How to Implement a Return Policy That's a Win for Both You and Your Customers

Returns, refunds, and exchanges are all a part of doing business.

Customers might be unsatisfied with their order for a number of reasons—it arrived damaged, they ordered the wrong size, or it simply didn't meet their expectations. So they ask for a replacement or their money back.

But without a system for handling these requests, they can eat up a lot of time, energy, and money with hours spent on customer service emails, and spikes in shipping expenses for replacement products, especially after the holidays.

The good news is that it’s never too late to address the problem. With a clearly communicated return policy and the right system in place, returns and exchanges can be transformed from a dreaded aspect of ecommerce into an opportunity that actually generates new profits for your business and increases customer loyalty.

But before we dive into how to write a return policy for your store and implement a system to handle requests, let's talk about why it's so important to get returns and exchanges right.

1. How customer returns impact your business
2. Setting up a system
3. How to write a return policy
4. Return policy template
5. Where to surface your policy
6. Choosing a service to power your process
7. Strategies for more profitable returns and exchanges
8. Making the most of returns and exchanges

How returns and exchanges impact your business

Getting a return request can be painful both financially and emotionally.

Refunding a customer's order can result in a loss of profitability on orders, and knowing that someone disliked your product can be disheartening for business owners that strongly believe in the benefits of what they sell.

For these reasons, it can be tempting to ignore the reality of returns and exchanges and leave the mounting problem unaddressed.

The pitfalls of a poorly implemented return policy

Over time, however, customer complaints about your return policy can start to filter onto social media, showing up as comments under your ads or even in Google searches about your business. This is where a poorly implemented returns system starts to negatively affect your overall reputation as a business. If bad sentiment about the buying experience starts to spread online, it is likely you will see a drop in conversion rate.

Processing every return manually and dealing with customers on a case-by-case basis can also be expensive for your business operations and exhausting for customer service employees. If the time and expense to process a return or exchange isn’t monitored and optimized, it can even prevent you from scaling your business.

At some point, most businesses will need to figure out a solution for returns and exchanges that benefits themselves and their customers.

The advantages of a customer-centric return policy

Many innovative businesses have recognized that a customer-centric return policy is a powerful marketing tool.

According to UPS, 68% of shoppers check a website’s return and exchange policy before making a purchase. That’s why many brands now advertise "free", "easy", "no-hassle" returns and exchanges to increase conversion rates and purchases.

A return policy that benefits the customer is often the differentiator between businesses with a strong repeat purchase rate and those that rely on one-time purchases only. As the cost to acquire customers rises, many businesses are looking at how to retain customers and increase their lifetime value.

Although a return or exchange may not make a business profitable on first purchase, the better customer experience is more likely to lead to a higher retention rate and long-term revenue growth.

Lastly, your reputation will benefit most from offering easy returns and exchanges to customers. According to Nielson’s Global Trust in Advertising Report, 66% of people surveyed trust consumer opinions posted online. These positive customer reviews and word-of-mouth recommendations about the buying experience will pay off as free marketing for your business that will allow it to thrive in the long-term.

Setting up a system for returns and exchanges

Having a system can take the pain out of returns and exchanges for both the business and its customers. Whether you’re receiving your first return request, or are trying to repair a flawed process, creating a system can immediately help cut down the customer service hours spent on returns and exchanges.

Returns vs. exchanges

In traditional brick-and-mortar retail the distinction between returns and exchanges is less defined. With physical stores, a customer doesn’t need to decide whether they want to return or exchange an item until they are in a store speaking to a sales rep.

With ecommerce, the customer usually decides independently if they want a return (which signifies a refund) or an exchange (usually for a gift card or a replacement product of equal value).

If a customer wants a return, they are communicating that the product did not meet their expectations for one reason or another and want a refund. An exchange on the other hand, means that they were satisfied with the quality of the product and the buying experience, but chose the wrong item.

It is important to distinguish early on in your system which of the two categories the customer falls into, so you know how to process their request. Whether a product is eligible to be returned or exchanged, or both, should be considered before it is sold and clearly stated on your website in your return policy page.

How to write a return policy (Plus a template)

The first step to setting up a system to handle returns and exchanges is formalizing your policy so you can communicate it clearly to your customers. A written return policy allows you to treat all requests the same, and avoid the tendency to handle things on a case-by-case basis, which is often less productive and more expensive.

Policies will vary depending on the logistics of your business and the products you sell, but every policy should cover the following basics:

• What items can be returned
• What items can be exchanged
• What products are "final sale" (non-returnable, non-exchangeable)
• When things can be returned or exchanged (e.g. 30, 60, 90 days post-purchase)
• In what condition can items be returned (e.g. lightly worn, with tags still on, etc.)
• What products can be returned for (store credit, refund, a product of equal value, etc.)
• How to initiate a return or exchange (e.g. an email address to contact or a web page to visit)

Return policy template

Below is a basic template for a return policy that can be adapted to fit your business. Just replace the bolded text with your own policy and use the lists as a guide to ensure you don’t forget to include any important information:

Where to surface your return policy

It is not enough to have a well-written return and exchange policy—you must also make sure that customers see it before they buy. When talking to a frustrated customer who is trying to return an item marked as final sale, simply telling them it’s their fault for not reading the policy is unlikely to resolve the issue.

Include links to your policy in several hard-to-miss places throughout your website to save time going back-and-forth with customers who did not see the policy. A few key places to list your policy include:

• Your website footer
• FAQ page
• Product page
• Cart
• Checkout

If the return and exchange policy is clearly outlined on your website, so that it can’t be missed by customers, the right expectations will be set before the purchase is made. There will likely be some customers who are unsatisfied with your store's policy, but hiding the policy in fine-print only leads to more frustration.

Choosing a service to power your process

Just like having a formal return and exchange policy will help eliminate some of the hours spent on customer service, using the right services for processing returns and exchanges will save you both time and money on the fulfillment and operations side.

Shopify Shipping

Shopify has built-in features that allow you to manage returns and exchanges, including the ability to generate return shipping labels for orders. Return labels are “pay on scan”, which means return labels are only charged once they have been used. Shopify merchants benefit from steep shipping discounts with carriers.

Return and exchange apps, like the ones below, make processing returns and exchanges more self-serve for customers by offering a portal where they can make a return request, download a return shipping label, or choose products they want to exchange an item for.

Return Magic

Used by over 2,000 ecommerce stores, Return Magic is a return and exchange solution that easily integrates with your existing logistics system.

Return Magic also uses the Shopify product tags to allow businesses to set up customized rules for returning and exchanging certain products:

For businesses that sell a wide variety of products with different return rules, being able to customize your policy with these triggers can save valuable time going back and forth with customers.

Advanced features like these prove that return and exchange rules don’t need to be one-size-fits-all. Special circumstances, like buying during a flash sale, can still be taken into consideration within an automated system.

Returnly

Returnly is one of the larger self-service returns providers for ecommerce stores. The app provides online stores with their own customizable “Returns Center”, which customers can sign into using their order number or email address to access their past purchases and select items they wish to return.

On the merchant side, Returnly offers the option to purchase pre-paid shipping labels through the app and get access to their shipping rates, or the ability to upload your own shipping labels to send to customers. This customization extends to almost all other aspects of the return flow, where you can decide what products customers can return or exchange, who pays for the shipping label, and whether they are given a store credit or full refund.

One of Returnly’s main differentiators is its Instant Refunds feature, which offers customers a store credit they can use to reorder before sending back their original purchase. If the customer does not return the product but uses the Instant Refund credit, Returnly covers the cost. By providing an immediate store credit, Returnly found that shoppers were 3 times more likely to purchase again from the store. This feature helps transform returns and exchanges into repeat purchase opportunities for a business.

Strategies for more profitable returns and exchanges

An unavoidable consequence of offering returns and exchanges to customers is that it isn’t cheap. Although you can cut down on customer service hours with an app, the shipping fees associated with returning a product and restocking it can still threaten your profitability.

However, there are a few ways to minimize your losses while still offering returns and exchanges to customers.

1. Turn returns into exchanges

The difference between returns and exchanges is most prominent when looking at profitability. When a customer returns a product for a refund, the business usually loses money on the customer acquisition and return shipping costs, plus they need to refund the customer any profit made on the original order.

With an exchange, the loss is often less detrimental. With strong product margins, offering a replacement product instead of a full refund can keep your business cash flow positive.

A common way to encourage exchanges over returns is by only offering to cover the cost of return shipping if the customer chooses to exchange the product.

When presented with the three options above, the choice to get a store credit or new product may be more appealing to those who have not fully sworn off your brand. Convincing customers to give your brand a second chance with a new order can also help improve lifetime value, as they are more likely to come back and purchase again if they are satisfied the second time around.

Chubbies takes this extra value-add for exchanges a step further, by offering an additional $10 in purchase value if customers decide to buy a new product with their return credit:

By only making the exchange option more valuable, and not penalizing customers who just want to return, Chubbies creates a positive customer experience for everyone, while encouraging more customers to choose exchanges instead of returns.

2. Sell product warranties

When a customer chooses to return a product for a refund or exchange, one risk a company often takes on is whether or not they will be able to resell the item. It can sometimes take up to 2 weeks for a product to re-enter stock after a return is initiated, and the time spent in transit and unpacking can often leave it damaged. If the product is expensive, replacing it might not be an affordable option.

For more expensive items, companies may want to consider selling product warranties to customers. Warranties protect businesses against paying to replace damaged products and avoiding disputes over who is to blame.

Warranties can be sold through an app like Clyde, which can be added to your website to put the decision to protect the order back in the customer's hands:

Warranties like this can also have the potential to unlock a new revenue stream for your business, since the providers often offer a commission on all premiums sold. That way, your customers are protected for a longer term and your business collects a little extra revenue instead of paying for damaged goods.

3. Upsell or cross-sell on exchange requests

Although exchanges are usually more profitable than returns, their profitability can still be narrow depending on the product and its margins. If exchanges are still costly, it might be a good idea to look at upselling or cross-selling on exchanges.

When a customer comes back to your website to use their store credit, there is an opportunity to show them new products they did not purchase the first time around that compliment what they’re exchanging for.

Various Shopify apps can be used to show customers related products at checkout.

In cases where customers cover the cost of shipping on an exchanged item, it may make sense to allow them to add more products to their cart to reach a free shipping threshold. Upselling is also possible when you know the reason for the exchange and can make a personalized recommendation for a higher priced item that addresses the specific needs that weren’t satisfied on their first purchase.

For example, if a customer is exchanging a digital camera because they found that it was too heavy, you can recommend a lighter-weight version that might have a higher price point, but resolves the issue they had with their first order.

Looking at every exchange as a new opportunity to increase order value by upselling or cross-selling, the incentive to convert more returns into exchanges becomes clear.

Making the most of returns and exchanges

No matter how much effort you put into your product and customer experience as you grow your business, chances are you will still encounter a few unsatisfied customers along the way.

How you decide to deal with these unsatisfied customers is an important factor in the staying power of your brand. A company that figures out a relatively painless way to handle return and exchange requests is more likely to retain their customers and have them come back and purchase again or, better yet, tell their friends.

Writing a clear return policy that feeds into a well-thought-out return and exchange system—and regularly optimizing it to make it more efficient—is a powerful way to cut costs and potentially turn a bad customer experience into a net positive outcome for your business.