10 tips for creating a customer-friendly returns policy

If you love something, set it free. If it comes back, someone’s gonna have to pay for return shipping and a restocking fee.

Returns and exchanges are just part of the retail experience, especially now that people are more comfortable buying online. Unfortunately, many retailers have been slow to react to the increasing costs of returns — from the shipping costs, to supply inequities, to tax compliance complications.

There was a time when limited or complex returns policies were fairly common. Some retailers just wouldn’t accept returns at all. But with liberal returns policies from companies like Nordstrom, Costco, and L.L. Bean cited as cause for intense consumer loyalty, the freedom to return and exchange merchandise has become a competitive advantage.

So how do you balance your returns policy to satisfy customers without sacrificing your bottom line? The answer varies based on what and where you sell, as well as who your customers are. Here are 10 key considerations for drafting a successful returns policy, organized under four topics:

Determine how to accept returns
Establish a returns window
Reduce the cost of returns
Communicate with customers

If you’re an ecommerce retailer with ties to brick-and-mortar locations, you can let customers choose between shipping a return or bringing it to a store.

The latter option saves on shipping costs and can make it easier for you to put the merchandise back on the sales floor.

If customers have to send back returns, include a prepaid shipping label in each order. This gives you more control over the returns process, such as which carriers or services can be used. And contrary to what the name implies, you’ll only pay for the labels that are actually used.

It also brings peace of mind to consumers: Buyers know they can simply drop the package with the shipper if they want to return or exchange the goods.

Different products require different trial periods. For instance, the returns window for electronics is usually around a couple of weeks. On the other hand, several online mattress companies allow 90 days or even a year.

If you give customers too much time to return products, you can create back-end headaches and increase the chance products will be returned after they’ve been updated or are out of season.

However, if shoppers don’t have enough time, you run the risk of negatively impacting customer experience or losing a sale to a competitor.

Your returns window needs to accommodate a reasonable amount of time for customers to either fall in love with your product or realize it’s not for them.

Let’s talk about a different kind of return: the sales tax variety. Product returns can create tax headaches if they occur after you’ve already remitted the sales tax you collected on the order.

• If a product is returned before the collected sales tax has been remitted to the tax authorities, retailers may be able to simply refund the tax due to the customer and the numbers net out.
• If a product is returned after sales tax has been remitted and sales tax returns filed, retailers will need to complete the process for sales tax reconciliation.

How often you’re required to file can impact how problematic merchandise returns can be for sales tax compliance:

• If you’re remitting sales tax annually, you’ll need to submit fewer corrections, even with a longer returns window.
• If you’re filing every month in one or more states and you allow returns for 90+ days, you may need to create a reconciliation process.

While the holidays are a stalwart example of retail seasonality, peak sales periods are different for each industry. When crafting a returns policy, it can be helpful to consider when (and why) your sales boom hits — and relaxing the rules to accommodate consumer habits.

Using the holidays as an example, adjusting a returns window to begin after Christmas or on January 1 gives your customers (especially those early holiday shoppers) peace of mind that if their gift is a dud, the recipient won’t be stuck holding the bag.

Being more flexible after a tax-free weekend or peak seasonality for your product can create a better customer experience and repeat business, particularly when there’s typically a delay between purchase and use.

Eliminating returns altogether can create serious customer experience woes. But limiting free returns to, say, during the holidays or only on full-priced items can strike a balance between keeping customers happy and reducing returns-associated losses.

Charging for shipping can be a bit dicey, depending on what your competition is offering. A lot of consumers expect free shipping, but even charging a minimal fee can help offset the cost of returns.

In some cases, it can also help curb serial returners or impulse shoppers from making noncommittal purchases they’re expecting to return as soon as they hit “confirm order.”

If charging for shipping isn’t an option, you can consider raising your prices as an alternative. With returns impacting 16.6% of retail sales in 2021, adding 2% or 3% to the purchase price of each product allows the remaining 83.4% of orders to help balance the books.

As with shipping charges, this approach requires an assessment of the competition. After all, pricing yourself out of initial sales really defeats the purpose.

Whatever you land on for your returns policy, make sure customers know the details before they buy. A few options:

• Make the link to your policy conspicuous on item detail pages
• Prominently label products that are nonreturnable or final sale
• Display a clear, concise policy description on your cart summary page
• Require buyers to accept the returns policy before submitting their order

The last thing you want is for a customer to feel duped by an obfuscated or complex returns policy.

Communicating with customers about refund or shipping status can go a long way toward heading off issues.

For online returns, confirm the return has been authorized, the refund has been processed, and when the customer should expect the funds.

When things get off track, proactively reaching out to customers about errors and how they’ll be resolved can turn negative experiences into positive, or at least neutral ones.

When you’re creating a returns policy, it can be helpful to think about your own experiences and how they’ve affected the way you shop. If a policy has rubbed you the wrong way, it’s likely your customers would feel similarly.

The best way to keep your customers happy is to start with the most flexible policy you can, and scale it back where your business model and profit margin requires. The goal is to balance customer experience, competitive edge, and bottom line.

For more information about returns policies, read our previous blog about tips for drafting your ecommerce return policy.

You can also learn more about how Avalara can reduce the tax complexities associated with returns via automation.