E-Commerce

Reduce the returns rate: Information and tips on how to avoid returns

Fatih-Kağan Taşkoparan

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If you want to work seriously in e-commerce and keep a clear overview of all income and expenses, you need to price in your returns rate. As an online retailer, there's no getting around this. The right to return goods free of charge in distance selling transactions (including online transactions) is enshrined in consumer rights. And online retailers may well face problems if they underestimate the level of returns.

Depending on the product category, you as a store operator have to be prepared for different levels of returns. According to a study by the University of Bamberg around every second parcel in the fashion sector is returned. Orders on account are particularly frequently affected. In the consumer electronics and media sectors, the figures are significantly lower - but by no means negligible.

Returns are one thing above all: expensive. Shipping costs are incurred, goods are sometimes no longer saleable after being returned, returns management ties up staff and takes a lot of time. Returns are also an ecological disaster, as they are unnecessarily transported from A to B along with a lot of packaging material.

These are already more than enough good reasons to think hard about how you can reduce the returns rate. So let's take a look below at why customers return so many items, what costs this causes and what specific measures you can take to counteract this.

You cannot circumvent the right to returns

§ Section 355 BGB regulates the right of withdrawal for distance selling transactions. Your customers can return goods individually or as a whole package for 14 days without giving a reason. You must pay the shipping costs and refund the customer's money. There are only a few exceptions to this. These include personalized products or B2B transactions. However, the prerequisite is always that your recipients have only inspected the goods to the same extent as would be permitted in a retail store.

In addition to the 14-day right granted to all private individuals, there are also complaints and warranty obligations to consider. If your customers complain about the quality, it may still be possible to return the product at a later date. Even then, you must either replace the product or refund the money (pro rata).

This is what clever returns management is all about

The first step to being able to handle returns smarter is to set up a smart returns management system. If you know why your customers return products and what the associated costs are in detail, you have laid the foundation for reducing your returns rate.

Why do your customers return their products?

The reason for return is essential for you. You must collect it as part of the returns management process. For example, you can include a form with every order in which customers can tick the reason for the return or enter it themselves. Of course, the whole thing also works electronically in your store system, provided you offer this feature.

There are some classic reasons for returns that are almost unavoidable, depending on the sector. Certain systematic risks arise from online shopping in general, while others may apply to your sector in particular:

  • Size does not fit
  • Color looks different on the display
  • Dimensions different than expected
  • Errors regarding functionality
  • No longer required (e.g. due to long delivery time)
  • Discovered cheaper elsewhere & bought there

However, if you notice an unusual accumulation of returns for a reason that is not typical for your industry, the systematic risk becomes an unsystematic risk. This means that the returns risk for your store is higher than for other competitors.

Reasons for this could be

  • Incorrect information (e.g. dimensions, size, color, etc.)
  • Unclear promises (promote errors regarding functionality)
  • Long delivery times (increase the chance that customers will buy elsewhere, e.g. stationary)

So always track the reasons why customers return or complain about something. Based on the statistics, you can see over time whether you are improving here or whether your problems with returns are perhaps even increasing.

What are the costs of returns?

It is easy to calculate the returns rate or the complaint rate. All you have to do is divide the number of returned products by the number of products ordered. It is more difficult to attach a price tag to the return costs.

However, it is sometimes necessary to make a more precise subdivision in order to calculate the return rate. This is referred to as the alpha and beta returns rate. The alpha returns rate refers to the number of returns, while the beta returns rate indicates how many individual items were returned in total.

This can be a particularly tricky part of day-to-day business in the fashion industry, where customers often order two sizes of an item, meaning that one package is almost always returned (alpha return rate: 100 percent), but only one of the two sizes from the shipping process is returned (beta return rate: 50 percent).

From a logistical point of view, the most interesting thing for you is how many returns you have to physically handle, what shipping costs are involved and how much it costs to prepare the returned items for resale.

According to a study conducted by the University of Bamberg in 2019, a returned parcel costs just under 20 euros on average. In order to determine the most accurate value for your store, you should record all costs associated with your returns and then allocate these to all returned parcels.

These are the typical sources of costs in returns management:

  • Shipping the return
  • Preparation, cleaning of the article
  • New packaging of the article
  • Logistical processing (including re-storage)
  • Write-offs of damaged and unsaleable products

Reduce returns: how to effectively avoid returns

Once you have determined why customers return your goods, what financial burden they represent for you and how you need to price them in, you have a good basis for your next steps to proactively reduce your returns rate. Last but not least, you will ensure greater sustainability in e-commerce.

Below you will learn about some specific measures you can take to counteract this, depending on your individual situation.

Tip #1: Better content

Returns in online retail are often the result of inaccurate product descriptions or misleading promises that mislead customers. Describe your items in a way that sells, but is not too sensational, and make sure that the size, color, etc. information is accurate. In the fashion sector, for example, small pieces of additional information are already a huge help when estimating sizes ("the model is 1.80 m tall and wears size L", "runs small", and so on).

You can also present items that require explanation in videos and integrate a virtual try-on (as Mister Spex offers for glasses, for example).

Tip #2: Do not offer purchase on account

Buying on account is a real driver of the returns rate - this was also shown in the returns management surveys conducted by the University of Bamberg. After all, if you haven't even paid for an item yet, it is simply tempting to send it back without having to expect any consequences.

However, avoiding purchase on account can lead to a drop in the conversion rate, as some prospective customers choose their stores based on payment options. Therefore, keep a close eye on whether your direct competitors offer purchase on account. Don't jeopardize your attractiveness as a retailer here!

Tip #3: Secure, fast & transparent shipping

Depending on the type of product, customers need certain deliveries within a precisely defined period of time. For example, they may need their order at the weekend because they are going on vacation and want to take the equipment they ordered with them. If your delivery arrives too late, they will return it immediately. So be transparent and honest about the expected delivery times.

If you currently need a few days longer, then it's better to state this and risk a few customers not buying as a result. After all, it would be a bigger loss if a large proportion of these customers exercised their right of withdrawal because the item didn't arrive on time.

The safety and reliability of shipping are just as important. Make sure that you work with logistics partners who deliver your products undamaged, clean and clearly traceable. They must also handle the returned items with care. This will help you avoid unnecessary costs due to damaged goods.

Tip #4: Offer personalization

To reduce your returns rate, you can offer products that your customers can personalize. These are excluded from exchange. For example, if you sell personalized baby clothes, customers will prefer to choose one size larger instead of having two sizes sent to them and then choosing the perfect size.

Tip #5: Make returns legally more difficult

It is still common practice among many online retailers not to enclose a returns bill with an order and to hope that some customers will be too comfortable to deal with a return. This can actually have a positive impact on the returns rate. Ultimately, however, it will hurt your popularity.

It is therefore better to try to make returns more difficult in an emotional way. For example, offer customers certain contact options before they finally return the item. This may allow you to enter into a dialog and negotiate individual deals with customers. If an item is scratched but otherwise in good working order, a thrifty customer will certainly be happy to receive a discount and you can avoid an expensive return.

You can also find out in a personal conversation whether customers have perhaps already used the goods disproportionately. If the seals on data carriers such as games or CDs have been broken, clothing has already been worn intensively or a pan has already been fried, these products cannot simply be returned.

Conclusion

Returns management will always be a necessary part of your e-commerce. This is more true than ever after the growth spurt in online retail in the wake of the coronavirus pandemic. But at least you can use a few strategic levers to ensure that your returns rate remains as low as possible.

The most important things - as in so many other areas of e-commerce - are transparency, consistent tracking and high-quality product descriptions. Avoid misunderstandings and misinterpretations on the customer side, then you will not only reduce the return rate, but also get more satisfied buyers. A win-win situation.

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