Returns Management: how to handle customer returns

Customer returns – they’re a hassle, but you can’t hide from them. Around 30% of all products ordered online are returned to the sender¹, so whatever your SME is selling, returns management is likely to be a big part of your day-to-day operations.

Yet by optimizing your e-commerce returns process, you can reduce costs for your business whilst ensuring your customers receive excellent service. Read on for our returns management best practices.

1. Introduction to Returns Management

Returns management is the part of logistics that deals with customers returning products to retailers. It covers the return shipment, the processing of the product ready for resale, and refunding the customer – to name a few of the steps.  

Efficient returns management should be a priority for small businesses; 67% of consumers will check an online retailer’s returns policy before committing to a purchase² so it could be the difference between you making a sale or not.

An optimized returns management process will help your business deal with returns quickly so that customers receive their refunds without delay. They are more likely to become a repeat customer – and even leave your business a positive review online.

Benefits of effective returns management

Processing returns can take up a lot of retailers’ time – even more so for small businesses with few staff. Then there’s the cost – it’s estimated that returns cost businesses a staggering 66% of the product’s original price². And with customers generally expecting businesses to cover the expense, returns can quickly eat into their bottom line.

An effective returns management process will optimize every step of the process – from labor to transport to inspection – to save time and reduce costs. Furthermore, it will help you identify sustainable alternative paths for returned products beyond just disposal or resale, such as refurbishment and recycling. These routes will help your business build its reputation as an environmentally responsible brand.

3. Benefits of Effective Returns Management

Perhaps most importantly, effective returns management will improve customer satisfaction with your brand. 84% of consumers will not shop again with a retailer after a bad returns experience⁵, and as any small business knows, retaining a customer is a lot cheaper than acquiring a new one.

Furthermore, if you’re looking to grow your business internationally, your returns policy could be a strong draw for shoppers. “Simple, free returns” was cited by 49% of global consumers as something that would give them confidence and reassurance to shop cross-border⁶.

There’s also a sustainability benefit to effective returns management. It will help your business identify alternative paths for returned products beyond just disposal or resale, such as refurbishment and recycling – and establish your brand as environmentally responsible.

Creating an effective returns management process

So, what steps should your business follow for an effective returns management process? Of course, the answer depends on your returns policy – but these are the general guidelines to help you optimize your operations.

1. Receive the product

At the point a customer initiates a return, you should ask them if they want a replacement, refund, or exchange. Once the product arrives back to your processing location, notify the customer that it has been received.

2. Inspect and evaluate

The product should be inspected for any damage. At this point you should decide whether the customer is eligible for a refund in line with your business’s returns policy.

3. Determine the product’s next destination

Does it need to go for cleaning? Repairs? Replacement parts? Or perhaps it’s in a suitable state to go straight to your warehouse ready for resale. Move the product on to be processed quickly.

4. Refund or exchange the product

It’s important to refund the customer or send them a replacement product as quickly as possible. This is key to building a positive relationship between them and your brand.

5. Record and analyze returns data

This is crucial. Recording the reasons customers return products to you will help you address pain points. For example, perhaps lots of customers complain a particular item is “not as described on website” – this is a sign to evaluate the product listing and add more specifications and high-res photos. Knowing exactly why your customers return products is the key to fixing the problem!

Receive the product

At the point a customer initiates a return, you should ask them if they want a replacement, refund, or exchange. Once the product arrives back to your processing location, notify the customer that it has been received.

Inspect and evaluate

The product should be inspected for any damage. At this point you should decide whether the customer is eligible for a refund in line with your business’s returns policy.

Determine the product’s next destination

This is where a reverse logistics strategy comes into play. This sustainable returns model promotes the recycling, repurposing, repairing and resale of products – diverting them from landfill and saving your business money by extending the lifecycle of damaged/faulty items.  

If the product is in an adequate condition for a straightforward resale, update your inventory system so that it can be made available to customers quickly.

Refund or exchange the product

It’s important to refund the customer or send them a replacement product as quickly as possible. This is key to building a positive relationship between them and your brand.

Record and analyze returns data

This is crucial. Recording the reasons customers return products to you will help you address pain points. For example, perhaps lots of customers complain a particular item is “not as described on website” – this is a sign to evaluate the product listing and add more specifications and high-res photos. Knowing exactly why your customers return products is the key to fixing the problem!

Returns management best practices

Consider offering free returns

It may sound expensive, but research⁶ has shown that free returns are a leading motivator for online shoppers to buy directly from a brand, so the investment could pay off for your business in terms of increased sales. Perhaps you could offer the service on a trial basis to determine if it makes financial sense.

Have a clear and concise return policy

Many visitors to your e-commerce website or app will check your return policy before committing to a purchase, so ensure it is clear, simple and fair. It should cover the cost of the return (whether it is free or if you will deduct the cost of shipping from their refund), timeframe (the window of time they have to send it back), and a FAQs section (this will reduce the number of customer enquiries you’ll have to deal with). For tips on writing a small business return policy (with free template), click here.

Prioritize speed

Customers don’t want to wait a long time for a refund or replacement product; a bad experience in this area will deter them from buying from you again.

Make them convenient

The returns process should be hassle free for customers. A couple of quick tips:

• Include a returns label with every product you send out. Customers will be frustrated if they have to print off a label themselves – not everyone has easy access to a printer!
• By partnering with DHL, you can offer your customers a full door-to-door service. A DHL courier will pick up the return directly from your customer, saving them having to go to a post office.

Practice effective customer communication

Transparency is key. A customer returning a product to your business should be kept updated regularly. Be sure to send them a message once you have received their return, and once you approve their refund – with details on how long they should expect to wait before receiving it in their bank account.  

Remember the environment

Every product that is returned essentially doubles its carbon emissions output. But, there are some sustainable steps you can take to reduce the impact. Partnering with a sustainability-focused logistics carrier is one option. DHL’s GoGreen Plus service has recently launched a landmark initiative which allows customers to reduce the carbon emissions associated with their shipments through the use of Sustainable Aviation Fuel. 

Returns management vs reverse logistics

Reverse logistics is the stage of your supply chain at which your customers return products to your business. It covers returns, reselling, repairs, repackaging and recycling. Returns management is a strategy to optimize every step of this.

How to handle customer returns effectively

There are several technologies to help you automate – and thus streamline – different stages of your returns management. These include:

• Handheld scanners which can be integrated with your reverse logistics management software. When a return arrives at your sorting facility, staff can scan the product’s barcode to automatically update the inventory database in real-time. Handheld scanners also reduce the risk of errors compared to human processing.
• A sophisticated Returns Management System (RMS). This cloud-based software is an end-to-end solution that will allow you to automate many aspects of returns, including returns merchandise authorization (RMA) initiation, inventory updates, and customer notifications. Furthermore, an RMS will provide you with valuable returns data analysis to help you improve operations, reduce costs, and identify product issues.

Returns Management FAQs

How do you manage returns effectively?

Speed should always be a priority. Customers expect their returns to be processed quickly, with a refund or replacement product issued as fast as possible. Speed will also benefit your business, ensuring the returned product is back within your inventory and ready for resale without delay.

Return policy vs refund policy

A return policy is a set of rules laying out for what reasons and within what timeframe a retailer will accept returns. A refund policy is usually part of the return policy and explains when returned products are eligible for a refund, and how long it will take.

How do returns affect the supply chain process?

Returns can cause bottlenecks in the supply chain flow if not managed effectively. Products waiting to be processed require storage space which increases warehouse costs for businesses, and leads to less available inventory for customers. All reasons to optimize your return logistics!

Discover how partnering with DHL can help you optimize your returns management. Open a DHL Express Business Account, here.