Online Retailers: Retain Revenue and Save Costs With Returns Management

Online returns are all too often seen as an inevitable loss of revenue by online retailers — discover how to keep money in your business via returns management.

Joseph Thurston
Published on:
October 16, 2023
Share article:

Online returns are all too often seen as an inevitable loss of revenue by online retailers. The vast majority surrender to offering their customers a refund, with little assistance beyond a cold returns address and a customer support email. Indeed, each year, returns cost retailers an estimated $816 billion in lost revenue.

The consequences of poor returns are greater than many companies realize: in our latest consumer study, we found that 68% of consumers wouldn’t purchase again after a negative returns experience, which leads to accrued long-term lost revenue from abandoned customers. In fact, for every order returned, businesses lose 66% of the cost of the original price due to refunds. So say a customer ships back $50 worth of goods: for each return, they lose a staggering $33 – now times that by thousands of order refund requests each day.

But it’s not all doom and gloom. In fact, returns management is arguably a vastly overlooked opportunity for ecommerce brands to retain revenue, save on costs, and deliver a second good impression. While many assume that consumers prefer no-questions-asked refunds, our study found that in reality over half (53%) of shoppers want the flexibility to choose between multiple returns options. Repeat after me: a return does not equal a refund.

Read on to discover how to retain revenue through Returns Management.

Safeguard your profits with item exchanges

Giving customers the flexibility of exchanging multiple items at once can help reduce the number of refunds issued

What are item exchanges?

Item exchanges are when customers return a purchase item for another item from your online store. This exchange could be for the same article in a different size or color, or in some cases another item entirely, with the cost difference accounted for.

How do item exchanges retain revenue?

Exchanges are a win-win for both online retailers and customers as they:
- allow merchants to keep cash in the bank.
- leave customers feeling satisfied as they leave with the item they want.

Offering exchanges due to poor size or fit is a particularly effective way of giving customers positive returns experience, considering that 70% of order returns are due to poor size or fit.

Beyond the immediate revenue retained from exchanging an order, exchanges are fantastic for your bottom line as they give online retailers the opportunity to keep the relationship going with customers.

Ultimately, by keeping customers shopping on their site rather than somewhere else, online retailers are able to significantly increase long-term brand loyalty and Customer Lifetime Value (CLV): research shows that when a company achieves a 7% increase in brand loyalty, the customer lifetime value of each client can rise by 85%.

How can online retailers optimize item exchanges?

While offering exchanges is a great first step in itself, we recommend that you go a step further and implement the following strategies to fully optimize the exchange experience so as to further retain revenue:

  • provide the option for multiple exchanges at once to streamline the returns process and increase customer satisfaction. 
  • grant customers a longer return window for exchanges compared to refunds. For example, offer a 30 day window for returns, but extend the window to an even more generous 90 days for exchanges to show customers their loyalty is important to you. 
  • be proactive in offering exchanges: our recent consumer study found that 90% of customers want easy exchanges, yet 32% of customers report needing to contact the retailer to obtain a return authorization. With solutions such as Shipup, customers can easily make self-service exchanges from their personal account, without needing to go through customer service.

Retain revenue thanks to store credit and gift cards

Offering bonus incentives, such as 10% in store credit, is a great way to persuade customers to choose gift cards or store credit over refunds

What is store credit?

Store credit is an immaterial value that retailers offer customers instead of a standard cash refund. It is only valid from the issuing retailer, and is usually stored on client accounts. Store credit can be indefinite, but also often have a time limit – often around 12 months upon issue.

What is the difference between store credit & gift cards?

Gift cards represent a fixed value rather than a flexible credit balance. They are limited to a specific predetermined amount, unlike store credit where the value can vary depending on the customer’s transactions within the store. Gift cards can come in the form of physical cards but can also be virtual codes to use at checkout. 

How does credit retain revenue?

Unlike refunds, a store credit balance isn’t transferable to other stores or brands, meaning that revenue is retained.

It might surprise you, but our recent consumer study found that 69% of customers would accept store credit without an  incentive.

Why, you ask?

For one, store credit and gift cards empower customers to dive immediately into their next purchase – key in today’s fast-paced consumer environment. These two return options allow customers to bypass the anxiety of having to wait days, if not weeks, for the refund to show up on their bank account, relying on their payment provider and the customer's financial institution to complete the refund in a timely manner. Indeed, it typically takes 5-10 business day for refunds to appear on a customer's bank account.

What’s more, since store credit and gift cards often take years to expire (if ever!), they grant customers the time to carefully select what they want to align with their evolving preferences – an advantage that refunds typically limited to 14-90 day windows simply can’t compete with.

How can online retailers best leverage store credit and gift cards?

  • Offer bonus incentives, such as a 10% discount. Indeed, what many perceive as “free money” can be enough to persuade customers to upgrade to an even better product or splurge on another item they’ve had their eye on. Not only that, but studies have shown that customers are likely to spend more than the total value of a gift card. If a customer has a $20 gift card, for example, they’re likely to spend above and beyond this figure, leading to higher sales.
  • Give customers the flexibility of combining store credit with gift cards or even  exchanges – once again, the majority of customers want the flexibility of choosing multiple return options, so the more choice you give them, the better it is for your business.

See how much money you could keep in your business through effective Returns Management

From exchanges to store credit and gift cards, all of the above strategies offer an efficient way to retain revenue that would have otherwise been lost due to refunds.

We’ve created a handy tool to give online retailers a precise idea of how much revenue they could retain by encouraging customers to request alternatives to a refund. 

Try out Shipup’s Retained revenue calculator for returns