Costs are inevitable when dealing with returns, but knowing what costs are associated is a step closer to reducing them. Here’s what you need to know about the hidden costs associated with returns in eCommerce.
Hidden costs can quickly cause major budgeting problems for your business. To avoid surprises, we will explore the impact returns have, examine the associated costs, and dive into what hidden costs are and how you can avoid them.
Brief Overview of eCommerce Return Statistics
In 2024, the average return rate for eCommerce businesses was 16.9% This average will vary depending on industries, products, and seasons, with the fashion industry showing average return rates of up to 30%.
The most common reasons for returns include:
- Incorrect or inaccurate sizing
- Defects and poor product quality
- Return fraud scams
- Dissatisfaction with the product
- Delayed receiving times
To put it in perspective, we’re getting 300 units returned for every 1000 units sold. These rates are concerning when considering the large scale of eCommerce operations, resulting in a large portion of your budget being lost to the hidden costs associated with these returns.
What are the Hidden Costs?
The expenses associated with eCommerce returns involve both time and monetary costs required by the returns process. These expenses include direct costs, such as shipping and delivery, issuing refunds, and restocking fees. The indirect costs include loss of sales, reputation damage, and environmental impact.
Hidden costs involve the expenses associated with the nuances of the returns process and include:
- Carrier management: Employing multiple postal carriers is necessary to cater to your customers’ needs. The associated costs arise from the extensive labor required to manage various carriers, including tracking, duty forms, and lost package inquiries.
- Customer service inquiries: The costs of resources used to respond to inquiries regarding returns. This includes employing customer service representatives, paying long-distance fees, and communicating with carriers regarding tracking.
- IT Integrations: Software used to manage your sales and returns are necessary for organizing and streamlining these processes. They typically offered as subscription-based services and should be included in the costs of returns. This includes the initial monthly fee and maintenance required to maintain the program.
- Warehouse Operations: Warehouse space is required to store the items that are being returned. The costs with this involve rental fees for the space and the employment of warehouse managers and associates to perform labor.
How can you Reduce the Costs Associated with eCommerce Returns?
Implement Accurate Size Charts
The leading cause of returns for eCommerce businesses are items that don’t fit how they’re expected to. Providing your customers with the most information to make a purchase is crucial for cutting down your overall return rate and improve customer satisfaction.
One way to do this is by integrating accurate size charts for your products. This allows the customer to create a realistic expectation of how an item may fit or look in their home. eCommerce platforms offer tools to help you implement sizing charts directly onto your product pages. If you’re looking for a place to start, here’s how to add a size chart on Shopify.
Encourage Customers to Engage with Product Reviews and Testemonials
Involving customer feedback for products is beneficial because it updates you and potential customers with real-use case experiences. This can help you address problem areas with your product, strengthen relationships with customers, reduce your return rate, and promote the product.
This can be simply implemented by utilizing tools to that allow customers to input feedback, such as review sections, forum sites, follow-up and satisfaction emails, and testimonials visible from the home page.
Prioritize Improving Quality of Customer Service
The experience you provide for your customer is a reflection of how trustworthy and reliable they view your brand and will determine whether or not they will be a recurring customer. Customers who have had pleasant customer experiences are more likely to accept alternatives to returns such as exchanges or recieving store credit effectively cutting down the return costs.
Ensure you are personalizing customer experiences to emphasize the value they hold in the sales process. Consider usign CRM software programs to optimize relationship building by streamlining maintenance, organization, and communication with customers.
Key Takeaways
Here is a quick summary of the key concepts to take from this article.
- The average return rates vary depending on industry with the most concerning rate arising from fashion sales.
- Reasons for returns include incorrect sizing, poor product quality, return fraud, products not meeting expectations, and delayed receiving times.
- The expenses associated with returns involve direct, indirect, and hidden costs.
- Direct costs include shipping, restocking, and refunding.
- Indirect costs include loss of sales, reputation damage, and environmental impacts.
- Hidden costs are associated with the nuances involved with the returns process and includes carrier management, customer service inquiries, IT integrations, and warehouse operations.
- The ways you can address these costs is to reduce your overall rate of returns by implementing accurate sizing charts, encouraging reviews and testimonials, and prioritizing the quality of service your provide.
