Returns Management Guide: Optimizing Your E-commerce Returns Processes

It can sometimes feel like moving mountains just to sell and ship products to your customers. But, the work isn’t over quite yet. Returns management is an essential part of managing your e-commerce business. If done correctly, it can tie into your decision-making process for almost every aspect of your store.

Returns happen more often than many online merchants would like. In ecommerce, understanding your average return rate is crucial, as it helps you track product returns, identify seasonal fluctuations, and assess the impact on your retail operations.

This issue is only magnified when it comes to holiday shoppers who are buying gifts for others. If you’re not on top of managing returns before then, January (a.k.a. Returns season) can overwhelm you.

Effective ecommerce returns management can provide a competitive advantage for online retailers by improving customer satisfaction and setting your brand apart from competitors.

To help, we’ve put together a guide to help explain what returns management is, how to optimize your returns processes, and other returns strategies to help limit returns and turn them into revenue generators.

What is Returns Management

Returns management is the process in which businesses forecast returns, formulate returns policies, communicate with customers about their returns, oversee return shipping, inspect returned items, and finally dump a damaged item or restock the item for resale later.

Because of this, managing returns can affect your sales team, customer service team, warehousing/fulfillment team, and finance team. It may possibly even affect your relationship with your manufacturers and suppliers of your products.

Returns management is also an integral part of the supply chain, as it involves the flow of returned products from customers back to the seller. Efficient reverse supply chain processes are essential to improve customer satisfaction, reduce costs, and optimize the recovery of returned merchandise.

Why Do E-commerce Returns Occur?

There are many reasons why someone might decide to return your products, but to boil it down to the most common reasons, we asked online shoppers why they return products in our 2022 Returns Report. Here are their answers:

1. Didn’t fit/suit you (42%)
2. Poor Quality (27%)
3. Didn’t resemble the product page online (16%)
4. Buyers Remorse (7%)
5. Didn’t arrive on time (5%)
6. Other (3%)

Most customers only return items if there are issues such as inaccurate product details or mistakes in customer orders, highlighting the importance of providing clear, accurate product information and ensuring accuracy in order fulfillment to reduce returns.

Some of these responses are to be expected. For example, clothing has the highest rate of returns among all e-commerce segments, with 88% of shoppers reporting that they’ve returned clothing they bought online in the past.

But, there are actions you can take to limit these returns, which we’ll explain later.

Returns Management vs. Reverse Logistics

While both terms are used interchangeably, there are some key differences between the two.

Reverse logistics is more concentrated on the process of receiving an item back from the customer. This can involve figuring out where customers go to drop off a return, which carrier is handling the return, and which warehouse or fulfillment center they are taking that return to.

Returns management encompasses reverse logistics but takes it a step further by calculating returns into the business’s bottom line. This means looking at how returns affect your inventory management, how your business reacts to return requests, and who you use to fulfill orders in the first place.

The ecommerce returns process includes both the operational aspects of reverse logistics and the strategic management of returns, aiming to improve customer experience and drive better business outcomes.

Creating an Effective Return Policy

An effective return policy is the cornerstone of maintaining customer satisfaction and building long-term trust with your shoppers. Customers want to know exactly what to expect if they need to return an item, so your return policy should be clear, concise, and easy to find on your website. Outline the steps of your return process, including how long customers have to return items, what condition items must be in, and whether they can expect a refund or store credit.

Offering free return shipping is a proven way to boost customer satisfaction and encourage more future purchases, as many customers consider this a deciding factor when choosing where to shop.

According to the National Retail Federation, a transparent and customer-friendly return policy not only helps reduce returns by setting clear expectations but also increases customer loyalty by showing that you stand behind your products. By making your return process hassle-free, you can turn returns into an opportunity to build trust, retain customers, and even drive more sales in the long run.

How to Optimize Your Returns Management Processes

A smooth return process goes a long way toward the overall success of your business. In fact, 91% say the overall ease of their returns experience impacts their willingness to shop with a retailer again, while 67% have stopped shopping with a retailer after a negative experience.

Here are a few tips to optimize your ecommerce returns management and boost efficiency while keeping customers happy. Implementing a return portal can also facilitate streamlined returns and help you manage returns more effectively.

To make it easy on the customer, you’ll have to ensure your business processes are set up correctly. The key areas you’ll want to focus on include the following.

• Create The Proper Return Policy

Return policies are crucial not only for the post-purchase experience but the pre-purchase experience as well. A whopping 84% of customers read a return policy before purchasing so you’ll want to ensure the policy you write is customer friendly.

You’ll also want to make sure that in the policy, when you mention refunds, you account for the length of time it takes for carriers to return the product, fulfillment teams to inspect the product, and the finance team to finally issue the refund. This can give your customers accurate expectations.

Be clear about accepting returns, including any requirements such as products being in their original packaging, and specify how and when your store accepts returns. This helps manage returns and customer expectations.

You’ll also want to make sure that the policy is visible and easily found on your site so that customers don’t send ineligible items for returns. This could help you avoid a logistical nightmare.

Check out our Return Policy to get a custom return policy for your business in minutes!

• Keeping Your Eyes On Manufacturing Quality Control

The second most common reason customers say they return items is because of poor quality. Just as you would have your team inspect products that are returned to your business from your customers, you’ll also want to inspect products that come from your suppliers and manufacturers.

If your inbound logistics has issues, it could result in faulty items being shipped during the outbound logistics process, which can then resurface in the return logistics part of your business.

• Incorporate Returns Management Software To Expedite RMAs

A return merchandise authorization (RMA) is essentially a stamp of approval from the e-commerce business saying it’s okay for a customer to return a product. However, making customers go through your customer service (CS) team to break down what’s wrong with a product and why they want to return it could take a significant amount of time away from your CS team working on other tickets.

By incorporating the proper returns management software into your e-commerce site, customers can simply go through a returns portal whenever they need to send something back. From there, you can collect important information such as who is returning the item, why they are returning it, where they are returning it from, and more. You’ll even be able to resell and promote exchanges right from the portal.

Using the right software and right technology, such as automated returns management systems, can boost efficiency, streamline returns, and improve customer satisfaction.

Shippo has partners in this space and can recommend the best returns management software for your business. Simply contact your account manager or contact our customer success team with inquiries.

• Use The Correct Return Address For Each Item

While this might seem obvious for smaller merchants who receive orders, pack, ship, and accept returns at one location, it can be more complex for larger merchants. Those merchants may have partnered with a 3PL and have fulfillment centers located across the country or in multiple countries.

A unified system that integrates all your sales channels and fulfillment locations can help you manage returns more efficiently across multiple sites.

It’s because of this that you’ll want to make sure that customers who are inquiring about a return are given a return shipping label with the address of the closest fulfillment center to them on it. This will limit the cost of the return label for you and/or your customer.

• Train Fulfillment Team On “Gatekeeping” Returned Items

You’ll want to make sure that your fulfillment team is aware of the return policy and properly inspects items before restocking. Any hiccup here could potentially result in multiple returns for the same item. You’ll also want to make sure that if there are any barcodes attached to your items that they are used in your warehouse management system (WMS) to streamline the restocking process. This keeps certain SKUs together in your warehouse and helps expedite the time it takes to reship the product once a new order has been placed.

Remind your team to check that returned products are in their original packaging, as this is often a requirement for accepting returns and processing refunds.

• Check on Returns Data Often

While studying your sales reports and forecast sales may be more exciting, it is equally as important to look at your returns data regularly. By doing so, you can identify if a particular product is being returned more than others, if a specific customer is returning an inordinate amount of items, or even how return shipping affects your overall profit margin. This data can be collected through different avenues but what’s most important is that your data is accurate and you’re using it to make informed decisions moving forward.

Analyzing your returns data can help you cut costs and reduce costs by identifying trends and areas for improvement in your returns process.

Common Challenges in E-commerce Returns Management

Managing e-commerce returns comes with its own set of challenges that can impact both your bottom line and your brand reputation. Many retailers struggle with delayed refunds, which can lead to customer dissatisfaction and lost sales opportunities. The reverse logistics process—getting products back from customers and into your inventory—can be time-consuming and expensive, especially if you’re handling a high volume of returned items.

Inventory management is another critical aspect, as returned products need to be accurately tracked, inspected, and restocked to avoid errors and additional labor costs. Return fraud is a growing concern, with some customers abusing the returns process, which can further erode profits. To overcome these hurdles, many retailers are turning to returns management software and best practices that streamline the returns process, reduce labor costs, and help prevent return fraud. By optimizing your reverse logistics and inventory management, you can transform e commerce returns from a pain point into a strategic advantage for your business.

How To Limit E-commerce Returns

Returns are growing at an increasing rate across the board. According to the National Retail Federation, retailers just last year expected more than $761 billion in merchandise sold to be returned. Returns would make up an average of 16.6% of all retail sales.

The numbers get more staggering for e-commerce merchants since return rates for online products are 3-4 times higher than return rates for in-store items. This is especially true for online orders, which often contribute to higher return rates due to factors like not being able to see or try products in person.

While some returns are due to buyer’s remorse and thus out of your control, there are some actions your business can take to limit e-commerce returns. Those include:

• Taking high-quality photos and videos of your products
• Including transparent and detailed product descriptions (ex., a sizing chart)
• Use the correct infill and packaging supplies to avoid shipping damages
• Sending the correct items
• Promoting exchanges instead of returns (ex. offering 10% off an exchange)
• Charging customers for returns (Be careful as this could also deter initial sales)
• Establishing a clear ecommerce return policy or returns policy to set customer expectations and reduce return rates

Reducing return rates not only improves your bottom line but also helps minimize the environmental impact of returns by decreasing waste and resource usage.

The Importance of Offering Exchanges

Offering exchanges as part of your returns management strategy is a powerful way to reduce returns and boost customer satisfaction. When customers have the option to exchange an item instead of simply returning it, you not only prevent future returns but also encourage repeat business and foster customer loyalty. Exchanges can help you retain revenue that might otherwise be lost and improve inventory management by keeping products in circulation.

According to the National Retail Federation, retailers who make exchanges easy and seamless see higher customer retention rates and more repeat purchases. Streamlining your exchange process can also help cut labor costs and reduce the administrative burden on your team. By making exchanges a core part of your e commerce returns strategy, you can turn returns into opportunities to build trust, increase revenue, and keep your customers coming back.

Limiting Returns Fraud

While it might not be that common, returns fraud could seriously affect your bottom line. In 2020 retailers in the U.S. lost nearly $25.3 billion due to fraudulent returns. Because of this you'll want to consider them when shaping your returns management strategy.

To stop fraudulent returns in their tracks, you'll want to consider doing the following:

• Identifying and potentially blacklisting serial returners (those that return an extreme amount of products)
• Hold off on issuing a refund until a return has been approved to be restocked. This helps protect against switch fraud (i.e. a customer putting in a different item in the return package)
• Use order tracking and signature confirmation to guard against friendly fraud (i.e., a customer saying they never received an order and asking for a refund)
• Address bracketing head-on in your return policy. (Bracketing involves customers buying the same product in multiple sizes with the intent of only keeping one)

Managing Returns To Increase Sales

There are ways in which you can use your returns management strategy to increase sales. Some common ways to increase sales through returns include:

• Increasing the returns window
• Leverage customer testimonials within product description pages
• Use return assurance for certain products such as those that are custom made

All of these tactics can help alleviate customer doubt and give them more confidence in making an initial purchase. But chief among these strategies is to simply offer free return shipping. According to our Returns Report survey, 96% of customers are likelier to purchase if free returns are on the table. Offering free return shipping can help prevent lost customers and increase loyalty by reducing the perceived risk of shopping at your online store.

But before you write free returns into your return policy, you’ll want to examine your business’s current rate of returns and calculate how this strategy would affect your forecasted margins. Monitoring your return rate is essential to make informed decisions about your returns policy.

Popular apps can help your online store manage returns and exchanges more efficiently, streamlining the process for both you and your customers.

Measuring Success in E-commerce Returns Management

To ensure your returns management process is delivering results, it’s essential to track and measure key performance indicators. Start by monitoring your return rates, customer satisfaction scores, and revenue retention to get a clear picture of how your returns process is impacting your business. Analyze returns data to identify trends, such as which products are returned most often and the reasons behind those returns.

Using returns management software can help you collect and interpret this data, making it easier to spot areas for improvement and implement strategies to reduce returns. By regularly reviewing your returns management process and acting on insights from your returns data, you can optimize your operations, enhance the customer experience, and drive more revenue from your e commerce returns.

The Importance of Customer Communication

Clear and proactive customer communication is vital to a successful returns management strategy. Keeping customers informed throughout the returns process—whether it’s confirming receipt of a return, updating them on refund status, or addressing any issues—helps build trust and ensures a positive experience. Offering multiple communication channels, such as email, phone, and live chat, makes it easy for customers to reach your team and get the support they need.

Research from Happy Returns shows that customers who have a positive experience with returns are more likely to make future purchases and recommend your store to others. By prioritizing customer communication, you not only resolve issues quickly but also turn returns into opportunities to build customer loyalty and increase revenue. In today’s competitive e commerce landscape, great communication can set your brand apart and keep customers coming back.

How Shippo Can Ease The Returns Management Process

As we mentioned before, making the return process easy for the customer will also help your business as well. One of the best ways to make returns a smooth process for your customers is to include the return label within the original shipment.

In fact, 30% of consumers prefer to have the return label included, which makes sense given the that nearly one-third of the U.S. population does not own a printer. With Shippo, you can print return labels at the same time as your shipping labels. Best of all, you won't be charged for the return label until it has been scanned by the carrier delivering the return.

To learn more about how consumers are approaching returns and what strategies your business can take to bolster its returns management strategy, be sure to check out our On-Demand E-commerce Returns Webinar.

FAQ: E-commerce Returns Management

1. What is ecommerce returns management?
Ecommerce returns management is the end-to-end process of handling returns—from forecasting and setting return policies, to communicating with customers, managing reverse shipping, inspecting items, and deciding whether to restock, recycle, or dispose of products. It touches sales, customer service, fulfillment, finance, and even supplier relationships.

2. How is returns management different from reverse logistics?
Reverse logistics focuses on the physical process of getting items back from customers (drop-off locations, carriers, and destination warehouses). Returns management includes reverse logistics and the strategic side: how returns impact inventory, margins, customer experience, and which partners or fulfillment methods you use.

3. What are some ways to reduce ecommerce returns?
You can limit returns by improving product detail and accuracy (high-quality photos, sizing charts, clear descriptions), preventing damage with proper packaging, avoiding order errors, promoting exchanges (e.g., offering a small discount on exchanges), and setting clear, easy-to-find return policies that manage expectations.

4. How can Shippo help make returns easier to manage?
With Shippo, you can generate return labels at the same time as shipping labels and only pay for them once they’re scanned by the carrier. This makes it easy to include return labels in the original shipment—something 30% of consumers prefer—and helps streamline the returns process for both your customers and your internal teams.

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