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 online. Just in the United States, Statista estimates return deliveries will cost businesses $550 billion by 2020—a 75.2% increase from four years earlier. Plus, nearly 41% of shoppers buy with the intent of returning.

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 for their money back.

But without a proper system for handling them, these requests 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 great return policy and the right system in place, returns and exchanges can be transformed from a dreaded aspect of commerce 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.

What is a return policy and why do you need one?

Return policies are the rules a retailer creates to manage how customers return and exchange unwanted merchandise they purchased. A return policy tells customers what items can be returned and for what reasons, and the timeframe over which returns are accepted.

Why have a return policy? Getting a return request can be painful both financially and emotionally.

Refunding a customer’s order can result in a loss of profitability, and knowing that someone disliked your product can be disheartening for business owners who 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 poor 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 staff. 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,” and “no-hassle” returns and exchanges to increase conversion rates and online 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 an RMA system for returns and exchanges

If you’re running an ecommerce business, you’ll want to put a return merchandise authorization system (RMA) in place to manage returns in your store. Having an easy returns process 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 returns process, your RMA system can immediately help cut down the customer service hours spent on returns and exchanges.

What is an RMA system?

A return merchandise system helps you handle returns for your customers. It lets customers initiate a return, receive a pre-paid label with an RMA number, and ship the return without taking up your time. An RMA system also helps you manage and track your returns by relisting approved items back into your inventory and monitoring the financial impact of returns on your bottom line.

What is an RMA number?

RMA stands for return merchandise authorization. An RMA number is given to any service order created when a customer needs a repair or if they believe the product isn’t working properly. 

The difference between returns and exchanges

In 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, could mean they just chose the wrong item or the product was broken or ripped. 

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’s return policy page.

How do you set up an RMA system?

Fortunately, retailers today can set up a returns management portal on their websites quickly and easily. You can use a Shopify app like AfterShip Returns Center to manage returns and auto send return labels for free. 

With AfterShip, you can also:

• Create a self-service returns process. Customers can submit returns by themselves in just a few clicks without contacting your support team.

• Set up automated notifications. Send customers updates about their return promptly. You can choose from pre-set notifications or create your own.

• Send shipping labels. You can set returns rules that match your return and refund policy, auto-generate shipping labels, and even offer discounted USPS labels if you sell in the United States. 

A good RMA system not only takes the hassle out of managing return requests, it also creates a delightful post-purchase experience that builds loyalty and turns returns into sales for your business. 

How to write a return policy (+ free return policy template)

Given that 96% of people would shop with a retailer again based on an “easy” or “very easy” return experience, let’s look at how to write a great return policy. 

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

Ecommerce 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:

Please note the following exceptions to our return and refund policy:

Below are some examples of common exceptions: 

• Discounted items are final and cannot be returned or exchanged
• Returned items must have tags still on and be returned in original product packaging
• Returned items must have no visible signs of wear or use

To initiate a return or exchange, please complete the following steps:

Your steps should be laid out clearly, linking to relevant pages, such as your online portal.

1. Login to our online return portal using your email address and order ID.
2. Choose the products you wish to return or exchange from your order.
3. Print the prepaid shipping label that you will receive by email.
4. Send all items back to us using the label provided.

Additional Information:

The following are add-ons with more information that you may want to include:

• How long it takes to receive your refund, replacement product, or store credit
• Any shipping fees the customer will need to pay
• Any return restocking fees the customer will need to pay
• How you handle lost or damaged returns
• Contact information for your business if the customer has more questions

After writing your return policy, use the following video to add it to your Shopify store.

Where to put a standard return policy

It’s not enough to have a well-written return and exchange policy—you must also make sure 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
• Website chat

One great return policy example comes from Chubbies, an online clothing retailer. The brand includes return and exchange questions in its website chat window. You can also start a return with one click. 

If the return and exchange policy is clearly outlined on your website so 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 a lack of trust. 

Tools to power your returns and refund policy

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 shipping and fulfillment and operations sides.

Shopify Shipping and Returns

Returns can be managed directly in Shopify with an easy step-by-step workflow, which includes creating a return request, identifying the return reason, tracking return shipping, and sending notifications to your buyer. You can even use Shopify Shipping to generate and email a return shipping label to your customer, making the process even more seamless. Merchants who use Shopify Shipping also benefit from discounts with carriers for both outbound and return shipping. Return labels are "pay on scan", which means return labels are only charged once they've been used.

Return and exchange apps, like the ones below, are another option. These apps 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 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 its 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 three times more likely to purchase again from the store. This feature helps transform returns and exchanges into repeat purchase opportunities.

Strategies for more profitable returns and exchanges

An unavoidable consequence of offering returns and exchanges to customers is that it’s not 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 it needs to refund the customer any profit made on the original order.

With an exchange, the loss is often less impactful. 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 it will be able to resell the item. 

It can sometimes take up to two 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

One ecommerce returns best practice is to upsell or cross-sell on exchange requests. Although exchanges are usually more profitable than returns, their profitability can 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.

Make sure to adjust your shipping policy for returns and exchanges. 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 purchase price 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 your return and refund policy

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 small businesses 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 shipping strategy to handle return and exchange requests is more likely to retain its 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.

Illustration by Pete Ryan

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