E-commerce sellers hate returns. They create logistical complexity, eat into profits and often create waste as products may not be salvageable. On the bright side though, you can view returns as an opportunity to improve your profits. Here are four ways you can use returns to improve your profits:
- Improve product quality: By understanding why customers return products, you can work on preventing them from happening again. For one brand we were working with, we consistently got feedback with returns that the item was smaller than they required. We proceeded to improve the listing to denote the actual size, including a common reference item like a laptop in the photo and descriptions of what could fit. We also launched a larger XL version of the product to meet consumer demand for a larger bag in the same design.
- Increase sales conversion: Invesp says in an infographic that 67% of shoppers check returns policy before checking out their carts. It sounds counterintuitive but allowing free returns of purchases actually increases sales. Having a customer-centric return policy creates trust between the brand and customer that the product in cart is of quality. The refund/ exchange policy provides assurance, thereby extending customer lifetime value and increasing repeat purchase rate.
- Increase upselling: Close the loop on returns by turning them into exchanges and price up through upselling. One thing you’ll want to do is turn as many returns into exchanges as possible. There are two ways to structure return shipping costs — you either bear them or pass it through customers. You could incentivise additional purchase at value above the price of the good pending exchange and introduce free shipping should it cross a threshold. What you want to do is first determine a target margin of a product type, and then price the good accordingly to ensure the profit margin is at least the same as desired.
- Cross-selling additional protection: If your products are of higher value, consider selling extended product warranties as ancillary revenue while getting protected against paying to replace damaged products at the same time. This, of course, requires that your product quality is sufficiently high to profit from the additional protection.
Returns aren’t fun, but with the right mindset, you can use it to your advantage and boost profits!