How to Make Your Returns More Profitable: The Returns Management Process Your Business Needs Now

As a retail business owner, you know returns damage your bottom line. The extent of that damage might surprise you.

Narvar estimates that returns cost merchants as much as “$25 to $30 … per returned order with a $100 merchandise value.” Their 2024 State of Returns report blames this high cost on “shipping, warehouse processing, the occasional customer support call, return fraud, and product damage.”

Sure, you can charge a return fee to salvage your profit margins, but then you risk damaging customer loyalty. A 2024 Emarsys study found that 72% of US shoppers surveyed “show greater loyalty to retailers that provide free returns.” And if the return is inconvenient as well as costly, you risk damaging loyalty even more. 

But what if your business depends on return fees to remain solvent? These fees won’t necessarily derail customer retention if the rest of your returns management process is customer-centric. 

An efficient returns management process can also make your business more profitable, to the point where charging return fees might no longer be necessary. Craft your process by building a strategy around these five essential building blocks.

#1: A clear and easy-to-find returns policy

A clear return policy is the critical first piece of any return process simply because online shoppers often start there. The above Narvar study finds that “86% of consumers either read, skim, or know the return policy before purchasing.”

You likely have a good returns policy in place. But can customers find the policy on your site easily? And even more important: can they quickly understand it? If the answer to both questions is no, then the returns experience is already inconvenient, and you won’t boost customer satisfaction.

Famed shoe retailer Zappos sticks an easy-to-see “Help & Support” on the top right of their homepage. It includes a dropdown with “Return Options” as the first selection.

Zappos then uses a series of images and short paragraphs to explain their three returns options.

Jewelry retailer Jaxxon neatly divides their FAQ by topic, making it easy for customers to find the returns information they need.

Jaxxon’s policy includes a link to their Returns Portal, where customers can quickly start a return online with their order number and shipping ZIP code.

Your returns policy must at least include this information:

• The return window (30–45 days is typical).
• A link to your online returns portal.
• Information about online exchanges, if you offer them.
• Whether you require the item’s original packaging.
• Your return fee, if applicable.
• When customers can expect a refund to hit their bank account, if they qualify for one.
• Where customers can drop off returns in person, if you have a brick-and-mortar store.

Finally, if you make any changes to your policy, update your site as quickly as possible. You don’t want customers to feel misled by believing an old policy is still valid.

#2: A knowledgeable and efficient customer service team

Clear return policies are examples of good customer service because they answer customer questions quickly and efficiently. 

Another example is populating your chatbot with a link to your returns policy or portal.

This tactic saves customers the trouble of entering queries to start a return. And if they find the information they need, they won’t open a ticket in your support team’s queue.

But when a customer needs to speak to a human, most won’t hesitate to pick up the phone. As recently as 2023, McKinsey found that 71% of Gen Z respondents still value the “personal touch brought by live phone interactions.”

Your agents have the power to create a positive, revenue-generating returns experience — or one that drives customers away. 

Here are a couple ways to make the experience profitable:

Encourage agents to upsell.

Your agents should have the ability to calm customers upset by the need to return a product. Agents who establish a good rapport with a customer shouldn’t be afraid to upsell them on appropriate products.

Suppose a customer needs to return a $500 phone for a valid reason. The agent could recommend the $750 Pro model as a replacement.

The extra $250 in revenue helps compensate for the expenses related to the $500 phone’s return.

Use support software to help agents better serve customers.

The more information agents have about a customer and their support history, the better the agent can serve — and retain — that customer.

Gladly is a software platform that unites a customer’s calls, emails, and SMS messages in a single feed. Agents can quickly view past conversations for context when a customer calls with a return inquiry. A positive returns experience can quickly go south if a customer has to rehash conversations they had with another agent.

Another Gladly feature routes customers with specific characteristics to specific agents. Suppose a VIP customer wants to return a dress. After the customer identifies her or himself in their initial inquiry, Gladly can route that customer to the agent who has worked with that customer most often.

The customer is more likely to have a positive returns experience, almost guaranteeing that they won’t churn after concluding their support inquiry.

#3: Fraud prevention

Returns fraud is one of the most expensive types of retail fraud. “Fraudulent returns and claims resulted in a $103 billion loss for retailers in 2024,” according to Appriss Retail. With so much at stake, you must make fraud prevention a pillar of your returns management process.

The Narvar survey above blames 75% of unwanted (fraud or abusive) returns behavior on fraudulent activities, including these four customer behaviors:

• Lying about an order, such as claiming that it never arrived when it did.
• Returning an empty box.
• Returning worn items like clothing.
• Keeping an item not intended for them.

Return fraud is difficult to prevent, but with a few safeguards, you can deter customers from engaging in it.

Upload photos to a return portal.

Suppose a customer wants to return a TV they claim is defective. Some customers remove sellable parts from appliances before returning them, a type of fraud known as bricking.

To combat this type of fraud, require the customer to take photos of the TV that zero in on these sellable parts. If the returned item arrives at the warehouse with the parts missing, you know the customer “bricked” it. 

You might think the photo requirement will annoy customers and negatively impact their loyalty. This may be true in some cases. But your returns management process can’t leave your business vulnerable.

Here’s the good news. If customers want to avoid the “hassle” of taking and uploading photos, fewer will consider engaging in fraud. Narvar discovered 58% of fraudulent or abusive returners surveyed would be deterred from attempting fraud if you ask them “to provide a photo of the item and/or packaging to prove damage or condition.”

Issue store credits or gift cards instead of cash.

If a return looks suspicious but you choose to approve it, issuing a store credit or gift card can protect you in case fraud has taken place.

Customers who receive a store credit or gift card must return to your ecommerce store to redeem it. They can’t take a potentially fraudulent cash refund and spend it somewhere else.

Just don’t withhold cash refunds from everyone. If a customer was clearly sent the wrong item and they demand a full refund, it makes sense to approve it.

Track customer returns.

Customers who return products frequently aren’t necessarily engaging in fraud. But whether they are or not, they’re still eroding your bottom line.

If you run your online store with Shopify, you can use its order management feature to track customers who return more often than what you consider reasonable. This returns data allows you to do one of two things:

• Scrutinize these customers’ return requests more closely for fraud. 
• In rare cases, close the customers’ accounts for good. Amazon is not afraid to take this step.

#4: Allow customers to exchange items online

Online exchanges are a buffer against refunds, and they help you retain customers. They give shoppers the opportunity to use the money they’ve already spent on a replacement product. You retain revenue, and the customer gets the new product faster.

Before online exchanges, a customer wanting a replacement product would have this experience:

• Go through the process of returning the original item.
• Wait for the refund to hit their bank account.
• Return to the online store to purchase the replacement.
• Wait for the replacement to arrive.

But there’s the problem with this scenario. While the customer waits for their refund, they might spy a better deal from one of your competitors. With online exchanges, the experience tightens:

• The customer pays for the replacement product with the money they spent on the original.
• The replacement ships out before the customer returns the unwanted product. (If the customer doesn’t return the original, they get charged for the replacement.)

The expedited experience is one reason many customers will choose an exchange over a return. In the Narvar State of Returns report, 40% of respondents said they will opt for an exchange because “the exchange is faster and easier to complete.”

#5: Offer shipping protection

Shipping protection shields you, the merchant, from the financial fallout of return requests in which the customer claims product damage during transit.

It’s costly enough to accept the return of a re-sellable product. But when a customer wants to return a damaged product, you face these costs:

• Shipping for the returned product. If the damage reported by the customer isn’t obvious from the photos they send, you might request a return to better examine the product. (Large merchants like Amazon often let customers keep defective products to avoid this cost.)
• The replacement product itself.
• Shipping for the replacement product.

If you ask the customer to return the damaged product, the customer must wait for you to evaluate it. The longer they wait, the more irritated they become.

Shipping protection takes this concern off your already full plate. When a customer purchases shipping protection from Extend and they experience damage during transit, Extend handles the entire process, including customer service related to the claim. 

Extend will still ask customers to submit photos of the damage, but these photos go through Extend’s claim portal. Once all supporting materials for the claim have been received, Extend usually issues a decision within minutes. 

For approved claims, Extend will most likely send the customer a gift card for the value of the product, plus tax and shipping. Your customers avoid the hassle of returning the damaged product, and you, the merchant, avoid return costs and the need to inspect the product. 

Everyone wins.

Include Extend in your returns management process

At the end of the day, a frustrating return will cost you more than $25 to $30 per returned order. Suppose customers unsatisfied with your return process switch to a competitor. You’ll have lost the money you spent acquiring those customers and any future revenue they might have sent your way.

The best way to avoid this scenario is with shipping protection by Extend. It both offsets the cost of return requests stemming from transit damage and guarantees a great customer experience. 

To learn more about increasing your profitability with shipping protection, read this quick article. Then schedule a demo.