7 Key considerations when formulating your returns strategy


7 Key considerations when formulating your returns strategy

Like it or not, returns management is a major component of an eCommerce business; as long as products are sold, returns will exist. Some sellers try to manage returns on an ad hoc basis, but this approach is both costly and difficult to manage.

For consumers, returns are commonly viewed as a necessary evil — a process that’s often unavoidable when ordering items online. As a merchant, returns can turn into a large expense and a royal pain to manage.

Returns as your secret weapon for growth + conversions

Upon first glance, a flexible returns policy may seem counterintuitive to increasing your conversions. However, your returns policy could become your secret weapon for growth. After all, people are unlikely to order something new if the store offers zero returns, no matter if the item is incorrect or unwanted.

Offering returns — especially a policy that’s flexible and based on customer care — can nudge potential customers to purchase because it:

  • Gives them peace of mind that they can return an item if it fails to meet their needs
  • Tells them their satisfaction matters to you
  • Demonstrates confidence in the quality of your products
formulating your returns policy

Considerations when formulating your returns policy

Most retailers offer return policies to reduce customer risk and incentivize shoppers to make a purchase. But return policies must be carefully formulated to protect you as much as your customers.

1) Who manages returns?

It’s helpful to consider your returns management similarly to your logistics and fulfillment. (In fact, returns are sometimes called “reverse logistics.”) In today’s climate especially, it can feel challenging to manage forward flow logistics, never mind figuring out the reverse flow of goods. For this reason, some merchants choose to outsource their returns management to third-party providers or go through services like Fulfillment by Amazon, Walmart Fulfillment, and more.

In-house returns

In-house returns management means you and your team take care of your returns without the support of an external partner. This type of management typically incurs no additional costs, unless you hire additional staff. If you handle returns internally, it’s critical that you create a streamlined returns management process that’s clearly documented and establish a dedicated returns management team to run it.

Doing this minimizes the messy part of customer returns by, for example, ensuring you receive returns in batches together, separate from your other incoming shipments such as new stock.

You also must have documented workflows, key performance indicators (KPIs), best practices, and training for your returns management. This can include things like tracking traffic distribution, the intake of products (how fast packages are opened, identified, and inspected), and product verification, which determines if the return will be accepted and its next destination.

Outsourced returns

Chances are, you’ve considered investing in or have invested in a fulfillment solution to support your eCommerce business. Outsourced returns management refers to the use of a fulfillment service such as Fulfillment by Amazon (FBA) or a third-party logistics partner (3PL) to support your returns management needs. 3PLs are experts in logistics management, no matter which direction goods are moving. While the cost of using a 3PL is certainly greater than completing it in-house, the expertise from third-party service providers will factor into your business immediately so you’ll realize a greater ROI on your returns management.

  • For merchants using FBA, this service manages returns on your behalf for a fee (generally 50% of the fulfillment fee for that product). You’re also responsible for return shipping, though, in the instances where a buyer received a damaged item, insurance may cover this fee if purchased.

Although most service providers focus on managing the outbound business, many handle returns as an additional add-on service. However, some, like GETIDA, are focused entirely on returns management. GETIDA is actively dedicated to improving the overall operations of Amazon FBA sellers thanks to robust auditing software that can make your returns management much smoother.

How to choose the right solution for your returns management

It can be tempting to do it all yourself, especially if you’re trying to grow your business. But there are times when you simply can’t do it all and need help — either hiring more workers internally or partnering with a third-party vendor.

If the cost of outsourcing your returns management is currently out of reach, managing in-house and having a less flexible returns policy may work best for you to reduce the number of items being returned and keep costs low. But, if you’re able to hire an external partner, the benefits are many.

When you leave returns management to the professionals, your forward and backward logistics will run like a well-oiled machine. If the chaos of managing items coming back into your warehouse is something you don’t have time for, an outsourced partner can take on this burden instead. They’re able to:

  • Streamline operations in the returns process for greater efficiency
  • Grade and sort returns quickly
  • Use existing systems to improve the returns process
  • Move your products where they’ll sell best (if necessary)

If you align your business with a vendor that can recover losses and reduce the environmental impact of your returns, it’s possible they’ll pay for themselves month over month to help you grow.

Warranty vs. returns

2) Warranty vs. returns

For consumers, purchasing products with a warranty can provide peace of mind — even when warranties are limited! A product’s warranty essentially acts as a guarantee to your shoppers that your products will perform as advertised.

Of course, not all warranties are created the same, and they can call into question whether or not a product should be replaced or repaired under that warranty, or if your customer should be able to return a product for a full refund. This can produce chaos without a clear policy in place.

If your products are covered under a warranty, it’s critical they be detailed and understandable. A warranty is created whenever a seller guarantees a consumer that a product is of a stated level of quality and reliability. When the quality or reliability fails to live up to those assurances, the warranty may require the seller to repair or replace it. Warranties come in two types:

  • A full warranty means you’ll repair or replace a faulty product during the warranty period
  • Limited warranties promise the same, but with greater restrictions, such as only covering specific parts or some defects. These often cover replacement parts, but not labor to fix a product

Warranties can also be voided, such as when a product is resold or has been used in an unintended manner. For example, if you sell mobile phones, your warranty may not cover a broken screen or water damage.

When to introduce returns versus warranties

A return will refund your customer the price they paid for their purchase. Depending on your returns criteria (more on that below), products may be ineligible for a return, such as when a product has been used for an extended period of time and still works, but is no longer wanted. If that product is covered by a warranty, you may choose to supply replacement parts or a new unit.

A major question that frequently arises in the use of warranties is whether or not to require your customer to ship their defective or failed product back to you during the warranty period. If you’re providing a replacement, you may wish to receive the original product back in your warehouse for refurbishment or replacement part-use.

This leads us to…

3) What to do with returned items 

Returned goods incur a cost to you no matter how you slice them. If you offer free shipping and returns, you’ll eat the cost of shipping a product both ways, on top of losing the revenue from the sale of the returned item. A way to mitigate these losses is to add value to returned items through a few means.


Sometimes a product was returned simply because it was the wrong fit, not quite right for the customer, or they wound up not needing it. In these cases, you’re probably receiving a new product that could still be in its original packaging — which could be one of your criteria for returning a product for a refund — and so could easily be resold as is.

You could also sell such products as “New, Open Box” and offer a small discount, keeping in mind that storing returned products comes with a fee as well.

In other instances, you may receive returns due to product issues such as defective items or products damaged in transit. When this occurs, you have a few options:

  • You can resell the items, clearly detailing their condition. For example, if a sweatshirt has a hole in it, you might sell it at a reduced price detailing the defect.
  • You can resell its parts. If you sell coffee machines, for example, you can sell parts like the pot or coffee grind basket individually as replacements or extra items for customers who might need them.

Another option for reselling items is to refurbish the product and then sell it, clearly detailing its refurbished status.

Use for parts

Just as you might decide to sell parts from an item (or bundle) individually, you can also keep those parts to use for warranties. This practice can help you recoup some of the cost of the return by eliminating the need to purchase and provide new parts to these customers.

return experience

4) What does the return experience look like for customers?

Above all else, your returns process must put the customer experience first. Consumers are more loyal to brands with streamlined returns policies that quickly credit their accounts. For merchants, it’s important to look at the returns cycle and understand how long customers currently await credit for returned merchandise, as well as how long it takes for you to receive, identify, and inspect returned items.

To optimize returns, keep transparency and visibility at the forefront. Customers want returns tracking as well as progress reports, which require an efficient supply chain. If you have a strategically designed reverse network, you can reduce the time from when a return is initiated to when a customer is refunded. One way to do this is through integration between brick-and-mortar stores and your online store (when applicable), which eliminates steps for consumers and cuts down on shipping costs and returns timelines.

Another way to improve the return experience for your customers is to issue a refund when their return package begins tracking through the shipment company. You can communicate this to the customer with a message along the lines of:

“Thank you for shipping your items for return. We have issued a credit to your account/a refund to your payment method. This is an advanced refund. If we don’t receive the item listed above or it does not meet our returns criteria, we may charge your original payment method. Read our returns policy here for more information.”

5) Exchanges vs store credit

Some merchants choose to offer exchanges alongside or in place of returns. An exchange is when a customer can swap their purchase for another product of equal or greater value (in which case, they’re responsible for paying the difference in cost between the two items). Store credit is sometimes incorporated into an exchange policy, such as if a customer is not ready to purchase another item at that time.

Exchanges and store credits are often provided outside of a returns window and within a new, extended window. For example, you may offer a full refund on returns up to 30 days from the purchase or delivery date, and after that, you offer exchanges or store credit for 60 days. Beyond 60 days, all purchases become final.

Exchanges can help you reduce losses associated with returns by eliminating the need to refund a customer’s payment. Similarly, store credits prevent you from losing your customer’s payment, however, they’ll complete another purchase down the line without a new payment coming in. This may need to be claimed as “deferred revenue” in your accounting books.

6) What are the criteria for returns?

Determining what criteria must be met for returns is an important step in formulating your returns policy. Key requirements to include are:

  • Proof of defect or damage. In some cases, merchants may require customers to show proof of damage or defect by sending in photographs.
  • Product unopened. This is a common requirement for baby items in some regions like Canada and includes items such as baby carriers, strollers, and more.
  • Within the return window. Most merchants have clearly detailed returns windows. These can range from short (10 days) or long windows (up to 90 days). Longer return windows tend to have more benefits though, such as giving customers more time to get used to a product. This can reduce returns in the long run.
  • Product type eligibility. Some products simply can’t be returned safely, such as some health and wellness or personal hygiene products, jewelry, swimsuits, etc. For these items, it’s important your product page states “Final Sale” or otherwise describes the item’s ineligibility for return.
  • Product condition. Merchants may choose to require products to be returned in a particular condition. These might include:
    • New, unopened, or with tags
    • New, unused, or with tags
    • New, damaged, or defective
    • Used, defective (for example, the sole came off a shoe after only one week of wear)
  • Reason for return. Sometimes, returns are only accepted for specific reasons, such as a problem with the item itself. Other return policies may be more lenient and include reasons like:
    • Wrong size
    • Wrong color
    • Did not like
    • Wrong product
    • Product no longer needed
    • The product does not match the description on the website
    • The product did not meet expectations
    • Received wrong item (product, color, size, etc.)
    • Damaged in transit
    • Defective or damaged item

7) Will you offer free returns?

Whether or not you choose to offer free returns depends on a myriad of considerations, from your unique business margins to the reason for an item being returned. For example, some merchants may offer free returns on items that are defective, were damaged in transit, or in cases where a customer received an incorrect item as a result of a mistake made during the fulfillment process. That same merchant may choose to charge a fee for returns when a customer has simply changed his or her mind.

Free returns, however, are an enticing draw for customers to make a purchase. In fact, according to Pitney Bowes, more than half of buyers are unlikely to purchase a product they want if the merchant has a poor or unclear returns policy. When crafting a customer-first returns policy, offering free returns is not only a best practice but also a great strategy for improving your conversion rate.

Returns best practices

Returns Management Best Practices

Once you’ve mulled over all of the considerations for creating the best returns policy for your business, it’s important to follow best practices for returns to add the cherry on top of the ultimate customer experience.

1) Make your returns policy easy to find

Shoppers don’t want to burn calories searching for an elusive returns policy. As mentioned above, when consumers struggle to find a reasonable and clear returns policy, they simply won’t buy. This can hurt your conversion rate and your brand as a whole. To remedy this, make sure your returns policy is obviously visible and accessible.

  • Clearly detail your returns policy on a standalone page on your store’s website. Explain how your returns policy works — like how long your returns window is, eligibility, exchanges/store credit, warranty information, and more. Then, detail what the returns process looks like. Is there a form to fill out? Do customers need to get in contact with your customer service team? This information is important to make the process as easy as possible.
  • Include links to your returns policy everywhere. It should be linked in your store’s home page footer and on every product listing. You might also want to include verbiage like “Free returns,” “Hassle-free returns,” or even “Satisfaction guaranteed” in your product descriptions to drive home how great your returns policy is to customers.
  • Link to your returns policy in all post-purchase communications. This includes order status updates, newsletters, and any other communication you send your customers. To really make your policy shine, consider including it in your marketing messaging by highlighting your flexible returns policy to potential customers.

2) Explore solutions before returns or refunds

Sometimes customers have a problem with a product that can be remedied without a return. Identifying this possibility should be your first order of business whenever a return request comes in.

For starters, working with your customer to find a solution makes for a great customer experience. This demonstrates your commitment to their satisfaction.

Secondly, it can help you save the sale. Paying for return shipping and issuing a refund impacts your bottom line, so finding a solution can protect your revenue.

Some ways to solve customer dissatisfaction include:

  • Offering a complimentary product (e.g., a bag of coffee beans or two espresso cups to go with their machine that arrived in a damaged box)
  • Providing a replacement under warranty
  • Directly connecting the customer with the manufacturer in cases where a manufacturer’s warranty may be at play
  • Providing a credit on their account, or a gift card or coupon for their next purchase
  • Sending a free replacement part

3) Optimize product listings to prevent returns

The best returns management strategy is to avoid returns in the first place. A common reason for returns is customers’ expectations of a product not being met when it arrived. To reduce the likelihood of this occurring, it’s important to optimize your product listings:

  • Write clear product headlines and descriptions
  • Use rich media content like videos and photos
  • Consider using an explainer or demo videos
  • Leverage customer reviews
  • Include similar or complementary product recommendations

Wrapping up — How to formulate your returns strategy

Crafting a returns policy and management plan may seem overwhelming, but it doesn’t need to be complicated. By asking yourself the seven questions above and following our best practices, you can build a top-notch returns policy and improve your processes, your conversion rates, and, most importantly, your customers’ satisfaction.

MyFBAPrep, an international network of eCommerce 3PLs and prep warehouses with 50+ locations, 6M+ square feet of operating space, and the ability to reach any US customer in 1 to 2 days. MyFBAPrep handles item-level FBA prep and eCommerce fulfillment (pick/pack/ship) including Amazon FBM and Seller Fulfilled Prime. They also handle other marketplace fulfillment such as Walmart for enterprise merchants, at-scale forwarding and storage for Amazon aggregators, and B2B retail replenishment services including EDI.

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