How To Write An Effective Refund Policy

For every business, accepting returned items is an inevitable part of doing business. And it's an even greater guarantee for eCommerce businesses. Returned items and refunds represent a significant portion of loss in the retail industry. In 2020, returned items cost U.S. businesses $428 billion according to the National Retail Federation.

Returns and refunds policies are an important part of a successful business as customer acquisition costs continue to rise. While returns do affect profits, a great return policy is an opportunity to deliver a better customer experience. Which ultimately leads to greater retention, repeat business, and long-term revenue growth.

For today’s article, we’ll talk about how a customer-centric return policy can benefit your business. We’ll also highlight Business Best Practices for writing a great Return and Refund Policy. And finally, list some of the most common and standard elements every good Return Policy should address.

Return Policies are an important element of customer retention

The hardest part of creating a return policy is creating guidelines that support the profitability of the business while also keeping customer satisfaction at the forefront. It's imperative that businesses take customer experience into account when crafting their return policy.

In October 2020, Pitney Bowes conducted a consumer survey to gauge what influences consumer purchasing decisions. It turns out a retailer's return policy, and the experience a customer has with a return, has a significant impact on conversions and repeat sales. 

When surveyed, 54% said a poor or unclear return policy would deter them from purchasing. Furthermore, 96% of consumers of consumers would buy from a retailer again if their return experience was “easy” or “very easy”.

A business's policies and procedures have a measurable impact on customer satisfaction. 

Studies show that the return experience has a significant impact on whether a customer will buy from a retailer again. And whether the experience was good or bad, it will also impact the consumer's overall perception of the retailer.

Trust is a major contributor to shopping cart abandonment. Buying items sight unseen is risky. Customers don't want to get stuck with an item that doesn't fit, doesn't suit their needs, or isn't what they expected. 49% of consumers actively check return policies before buying. One 2020 survey found that 55% of consumers won't buy from a retailer if the return policy isn't flexible enough.

Having a solid, yet flexible, return policy shows consumers that you not only back your products, but that you're dedicated to customer satisfaction. This goes a long way to build consumer confidence in your business and its products.

While Return Policies may vary, they should all follow Business Best Practices

Creating an effective return, refund, and exchange policy will differ for each business type, industry, and product. Each business needs to create a Return Policy that fits both their industry and product type and their business needs.

There are no set standards that businesses must follow when writing their return policies. But there are widely used practices in place that have become common and accepted in each industry. It's always a good idea to keep that in mind, so you align your policies with what's expected from your customers. Each merchant should also check with the rules and guidelines for the state they're operating within. 

There are Business Best Practices that should always be followed when designing your return, refund, and exchange policies.  

Return policies should be easily available and in multiple places

Merchants want to make sure their policies are readily available for customers. They shouldn't have to search all over your site for the information they need. You should also make sure the policies are available in more than one location on your website. There should be links on main pages as well as on the checkout page. Merchants also want to include the policies in follow up correspondence with customers such as email confirmations and packing slips. 

Policy “speak” should sound positive and supportive, and be easy to understand.

Keep the customer service tone going throughout your information. Merchants want to make sure they sound supportive of the customer’s needs while informing them how to get what they want. Make sure that even though you are giving direction on how to do a return, you're not bossing them around. Saying things like “you must do this”, or “you're required to do that” won’t be as effective as “please include this”. 

Provide tracking numbers and return process communication 

Keep in touch with your customers throughout the return process. Provide them with a tracking number for the items they’ve shipped back. Keep them apprised of where they are in the process with email and/or text confirmations. These can include emails for return received, exchange processed, exchange shipped, and refund or store credit processed. 

Gather Data

Returns are a learning opportunity. Understanding why certain products are returned can help reduce the frequency in the future. 

Gather as much data on the reasons for return as you can. Create a simple questionnaire for the customer to describe the problem with the item. Don't stop at the obvious. Dig deep. For instance, clothing is a great opportunity to get specific about the problem. Products are often returned due to fit. But rather than stop there, find out why it doesn’t fit. Ask if it runs big or small, then find out where the problem is most commonly occurring. 

Asking about the return can even include reasons unrelated to the product itself, such as finding the item at another retailer for a lower price. 

This information is very valuable. It can help you write better product descriptions, suggest items that better fit their needs, and improve your product catalog.

Be flexible

Return policies are meant to protect your business and your customer. But they are not written in stone. Your staff should be trained to evaluate a situation and override the rules if that's what's needed to make it right.

Common elements of a great Return Policy

When you’re crafting your Return Policy, put yourself in the customer’s shoes. And always keep in mind the importance of the relationship between returns and customer loyalty. This will help you stay in the right frame of mind. 

Even though the details of a return policy can vary depending on the type of items for sale or market, there are a few things all policies have in common.

Let’s go through them:

Timeframe

While it's common for businesses to set a 30 day time limit for returns, some extend their return window up to 90 days. Amazon has a 30-day window, but Target allows customers to return items up to 90 days. You might also consider a combination of time frames. For example, you might allow 30 days for a return with a refund. But extend that to 60 days for an exchange or return for store credit.

You never want customers to feel rushed. The goal is to make sure they have time to evaluate their purchase and get it returned even when busy-ness and life get in the way. And don't forget to consider offering extended deadlines during holiday gift giving.

Condition of the returned item

It's important to clearly detail the condition the item must meet to be returnable. While this will vary depending on the type of product, it's usually good to expect the item to be unused, with tags attached, in original packaging.

Supporting documents required

Be sure to notate any items you want included in the return or exchange. You may want the request to include the original receipt, the order confirmation, and RMA if using, and the packing slip.

Steps required to complete a return

Spell out the exact steps to process a return or exchange.

Indicate whether they must mail the item in the original packaging or use their own. Will you provide a return label included in the package? Or do they need to contact customer service for an RMA number (return merchandise authorization)? Determine who will pay for return shipping.  

Return Exceptions

Are there any items that you cannot allow returns on, such as discounted or final sale items?

Are there items that you will only allow an exchange, but not a refund?

Are there items that require a modified return policy, or shorter return window?

Shipping costs and free returns.

This is a sticky one. Shipping fees, especially for multiple ways on the same item, can get costly. However, shipping costs are a leading cause of shopping cart abandonment. In fact, according to a study by Baymard Institute, 60% of abandoned carts are due to shipping costs.

Consider offering free returns, especially if you don't offer free shipping. Shipping costs are one of the top reasons customers abandon a purchase. They really don't want to pay to ship it back after they have paid to receive an item. Many retailers will offer free return shipping when the customer is exchanging the item or opts for store credit.

Bottom line: If a customer ends up empty-handed without the product they want or need, and they’re out $X for shipping, will they come back and buy again?

Detail how funds will be handled

Merchants need to decide how they will make it right when a customer has an item to return. It is common for retailers to only process refunds to the original form of payment.

Some merchants find it beneficial to offer a refund or a store credit. Better yet, give your customer the option to choose. Rather than wait for a refund to process, many customers prefer a store credit if they know they're going to buy again. Merchants can also choose to offer only a store credit for certain product categories. 

Conclusion

We all know that product returns are costly for merchants. But the value they represent in customer satisfaction greatly outweighs the costs.

Customer-centric policies can help reduce shopping cart abandonment because customers know what their options are before buying. Customer-centric return policies build trust and increase sales and encourage repeat business. 

Strict return policies, on the other hand, lead to shopping cart abandonment and hinder conversions. 

Having clear and concise policies for returns, exchanges and refunds benefits business in many ways. They help you manage customer expectations, so there are no surprises. A solid return policy can help you fight chargebacks when the cardholder doesn't follow the proper procedures for a refund. 

In addition, returns are a great opportunity to upsell or cross-sell. After all, just because the item doesn't meet their needs, doesn't mean you don't have one that does. 

And finally, a flexible return policy coupled with a pleasant return experience can help build customer loyalty. Which is worth its weight in gold.

The experience a customer has with a retailer during a return transaction significantly impacts whether they shop with them again. And a positive, supportive, and frictionless experience can win you a customer for life. When surveyed, 95% of shoppers who had to make a return would make another purchase if the experience was positive. 

Besides, according to the National Retail Federation, often your best customers, who spend the most money with you, also often make the most returns. 

At MonerePay, we specialize in providing customized Enterprise Payment Processing Services. But we're also dedicated to helping our business partners build a successful and profitable business. Even if that means diving into business processes outside the payment processing realm. At MonerePay, we believe "For a business to flourish, they need a payments partner who is sincerely interested in their success". if you're ready to have a true partner in a payment processor, call MonerePay today.