, and air cushions are some of the most commonly used packaging materials in logistics.

However, if your products are perishable or medical they may require special transit conditions. These could include temperature control, insulation, foil, and dry ice. All this would cost you when it comes to eCommerce returns.

2.5) Surcharges

Just like forward shipping, the logistics processes of eCommerce Returns come with a range of surcharges. These include customs & duties, special handling, exceptional circumstances, warehousing while in transit, and fuel hikes.

eCommerce returns need to pass through customs with thorough documentation that, amongst other things, specifies the reason for return. Unless the paperwork is complete, you may have to shell out for additional penalties. 

Handling fee surcharges are particularly high for odd-sized and heavy  or dangerous shipments. These generally require more than one person to load and unload or for specialized handling.

If your business deals in restricted and regulated products, you may have to pay warehousing charges. This is because the customs department may take time to clear your shipment.

Your returns shipment may also require warehousing if your product is returning from or through a country experiencing civil unrest or is at war. In cases like these, countries usually  suspend all logistical operations.

Pickup locations that are outside the city or in remote areas will cost extra. Pickups on Saturdays or schedules outside standard operating hours will also come under the premium service category with pricing to reflect it.

The fluctuation in fuel prices can make or break your cost of return shipping. Since the cost of fuel is hard to predict, most shipping providers add a buffer cost over and above the current cost to cover their operations.

2.6) Labor charges

Your reverse logistics partner will factor labor charges into your return shipping costs. This is done in order to provide labor compensations that are fair to the warehouse and shipping team. These teams are involved in picking up, packing, loading, and delivering your returns.

Your customer support and service department is another area that will witness immense expansion. This is needed to handle the inflow of return requests, status checks, and claims.

Reconciliation costs dealing with issuing of credit, inventory analysis, and product returns not covered by warranty is another area that will incur expenses.

If your company’s return process is not automated to the extent possible, you will experience higher labor charges.

2.7) Cost of Refurbishment

Refurbishing your returns helps you make the most out of existing inventory. It also allows for upgrading items that would otherwise be trashed. However, it does account for a large part of your return costs.

Rather than opening multiple repair centers, it is more cost-effective to have fewer strategically identified hubs. It is imperative that these locations are also well-connected. 

Refurbishment comes at a high cost. One of the factors is from stocking your returned merchandize in the warehouse during this period. Your product will occupy valuable space until it is ready to go back on the shelf.

Stocking the appropriate materials and tools required for repairing your product is also expensive. Managing the supply inventory also takes up prime shelf and floor space.

2.8) Cost of Restocking Inventory

When an eCommerce product is returned, your business will incur receiving and warehousing costs. These costs come into the picture when logging in the product into your facilities and storing it.

However, there maybe some documentation errors during receipt of goods. Your finance department may have to do additional work to reconcile any accounting issues that may arise. 

Restocking also involves readying a product for the shelves. This is where a returned product is repackaged with tags and boxes so it is ready to be sold. Individual boxes and tags may not cost much.

But consider the sheer return volumes most eCommerce businesses are subjected to. The costs may multiply into a shocking number sooner than you realize.

2.9) Refund payment

Regardless of whether your store offers store credit or refund, this will be an outflow of money. Not every item that is returned may be sellable without the process of refurbishment and restocking. Fulfilling your clients’ refund request will cost you dearly. In most scenarios, convincing a customer into a product exchange may be helpful.

2.10) Customer Retention Services

The retail industry believes customer retention is less expensive than customer acquisition. But your return policy dictates if this fact will hold true for your business.

A knowledgeable customer service and support team to handle your returns is a must. They must be trained and updated on policies, laws, and soft skills required to handle returns efficiently. This will help keep your customer satisfaction rating high. However these investments that can add up quickly.

3) Why understanding the cost of eCommerce Returns is Important

3.1) Dealing with increasing returns

Understanding the cost of eCommerce returns can help you identify areas for improvement. Automation or strategies can help bring efficiency up and expenses down. In the long run, honing your strengths and finding solutions for your weak points will help you deal with increasing returns.

3.2) Reducing damaged inventory

Analyzing the costs of your returns can help you cut down on damaged inventory from manufacturers as well as from your customer. Damaged merchandise from manufacturers will impact product and experience reviews. Improper packaging in your logistics operations due to oversight and penny-pinching can harm you.

You may lose out on the possibility of selling a returned product. This mighty double-edged sword is hefty enough to put your profit margins at risk. This will affect your customer ratings and recouping losses through resales.

3.3) Improve reverse logistics operations

By understanding where chunks of your return shipping costs lie, you can better plan your reverse logistics operations. If it works out cheaper, you could team up with your logistics partner. They can take care of quality inspection, repair and resell your merchandise. This is more effective than routing it back to your warehouse.

This holds especially true if you are on the market with seasonal merchandise. In cases like these, having full-time labor year-round doesn’t make sense. Strategies such as this across the board in your reverse logistics operations can help you improve your returns process.

3.4) To find ways to reduce eCommerce Return rates

You will be compelled to find a solution so your profit margins aren’t sliced to ribbons. Identify key reasons for the return and understand the expenses associated with returned merchandise.

This may mean finding alternate manufacturers and suppliers. Or even signing up with shipping providers who are experts at handling your domain or who have excellent networks in your delivery areas.

4) 4 Working Tips to Reduce eCommerce Returns Costs

4.1) Restock and Sell Quick

As a retailer, you may feel that goods that have been sold and delivered are beyond your reach. But you can quickly seize control of how you design your digital post-purchase portal.

Easy-to-find refund/exchange prompts in the shopper’s order history button will help. Make sure there are clearly mentioned deadlines below each product. This will enable them to make their decisions quicker.

With return possibilities just a click away, your shopper will be pushed into proactive mode and choose to keep or return the product. If they decide to return their purchase, you can nudge them towards a quick drop.

Or you can inform them about the date and time scheduled for pick-up. By enabling them to make more rapid returns, you will be able to receive, restock and resell the product quicker.

4.2) Different kinds, Different Ways

Every piece of merchandise you sell possesses different importance in terms of kind and value. Fast fashion and seasonal products require quicker returns. This is so you do not miss that tiny window for possible resale.

You may want some products to land up at your physical store and others at your warehouse. You may also choose to route products that are faulty and in repairable condition directly to a factory or a technical support provider.

When you reduce the varied return types landing at a single address empowers faster processing and sales.

With rule-based AI automated solutions plugged into your reverse logistics software, you can route the returned items where they need to go. This is decided based on the customer’s entry under ‘reason for return.’

4.3) Digitize & Access Data

Unless innovative systems are employed, you will fly blind when it comes to returns. A return label is trackable and informs the machines and handlers about its contents.

But you will have no idea what condition the product is in until it reaches your team. Manually plugging in the data from shipping labels onto your system for each return is a horrible waste of your workforce.

Although digitizing does take investment, the ease with which you can process your returns makes it worthwhile. By using software, you are informed and prepared to deal with the returns.

You can plan the flow of operations ahead of time. This way, your staff can deal with tasks that actually require human intervention, and you chalk this one up on your computer’s chore list.

4.4) Customer Communication

Your customer service team has one main task: to offer your shoppers pleasant sales support. Increasing scope of returns for online businesses could have them drowning with irate customers. Your shoppers could call or email demanding to know where their refunds or exchanges are.

This usually occurs when you choose manual return processing over mostly automated solutions. More extended returns processing has a direct and very negative impact on customer experience and loyalty.

Send your customers push notifications every step of the way. This way, they can stay informed and both of you can track the journey of returns together. The transparency this relays improves the customer experience. It also saves your customer service team from the hassle of dealing with demands for answers.

5) How can ClickPost Help with your eCommerce Returns?

ClickPost can help bring down the cost of your online returns. A returns management solution provider, it automates your return requests. With the ability to automate generation and printing of return labels, it also picks a shipper based on your programmed inputs.

All these process help you cut costs by removing the need for a dedicated workforce. It also cuts down monetary loss due to human errors.

Any non-pick up reports are resolved by Clickpost’s ability to communicate with the customer and relay this information to the shipper.
This eliminates the requirement for your customer service team to troubleshoot pick-up issues. And your team can focus on aspects of service where their presence is needed.

This also means that you will need a smaller team when it comes to customer service. So, you will end up saving money by limiting the number of hires in the team.

The portal also comes with a unified tracking page to view all your returns. ClickPost’s software addresses the needs of visbility and prompt action when it comes to your returns. It can save your business money and time and is a proven method to cut down the costs of eCommerce returns.

6) Conclusion

You need to be prepared to deal with an increasing volume of returns, and you may want to consider ways to reduce the cost of those returns. Automating processes and outsourcing expertise are two approaches that will significantly minimize their impact on your bottom line.

7) FAQ

1) Who pays for the return shipping?

Most state and federal laws dictate that a company must pay for return shipping only if they send a wrong or faulty product. You can amend your return policy to cover the other aspects of return as you deem fit for your eCommerce businesses. However, free shipping and returns is a well-regarded and implemented best practice for eCommerce shipping.

2) Do I have to pay for a return label?

Returns labels are processed and accounted for only if used by the customer.

3) What does Free Returns mean?

Free Returns means an ecommerce store will not charge the customer return shipping costs and restocking fees.