Reverse Logistics : The Unexpected Costs of Returns

Reverse Logistics, also referred to as the returns process, are among the most under-recognized costs associated with the bottom line of an e-commerce business. With e-commerce sales flooding big and small sellers alike, the order return process can be as extensive as the sales process in many cases. According to the National Retail Federation, $428 billion in merchandise was returned in total retail sales in 2020. This number includes in-store returns, which often have fewer added costs due to a store's ability to restock and resell products immediately. And yet, reverse logistics often leave online companies with excess inventory, unforeseen shipping costs, unanticipated labor costs to restock and process return orders.

It's clear since the beginning of the Covid-19 pandemic, there have been many online orders going out and being returned by consumers. Invesp reported that at least 30% of e-commerce purchases get returned, compared to the 8.9% average brick-and-mortar return rate. Many larger companies such as Amazon and Walmart currently accept all returns costs, allowing customers to refund or exchange orders with no questions asked within 30 days. This is because they have the resources and capital to ignore the burden of return orders. However, many smaller companies don't have this option. With that said, 92% of consumers surveyed by Invesp stated they would repurchase something from a company if the order return process were easy. So, e-commerce companies have to decide between losing upfront revenue by being open to returns or losing long-term customers. 

So, what are the best ways to reduce Reverse Logistics costs while still satisfying your customer? 

Be Transparent About Products

Returns are inevitable but, in many cases, avoidable. According to a survey by Digital Commerce 360, returns are mainly the retailer's fault. Of those surveyed, 46% stated the #1 reason they returned items was that they were the wrong size, fit, or color.

Other reasons for returns include: 

• The product wasn't as depicted in its description or product photo; 
• The item arrived broken or damaged;
• The item was delivered later than the customer needed it;

While there are always additional reasons, it's important to note that online sellers can change how often consumers return orders to them by being extremely clear about the item they are selling. 

Set Expectations

If businesses are getting an influx of returns, how do they keep customers happy while still keeping the costs associated with returns low? The best thing to do with consumers is to set expectations. Nothing is more frustrating for consumers than when they don't know what to expect from the returns process. Invesp reports that 67% of consumers check the return policy before purchasing. If a consumer is checking the return policy and is not satisfied with it, they're less likely to make a purchase. First-time customers are expensive to obtain - acquiring a new customer costs five times more than retaining an existing customer, so it is better to attract the right customer that will stay for a long time rather than keep trying to earn new customers.

Create (and Follow) Return Policies

A company return policy generally includes all of the questions that need to be answered about returning orders. Although the return policy will be different for every company, there are four consistent topics that a successful policy includes:

• The specific return time window
• Cost of return shipping
• Time-frame of monetary return 
• Payment form the returned purchase will be received

If you're looking for more tips on a return policy, click here. 

Connect With Great Carriers 

If you can foster a good relationship with a carrier, not only can you negotiate better rates for incoming and outgoing shipments, but you can also implement free return label placeholders to include in product orders that don't cost the business shipping fees until they're used by the consumer and scanned by a carrier. Having a strong partnership with a carrier also allows for third-party drop-off returns at a carrier storefront like FedEx or UPS. If this option is available, it may be more convenient for your consumer. If your business is looking to implement these features, a shipping solution like DesktopShipper utilizes industry partners to fulfill these needs.

Reverse Logistics are no small feat for businesses of all sizes. You're not alone if you feel like your business is spending too much on returns - but there are great ways to reduce costs and streamline your processes. DesktopShipper can leverage extensive industry partnerships to help get your ship together! Sign up for a free demo today!