Each marketplace has its own returns policy, and Amazon is pushing sellers toward accepting all returns. SMBs must develop a policy that fits their businesses.

Rafael Zimberoff, founder, ShipRush

Rafael Zimberoff, founder, ShipRush

One of Amazon’s strengths is its simple returns. A good return policy is key to establishing a satisfying brand experience with customers. Amazon now enhances its brand with an excellent return policy and seamless customer service rather than trying to be the best price supplier.

Large e-commerce retailers tend to have one return policy. In contrast, SMB e-commerce merchants  often sell on more than one marketplace, such as Amazon, and might manage several different return policies. For example, Amazon now requires all third-party sellers to accept “automatically authorized returns.”  This means all merchants must accept returns without having any contact with the customer. In the past, most small businesses focused on output and experienced significantly fewer returns than larger online retailers, so returns were dealt with on an ad hoc basis. This is now changing.

Return policies are no longer an afterthought for small businesses. An upside of marketplace policy changes is that it forces small businesses to comprehensively address how returns factor into their business. Merchants should:

  • Decide whether to standardize/offer consistent return policies. Will there be just one return policy, Amazon’s for example, or will there be different policies for each site, or for different product offerings (e.g., low-end versus high end, etc.).
  • Promote customer-friendly return policies. If the merchant chooses an “Amazon-style” return policy with instant returns and free shipping, then this is something worth promoting upfront as part of the company’s brand, as Amazon does. Make it a promise to your customer for better retention and loyalty.

Different business models require different return policies. Merchants need to realize that marketplace policy changes can have a big financial impact because a company’s return policy is part of its business model and affects profits. Sellers should:

  • Build in the expense of returns to cover costs. SMB merchants can still be successful if their products are priced competitively. New marketplace policies will affect margins if your marketplaces dictate returns.
  • Charge restocking fees or not accepting returns might still make sense. For certain products and industries, free returns might not work financially. Selling on marketplaces that require free returns might not work for some.
  • Right-size their return policy based on standards in a seller’s industry and their own return rates. Different industries may have very low or very high return rates, such as a 2-5 percent for books/videos versus upwards of 30 percent for clothing/jewelry. Sellers will have to evaluate whether a particular marketplace’s return policy works for them and consider their competitors’ policies.
  • Consider return-less refunds if a merchant has a low return rate. Assume it could cost at least $5 to receive the returned item and another $5 to address viability for resale and/or disposal of the returned item.  For orders of less than $50, if there are not a lot of returns it might be more economical to offer return-less refunds.

Right-size automation helps merchants manage returns based on business size and metrics.  Some businesses, such as clothing retailers, assume a large volume of returns are part of their business model. Businesses with high return rates may need a great deal of automation around returns. Merchants should:

  • Implement efficient reverse logistics, such as cloud-based shipping solutions that use barcodes on return labels to quickly identify a customer’s records and the returned item’s SKU will speed the return process, cut down on errors and save time. Install systems to automatically generate and enclose free return shipping labels or offer free online shipping label printing.
  • Think about internal systems. Sellers have their own platforms and systems at the center of their operations. Returned packages sitting on the warehouse floor cannot be effectively put back into stock without the right system in place. The connectivity must flow from the customer, to the warehouse, to the shipper into marketing, sales and accounting systems.
  • Consider a third-party returns processing service could help businesses with high return rates and few fulfillment resources. Many small merchants weigh the benefit vs. cost of using fulfillment and returns processing offered by marketplaces or third-parties.

Preventing returns is usually the best solution. Returns cost more than orders to process. A key part of any company’s strategy should be to use good customer service to avoid the return or fix the sale, rather than receive a returned item. Sold items should “stay sold.” Heading off an unnecessary return is hard when marketplaces allow returns without contacting the merchant. To combat this, sellers should:

  • Process orders quickly and accurately using a good shipping solution that automatically downloads marketplace orders, and limits errors by minimizing the need to re-key customer order and shipping information. Missing/damaged items and exchanges should also be processed rapidly.
  • Provide accurate product availability by connecting e-commerce marketplaces to internal order status, pricing and inventory processes.
  • Make sure customers know what they are buying by offering good product descriptions and images that accurately represent products. Add a customer feedback/review function attached to each product description.
  • Track what products are being returned and why. Develop a “reason for returns” report by manufacturer and SKU. This will allow vendors to troubleshoot to avoid future returns.

Changes in return policies by Amazon and other marketplaces are an opportunity for small e-commerce businesses to take charge of their returns. Use this as a chance to create better customer communication and loyalty, address how returns affect your bottom line, and streamline your logistics.

ShipRush, a Seattle-based provider of shipping software to small and midsized businesses, was recently acquired by Descartes Systems Group, a provider of-demand, software-as-a-service logistics technology.