3 Tips to Increase Margins on Returns in 2020 and Beyond

Dec 02 2020

Black Friday and holiday deals are upon us. your company has been planning and thinking of what to offer your customers for months. As these holiday deals lead to increase customer purchasing, you are also stuck with the on-going challenge of dealing with returns.

Returns can be a huge factor in the profitability and overall success of your company. In fact, most ecommerce companies are continually struggling with the challenge of heavy returns.

According to Narvar and Magic Survey, 41% buy variations of a product with intent of returning.

42% have returned an online purchase in the last six months.

89% have returned an online purchase in the last three years.

As customers continue to seek out lenient return policies, according to Shopify, 62% of customers will buy again from brands offering free returns and exchanges. it is essential to acknowledge the increasing demand while employing strategies that can help lower the cost to your business.

1. Know your customers

‘The Wardrober’ – this group is likely your largest challenge. Why? They often are the individuals who can’t afford the product you offer and have no intention of actually keeping what you offer. Instead they purchase and use the product for their specific needs and return it within the acceptable returns window.

‘The Fitting Roomer’ – the fitting roomer category are the group of people who treat the online environment exactly as the traditional in-store experience. What does this mean? An individual will buy several of one product in different colors, or sizes and return whatever they don’t want.

Knowing these two types of customers is essential to segmenting and knowing how to tailor your offerings specific to them. This could mean that you exclude these types of customers from free returns, or perhaps you do as Amazon did and start banning customers who return too many items. While that Amazon policy is on the extreme end, utilizing a similar idea is essential to not overwhelming your returns cost.

2. Using Returns and Net Profit for Customer Profile

While all businesses are focused on improving profitability and EBITDA, improving top line sales is a key to unlocking long term growth. Customers crave the ability to return products without being penalized. In order to tackle the need for free returns, your business needs to focus on return profiles of your customers in order to discover who is impacting net profit, for example, top customers might buy the most and return the most. This leads to opportunities for optimizing your operations to allow for increased profits.

3. Pay Attention to Value and Price

As you think about your purchasing habits, the price of a specific item influences the expectations that you have as a customer. For example, if you purchase a $5 pair of shoes from Walmart your expectations are lowered and if something is wrong you are less likely to return the product. On the other end, if you purchase a $150 pair of shoes and something is wrong, you are much more likely to return the product from the expected value. As a brand, it’s essential you think about how price and value influences customer experience and expectations to lower the number of returns. Perhaps you lower your price by a few dollars to lower the quantity of returns and increase the profits kept by your business.

The key to returns is built on focusing on increased profits, changing your pricing structure, and taking a deep dive on your customers. Utilizing these key strategies will unlock more profits and a better customer experience that will unlock major growth potential.

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We are here to help you strategize on how to improve your returns performance to take advantage of the $550 billion in returns happening as the ecommerce revolution continues to take hold. 

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