Returns are par for the course for an ecommerce business. Customers change their minds or the wrong size is shipped. In 2020, 1 in 12 purchased products was returned. But in small businesses, sales volumes are low and margins slim. A streamlined way of managing returns is helpful for you to maintain profitability. An ecommerce returns management system provides an integrated way to log, keep track of, and execute returns in an efficient way.
In this post, we’ll understand what returns management is, the different types of returns, and the best practices for returns management.
What is Returns Management?
Returns management is the process of handling product returns. This can include everything from processing returns, to generating a return label for each return, to providing a free returns experience for customers. Shipping a returned product back from the customer is referred to as the reverse logistics process.
For eCommerce businesses, returns are an important part of the customer experience, and managing them effectively can be vital for profitability. Unfortunately, small businesses often struggle with returns due to their limited resources. This can lead to reduced profit margins and customer satisfaction.
Managing returns effectively means service providers can focus on other areas of their business, while still providing a positive returns experience for their customers. Let’s take a quick look at the benefits of having a good returns management process.
Builds Customer Relationships
In a recent survey, more than two-thirds of online shoppers identified ‘free returns’ as the main reason for choosing where to shop. A customer-friendly returns process will help to create repeat customers. Customer satisfaction tends to be highest when they’re informed about what’s going on. A simple way to enable this is to make the reverse logistics process transparent. In other words, keep the customer updated about every stage the returned item goes through. Even better if notifications for those updates are in real-time.
Reduced Waste
If done well, you may also be able to reduce the amount of waste that returns produce. This is done by ensuring returned products are properly logged and tracked. Return merchandise authorization (RMA) software can also help to ensure that only defective products are returned. Fewer returns mean less return shipping required overall. Often, goods that are returned can be recycled or reused, reducing the impact on the larger supply chain.
Better Profit Margins
A returns management tool or system can also help to improve profit margins by reducing the cost of processing returns. Businesses can often return products directly to the manufacturer. This can help to reduce return shipping costs and improve margins.
Types Of Product Returns
Returns are a fact of life for any ecommerce business. Even the most well-made and carefully selected products will be returned by some customers. Ecommerce returns fall into one of two categories: controllable and uncontrollable. While it is not possible to completely eliminate product returns, there are a number of steps that ecommerce businesses can take to minimize their impact.
Controllable Returns
Controllable returns are those that result from factors within the company’s control, such as poor quality or incorrect orders. Reducing controllable returns can make a significant impact in reducing the overall return rate.
Uncontrollable Returns
Uncontrollable returns result from factors outside of the company’s control, such as changes in customer preference or damage during shipping. These factors mean there will always be some minimum number of returns. An effective return management process, however, goes a long way to enabling the retention of those affected customers, by:
- Making it as easy as possible for customers to initiate a return.
- Tracking returned items carefully so you can identify patterns and causes.
- Enabling you to take informed action to address the underlying causes of customer returns.
Best Practices For Returns Management
There are a number of best practices that small businesses can follow to improve their return management process. How each of these relates to your business should inform your decision about what returns management software will work best for you.
You’ll need to understand the causes for returned items, the importance of accounting for returns correctly, and how to use checklists for properly managing returns. The explosion in the number of online stores means many of these best practices, including managing your inventory, are now handled by integrated software. Here’s an overview of the five best practices for returns management.
Understand Return Causes
It’s important to keep track of each return systematically. This information will help you determine what type of products are being returned most often, and why. Capturing return information also allows you to track how your return policy is affecting your bottom line. You might track the following for each return:
- Date of return.
- Reason for return.
- Item name and SKU.
- Action taken.
- Notes.
Returns management software is designed to help you keep track of this return information. It helps to automate the capture of return data for you and provide it in an easy-to-read format.
Accounting Returns
It is important to correctly account for returned items in your inventory system. This will help you keep track of the number of items you have in stock, as well as the value of those items.
One method of accounting for returns is to create a return merchandise authorization (RMA) number for each return. This RMA number would then be entered into your inventory system, along with the data about the returned item. Another method is to issue a credit memo for each return. This credit memo would reflect the value of the returned items and would be entered into your accounting system.
In the event of a returned item not being resaleable, it would need to be written off; no longer accounted for in inventory management. In some cases, a refund may be due to the customer, as opposed to in-store credit. You’ll need a means of verifying that the payment has been made, as well as to ensure that the original purchase transaction is reversed in your accounts.
Product Handling
Items are returned for various reasons. Depending on the nature of the return, an item might be ready for restocking immediately, require repair, or need to be disposed of.
A checklist can be an effective way to ensure a repeatable workflow for processing a return. It allows you to keep track of which items are eligible for resale and which are not. Here’s a suggested return processing checklist:
- Verify that the item is returned within the acceptable time frame.
- Perform quality control to check for damage or defects.
- Identify the correct item that was returned.
- Process the return according to your company policy.
- Place the returned product back into inventory.
Inventory Management
The checklist above is useful for determining the best next steps for a returned item. A returns management system should include a way to track return information – such as the physical state of the item and the reason the customer cited for the return.
Such a system also helps prevent stock-outs and overselling by keeping track of return inventory. If you know how much of an item is in stock following a return, you’re:
- Less likely to oversell it, and
- Informed and able to restock it in good time, if necessary.
This helps to optimize supply chain operations. You’ll have a regular cadence of orders and deliveries, with comfortable lead times.
Make Use Of Technology
With the increase in the number of online stores, there has been an increase in the number of returned items. This can be challenging if you’re not prepared for it! The first thing you can do as a business owner is to make use of technology.
There are a number of software programs designed specifically for returns management. These programs can help business owners to create return merchandise authorizations (RMAs), process returns, and keep track of return inventory in a central, cloud-based system.
Bottom Line
To prevent returns from impacting the bottom line of your ecommerce business, technology can help. By keeping track of return inventory and return information, you can minimize the impact they have.
Rich Returns is one such piece of technology which integrates the features we’ve discussed here. It integrates with your Shopify store and serves as an all-in-one returns management solution.
Use it to manage your ecommerce returns, retain customer satisfaction (and profitability) with a transparent returns process, and minimize the effect of returns on your business.