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Profit margin for return/refund policy.



10:01 am on Nov 12, 2004 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member

It seems to me, your return/refund policy is partially based on the kind of profit margin you generate overall for your business. If the margins are low, you might have a no refund/return policy. And if you make great money, perhaps a 100% refund including return shipping is possible.

My concern is that certain industries traditionally have a low profit margin, making a liberal return/refund policies very difficult. Any thoughts on what the right balance is between customer service and generating income?


10:44 am on Nov 12, 2004 (gmt 0)

WebmasterWorld Senior Member topr8 is a WebmasterWorld Top Contributor of All Time 10+ Year Member

remember too that some refund/return policies are set out by statute too.

there has been a recent case in germany for instance ruling that ebay was not an auction and infact was covered by normal mail order rules which are (in germany) that the customer may return legally goods that have been bought 'unseen'

this also applies in the UK

(ps this is my understanding i'm not a lawyer!)


4:56 pm on Nov 12, 2004 (gmt 0)

10+ Year Member

Depending on your industry, a full refund policy may be necessary to increase your customer's sense of confidence . Without it, you will probably see lower sales.


10:44 pm on Nov 14, 2004 (gmt 0)

10+ Year Member

Distance Selling regulations in the UK give people 7 days to return an order. Most customers aren't aware of this, so as we have to comply anyway, we make it a selling point.


8:59 pm on Nov 19, 2004 (gmt 0)

Based on my experience, a robust return policy is absolutely key to developing long-term relationships with your customers.

If your customer sees an unwieldy return policy, it will cause hesitation, and that can dramatically lower your conversion rates.

I've seen several of our merchants change from a 15% restocking fee return policy to a "you just have to pay return shipping" policy, and their sales increased as much as 10%.

As a whole, most e-commerce customers don't return products, but feel that the ABILITY to do so is vital. It's like a buffet... nobody ever eats $10 worth of food, but they like that they could if they wanted to. :-)



11:18 pm on Nov 19, 2004 (gmt 0)

10+ Year Member

As people have said, a generous return policy has more use in making people feel comfortable than in anything else. I have a policy of no questions asked, just send it back in seven days and I will refund the order amount. In five years, I have had maybe five returns and part of those ended up just wanting credit on another item instead of a refund.

Also a thing to remember is a full refund is cheaper than a disguntled customer doing a chargeback.


8:39 am on Nov 20, 2004 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member

I back the restocking fee, for certain product lines like clothing. Otherwise people can use your store like a changing room.


12:46 am on Nov 21, 2004 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member

My return rate is about 2.5% of the total number of products shipped per month. Is that high for a computers/electronics? I imagine it might be higher than other verticals because of returns due to item being incompatible with the customer's setup or the customer is not technically savvy.


8:10 am on Nov 22, 2004 (gmt 0)

10+ Year Member

A sturdy and simple returns policy (or 'risk removal -so called because it removes customer risk) implies you have confidence in your own product, plus helps get the customer over the final bump in the road to purchase. We find when we give refunds that people are pleased to be refunded promptly, which I believe improves their impression of our company even when they didn't like our product.

If I was selling a low-margin product I would use a beefy returns policy to increase my margin.



4:46 pm on Nov 23, 2004 (gmt 0)

10+ Year Member

Sun818, I don't think 2.5% is excessive at all (no personal experience, computer isn't my business).

Online businesses need to have a solid return/refund policy - your customer just won't buy otherwise.

However, there are steps to reduce the return rate:

1. Require a Return Merchandize Authorization (RMA). Your customers would need to contact you via email or phone to get this form that they need to fill out. Remember to include "reason for return" - this way, you can track & address the reason in the future.

2. Full cash back vs. store credit
For high value items, you may want to limit the cash back to a certain period say 30 days, after which it's only store credit.

3. Require insurance on shipping
For high value or fragile items, require your customer to send it back UPS or postal with shipping insurance. This way, if it breaks while in transit, you're covered.

4. Have a troubleshooting FAQ
Since you're selling "complex" items (i.e. things that require installation), you may want start or beef up a troubleshooting FAQ.

That's it for now - anyone got any more tips?


7:26 pm on Nov 23, 2004 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member

hi hfwd - I like the store credit after 30 days. That seems reasonable to me and not have returns be a revenue leak. As a small merchant, it can be difficult to absorb returns as the value of a return is a fraction of the same item new. Sometimes the product can not be returned to the distributor, and the resale value has dropped significantly even within a month's time.

Any thoughts on processing returns from international customers? For USA merchant, I would exclude Canada and Mexico, since the cost of shipping is low. But I am talking about customers on other continents or overseas. The cost of shipping can be significant if the item is a high-ticket item or it is heavy.


7:38 pm on Nov 23, 2004 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member

> It's like a buffet... nobody ever eats $10
> worth of food

.oO(doesn't lunch where my crew munches)Oo. :)

[consumer hat on]
Although I rarely ever return something, when I have needed it, the store didn't have a 15% restock fee. I know this becasue a restock fee = no order from me in the first instance.
[consumer hat off]


7:20 pm on Nov 24, 2004 (gmt 0)

10+ Year Member

In our experience, international return rates are very low - probably because of the hassle involved in shipping it back.

Your customer should pay for the shipping back to you, of course. Unless you have to deal with customs clearance on the return, there is no more cost for you to get the shipment back (right?). Then you can issue a refund.

The issue is if you have to send a replacement - here, you may want to work out the cost of shipping with your customer - they may not want to pay for shipping twice (once for the original order, and another one for the replacement). I think as good business practice, the merchant should pick up this cost.


7:44 pm on Nov 24, 2004 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member

> I think as good business practice,
> the merchant should pick up this cost.

Yes, ideally that is what I would like to do. Picking up the cost of Express Mail shipping for a high-ticket item can be very expensive though. It cuts into the profit margin and most times one has to pay out of pocket to re-ship an exchange or replacement.

Refunding the purchase sounds like a better option since one would be minimizing the loss.


7:57 pm on Nov 24, 2004 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member

>>Distance Selling regulations in the UK give people 7 days to return an order

This is a common misconception. People have 7 days in which to return an order subject to a lot of exceptions. Animals, perishables, and various other goods are excluded. So are bespoke computer systems, any other built-to-order product, opened computer software etc.

Customers have too many rights in the UK, IMHO. And they are surprisingly quick to claim ones that they don't have. If you are selling custom built products you don't need to take any of their "I have a right to return it within 7 days" rubbish. Not even if their usually semi-informed local trading standards tells you so.

(Unless the goods are faulty, not as described or not fit for the purpose. But, don't tell them under what conditions they are entitled to a refund because suddenly the "unwanted goods" will become "faulty" - the UK customer is one of the most crooked in the world according to a recent survey). Get them to first email you the reason for the return as it's more difficult to change the reason once they've committed to it in an email/fax.


8:33 pm on Nov 24, 2004 (gmt 0)

WebmasterWorld Senior Member 10+ Year Member

Oh, and another tip - offer them a 30 day return policy but make it subject to severe conditions in the small print... and subject to a restocking fee. The 30 days is what will catch their attention and remove any sense of urgency. They'll probably then ship the goods outside of the allowed 7 days in which case they can't claim under Distance Selling Regulations but have to claim under your much stricter policy.

Sorry if I sound cynical, guys. I've just been ripped off by customers to the tune of another 600. That makes it 15,000 so far this year :(. That's a small percentage of our turnover but it still hurts.


12:30 am on Nov 25, 2004 (gmt 0)

10+ Year Member

I think you should have a concise and clear refund/return policy. I personally hate to wade through lots of small, tiny text with many exceptions, etc.

Chances are, even then, you will still get customers who chargeback their purchases with complete disregard to store's refund policy.

So, you may unnecessarily inconvenience / scare away bona fide customers while not deterring the troublesome ones.

But, who knows? Every sector is different, what works for you may not work for others.


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