Why can the Cost of a Return order Disrupt your Profit Margins?

eCommerce Marketing Retail eCommerce Sales

Why can the Cost of a Return order Disrupt your Profit Margins?

Nowadays, with the increased online purchase, the number of returns is increasing as well. Retailers have to pay serious attention to the return rates as they substantially negatively impact the profit margin. 30% of the total eCommerce orders get returned each year. According to Statista, in 2019, the total amount of the return products was $309 billion, and it increased in 2020 to $428 billion.

Return rates are one of the serious phases of the eCommerce business. They impact profit margins and conversion rates, resulting in disruptive revenue. There are many reasons customers return the products, such as wrong size, the no more prolonged need of the product, wrong item, damaged product, wrong address, etc.

Giant enterprises, such as Amazon, offer free returns. Meanwhile, small businesses cannot afford free returns as the average return rate costs 30% of the actual price. Meaning, the retailers have to sell three products to cover up the return cost. It does not go well with small businesses.

Many customers order two-three products so that they can try and return if it does not suit them. However, it can be a headache for the retailers. Therefore, 59% of the retailers are charging $10 for returns to avoid unnecessary returns.

57% of the retailers make their customers wait for more than six days to return, and 5% make their customers wait for more than 15 days to start the return process. A study shows that 100% of general merchandise retailers and 83% of health retailers offer free returns. The retailers who do not offer free returns charge up to $4.80 to $8.12.

Returns after the holiday season turn out to be nightmares for the retailers. In 2016, CNBC reported that, on average, Americans returned a total of $260 billion worth of products, 8% of the total holiday purchases. Additionally, clothing and footwear are the most returned products each year.

Small businesses cannot endure the free returns as they cost a lot. Therefore, they are implementing numerous strategies to reduce the return rates. However, not all customers who return the products abandon the online store. Zappos’ Vice President of services and operations said that the customers who have higher returns are the ones who spend the most amount on them and increases the profitability.

Also, it is important to notice that the cost of the return products includes the delivery charges, return shipping charges, and packaging charges, as the retailers have to redo everything. Therefore, it is important to analyze and set prices that can cover your return costs.

In a nutshell, if your customer has a bad experience with your brand, they will not return. On the other hand, if you provide a good return experience, the customers will be loyal to you regardless of the return fees. A report shows that the customers are likely to buy from the website that provides them with a good experience.

After all, providing excellent customer services is the primary goal of the eCommerce industry.

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