The Online Selling


  1. The Definitive Guide to Starting an Online Business
  2. How to Find Online Business Ideas and Source Products to Sell
  3. The Paperwork: How to Make a Business Plan and Register as an E-commerce Company
  4. How to Set Up a Website for E-commerce
  5. How to Set Up Online Payment Methods to Accept That First Purchase
  6. Pick Packaging That Saves You Money
  7. How to Ship Products for an Online Business
  8. Successful Marketing Strategies for Small Businesses
  9. Small Business Customer Service Strategies Explained
  10. How to Handle Customer Returns
  11. Fulfilling Orders at Scale with a 3PL or Management Software

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About the Handbook

We’re diving deep into every facet of creating an online business to make it easy for you to get started and scale quickly. Hear from top e-commerce SaaS providers and online retailers for the best advice to achieving success — from choosing a product and building a website to creating shipping labels and processing returns.

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Online Selling Ebook

Chapter 10: How to Handle Customer Returns

Before you start to sell products online, it’s important to know how to handle customer returns that may arise. In fact, many consumers won’t click “buy” until they take a look at your return policy. For example, 80 percent of consumers think about the returns experience before buying.

I know you’re thinking, “Hold up! I haven’t even made a sale, and now you want me to worry about giving people their money back?” We get it. Returns can be unsettling. However, savvy online retailers are using returns to their advantage.

Here’s how to set up your returns process and make returns work for you.

Handling Customer Returns Checklist

Step 1: Review Industry Returns Data

A good place to start when setting up your returns process is looking over the data for your industry and target audience. Once you get a sense of the frequency and quality of returns, you can bake anticipated costs into your product pricing.

Average Return Rate

Your return rate plays a critical role in netting out your bottom line. A high return rate may reveal inefficiencies or weaknesses in your business. For example, if many of your customers return their purchases, it may indicate ineffective product descriptions or pictures on your website. It could also mean that the product did not meet expectations in person for one reason or another.

According to Shippo’s 2020 Benchmarks Report, the apparel industry sees the largest return rate, which is understandable given the nature of the need-to-try-it-on buying experience. One in every 10 apparel purchases is returned. It’s imperative that retail companies are closely monitoring trends in their return rate to ensure they don’t have a leak in their proverbial bucket.

Rate of Returns Chart

Men vs. Women

Your audience demographic will impact your return rate, and, in turn, appropriate return policy. For example, men and women tend to return items on different timelines.

According to Returnly’s 2020 State of Returns, women are nearly 1.5 times more likely to return than men, and faster to initiate a return, with 25 percent returning one day after receiving a good versus 22 percent for men.

Men vs Women Return Timing

Cities vs. Suburbs

Finally, consumers in cities have the highest return rate, followed by suburban dwellers, and then rural customers.

Rate of Returns by City

Step 2: Define Your Returns Policy

You want a returns policy that fosters customer loyalty while also being fair and agreeable to your bottom line. As you outline your return policy, make sure to answer the following questions.

  • What is the time frame that you accept returns? Is it within 14 days of receiving the package? 30 days? 90 days?
  • What items are eligible for a return? What items are not?
  • Do you have any rules regarding wear and tear on the product to be eligible for a return?
  • How will I get reimbursed? Will I get a cash refund or will I get store credit?
  • Are there any restocking fees that will be taken from the reimbursement?
  • Who will cover the cost of shipping the item back to you?
  • Will you create and send me a return shipping label?
  • Will you adjust your return policy during the holidays? Many retailers extend their return policy, since so many purchases are gifts given at a later date.

For inspiration as you write your policy, check out these three return policy examples from successful e-commerce businesses.

Step 3: Set Up a Return Submission Process

Once you’ve drafted your return policy, the next step is to set up the process for someone to submit a return request. When you’re just starting out, you might handle each return over email or through a virtual assistant.

Say, for example, you accept requests via email and then save those requests in a folder, in case you need to reference down the road. As part of this process, you will have to:  

  • Determine refund price and submit it via your payments processor
  • Create and send a return shipping label
  • Assess the product for resubmission into your inventory
  • Update your inventory levels on your website and any relevant software tools
  • Track your profit and loss statements to know revenue numbers
  • Communicate with your customer about the status of the return

Eventually, as you grow, a returns software may help you streamline some of these steps. More on that soon.

Step 4: Print Return Shipping Labels

As an e-commerce business, your customer will rely on you to help them generate a shipping label. The alternative is they take their package to the Post Office and purchase a label on their own, but that’s not an ideal experience for your customers.

In Chapter 7, we cover how to choose an e-commerce shipping software that allows you to print return labels. This is critical to time management, because some shipping software will help you create a return label with a few clicks of a button instead of manually re-entering the package weight and dimensions, plus the origin and destination addresses again. From there, you can save the label as a PDF and email it to your customer for them to print and affix to your package.

Scan-based Return Labels

Another option to consider is including a return label in the package you send to your customer. This provides a seamless experience for customers, so they don’t have to worry about printing a label at home. Shipping software like Shippo makes it even easier by offering scan-based return labels with USPS. This means you can generate and print return labels for your orders, but you will only be charged the postage fee if and when the label is scanned into the mailstream.

To create a scan-based return label with Shippo, simply check the Create a return label box under Additional Services as you’re creating the outbound label. You can find more details and instructions here.

Free Return Shipping

As you develop your return policy, you’ll need to think about whether it makes sense to offer free return shipping. According to the 2019 UPS Pulse of the Online Shopper, when it comes to returns, online shoppers have pretty strong opinions. Notably, 42 percent of consumers are looking for free return shipping.

A Positive Returns Experience Survey

This may not be feasible for all businesses, but it’s always a good idea to look closely at your return shipping cost to see if there are any ways to optimize. Then, you can pass on these savings to customers.

Cost-saving Trick: USPS First Class Package Service

When return labels are generated automatically, the software keeps the same package dimensions and weight as the original outbound package, so the shipping costs are the same for outbound and return shipping. This works great in most cases, but in one instance you might be better off creating a brand-new outbound label instead.

Before we jump into our trick, we want to preface this by saying it’s mainly helpful for super small, new businesses.

While you’re small, cost savings tend to be the most critical, so the extra time is worth the few cents you’ll save. Once your business has grown and uses a return software, this trick will cost you more valuable time than it’s worth.

Here’s the trick.

When your outbound package weighs more than one pound, but the return package weighs less than one pound, create a new outbound label.

Why? Because this change in package weight will let you qualify for a new USPS service level: USPS First Class Package Service.

Let’s see how this works in the real world.

Say, Laura sells matching T-shirts for the whole family. She’s based in Salt Lake City, Utah. Her customer Rick bought some shirts for his upcoming family reunion. He’s based in Phoenix, Arizona. He bought 15 shirts only to realize one is too small. He wants to return one shirt, so Laura makes him a brand-new shipping label.

Here’s why.

Cost to Ship the Outbound Package

  • 15 shirts (at 5 ounces each) = 75 ounces
  • The box the shirts come in weighs 4 ounces
  • 75 ounces + 4 ounces = 79 ounces total weight (or 4.9 pounds)
  • A 4.9-pound package qualifies for USPS Priority Mail
  • To ship a 4.9-pound package from Salt Lake City to Phoenix costs $9.39

Cost to Ship the Return Package

  • One shirt (at 5 ounces) = 5 ounces
  • Rick uses the same box, which weighs 4 ounces
  • 5 ounces + 4 ounces = 9 ounces total weight
  • A 9-ounce package qualifies for USPS FIrst Class Package Service
  • To ship a 9-ounce package from Phoenix to Salt Lake City costs $4.00

If Laura creates a new outbound shipping label, she will save $5.39 on shipping costs versus generating an automatic return shipping label.

Step 5: Refund the Purchase

Once you get the item back, inspect it to confirm it’s eligible for a refund. If it qualifies, you’ll then want to refund their money.

Most payment platforms make it easy to refund a customer’s purchase. Either within your e-commerce platform or in the payment platform dashboard, you will be able to find the order and select Refund. The platform will give you the option to grant a full refund or a partial refund. You enter the refund amount you want, and submit—easy peasy.

Typically, it takes a few days for the refund to post in the customer’s bank account, and then the refund is complete.

Step 6: Consider Returns Software

Returns software helps you to streamline and expedite your returns process; organize all of your pending and previous returns; and offer a wider array of highly-sought options for customers. As you grow, you’ll likely want to invest in a returns software to help you continue to scale.

Returnly Quote

Things to Look for in a Returns Software

As you research the right returns software for your business, consider these features.

  • Does it allow you to create a fully-branded returns portal? Many businesses require some information before accepting a return, including the order number, items being returned, and reason for return. A returns portal will allow you to gather this information and automatically organize it for you.
  • Can you set up return rules for specific items? When you use a software, you should be able to identify what items do not qualify for a return, so that the software can act as a gatekeeper for those products. Simply set up a rule that lets the software know what to do when specific items are submitted for a return, including items that have missed the time frame for returns and nonreturnable items.
  • Is it possible to promote alternative items to re-engage customers? In the returns portal, you can also make recommendations to encourage customers to make a follow-up purchase.
  • Can you instantly offer exchanges? The challenge with exchanges is the flow of money and items don’t line up and put you at risk of losing either money or product. Return software like Returnly pays for the exchange on behalf of your customer so they can get the right item before returning the wrong one.
  • How can you track customer satisfaction? WIth return software, you can poll customers and immediately gather feedback during the return submission process.
Returnly Quote 2

With these steps in place, you’re ready to accept returns from your customers and leverage your return policy to make sales and foster repeat customers. Your return policy does not have to be your weak spot. Instead, use it to your advantage to have customers coming back again and again.

Download the entire e-book here.

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