Did you know that you can actually improve your ROI by managing returns effectively?
That’s right! By reducing return rates, automating the returns process, and managing inventory efficiently, you can boost your bottom line and increase your store’s profitability.
Table of Contents
What is eCommerce ROI?
Return on investment (ROI) in the context of eCommerce is a metric that measures how much profit you make from your online business relative to the money you invest in it.
A positive ROI means that your store is profitable, while a negative ROI means that you are losing money.
Measuring your ROI can help you make informed decisions about where to allocate your resources to increase profitability.
How to Measure eCommerce ROI
In order to measure your eCommerce store’s ROI, you first need to calculate overall revenue and profit over a certain time period. Revenue refers to total sales, and profit is revenue minus costs like inventory, marketing, payroll, etc.
Next, compare the profit to the costs. Divide your profit by the costs, and then multiply by 100 to get the percentage.
A simple ROI formula is: Profit / Costs x 100
Monitoring revenue, profit, and ROI metrics over time reveals the growth and profitability of your eCommerce business.
How eCommerce Returns Affect ROI
Understanding the intricate relationship between eCommerce returns and ROI is essential if you want to maximize your profits.
The profitability of your business can be significantly impacted by product returns, as when customers return products, it affects the revenue generated from sales, as well as the costs associated with processing returns, restocking items, and issuing refunds.
Managing returns effectively is essential for maintaining a positive ROI, since reducing return rates and optimizing the returns process can help minimize profit loss.
Direct Financial Impact
1. Loss of Revenue
Returns directly impact your revenue. When a customer returns a product, it results in a loss of the initial sale. This reduction in revenue can have a notable effect on your bottom line, especially if your return rates are high.
2. Return Processing Costs
Processing returns involves additional costs, including customer service labor, shipping fees, restocking expenses, and refurbishing or disposal costs for returned items. These costs can quickly add up and impact your profit margins.
3. Inventory Depreciation
Returned items often can’t be resold at their original price, especially if they’re not in good condition. Inventory depreciation can result in you discounting and reselling returned items or liquidating them, lowering their value and reducing your profit margin.
1. Customer Satisfaction
While returns can seem like they’d be a negative thing, handling them well can improve customer satisfaction. A seamless and hassle-free return process can enhance your brand’s reputation and customer loyalty, leading to repeat purchases and positive word-of-mouth.
2. Repeat Purchases
A positive return experience can encourage customers to make repeat purchases. If customers know they can return items quickly and easily, they’re more likely to become loyal customers.
3. Customer Acquisition Costs
Efficient returns management can reduce the costs associated with attracting new customers, as satisfied customers are more likely to refer others, leading to lower customer acquisition costs and a higher return on your marketing investments.
4. Turning Returns into Opportunities
Returns can be an opportunity to retain and even generate new revenue. By offering store credit, exchanges, and upsells, you can regain lost revenue and even boost the initial purchase value.
How to Maximize ROI With Effective Returns Management
By focusing on things like reducing costs, retaining revenue, and turning refunds into opportunities, you can enhance your profitability while providing an excellent customer experience.
Here are some ways you can maximize your ROI through returns:
Reduce Return Costs
Reducing return costs directly contributes to improving your ROI by lowering operational expenses and retaining the original revenue generated from sales.
Here are some strategies to minimize returns costs:
- Streamline Workflow – Eliminate unnecessary steps in the return process to enhance efficiency and cut down labor costs. Automate the validation, processing, and disposal of returns to reduce overhead costs and ensure fast and accurate returns processing.
- Set fees – Charge restocking or handling fees for large items or long-distance returns to help recover some costs and discourage unnecessary returns.
- Analyze data – Regularly analyze your returns data to identify areas where you can improve. Use these insights to refine your return policy, improve demand forecasts, and prevent fraudulent returns.
By implementing these strategies to minimize return-related expenses, you can allocate your resources more efficiently, boost customer satisfaction, and retain more of your revenue.
Retaining revenue from returned items can have a substantial positive impact on your eCommerce ROI. When a customer initiates a return, you have an opportunity to recapture or even increase the initial transaction value through smart refund alternatives.
While direct refunds are often the go-to way to deal with a return, offering customers alternate choices such as store credit, gift cards, and exchanges creates opportunities that will keep revenue in your store and keep your customers coming back to buy more using the credit.
When a customer receives store credit or a gift card instead of a refund, they are more likely to use that credit to make a purchase from your store in the future.
This helps retain the original revenue generated from the purchase while also increasing the potential for future sales, contributing to improved customer loyalty and overall ROI.
Turn Refunds Into Exchanges
Instead of processing a refund immediately, offer customers the option to exchange their returned item for an alternative product. Exchanges retain revenue and transform the return process into a positive shopping experience.
There are several benefits to offering exchanges over refunds:
- Retains revenue – Customers exchanging an item for a different one enables you to retain the revenue from the original sale.
- Improves the customer experience – When customers are able to easily exchange an item for a different one, they are more likely to be satisfied with their purchase. This can lead to repeat business and positive word-of-mouth.
- Offers an upselling opportunity – Exchanges offer a valuable upselling opportunity by enabling customers to exchange a returned item for a more expensive item. Customers who have the option of exchanging for a higher-priced item by paying the difference may choose products they hadn’t previously considered.
Here are some tips for encouraging exchanges in order to increase your store’s ROI:
- Offer a generous exchange policy – The more lenient your exchange policy is, the more likely customers are to exchange items instead of asking for a refund. For example, you could offer a 14-day policy for refunds and a 30-day policy for exchanges.
- Make the exchange process easy – The easier it is for customers to exchange an item, the more likely they are to do so. Make sure that your exchange policy is clear and easy to understand, and that you have an automated process in place for processing exchanges quickly and efficiently.
- Incentivize exchanges – You can offer customers incentives to exchange items instead of getting a refund, such as a discount on their next purchase or free shipping on exchanges.
By encouraging exchanges over refunds you can retain revenue, improve the customer experience, and reduce the number of refunds, leading to a more profitable and sustainable business.
Automate Returns Processing
Automating the returns process is a key strategy to enhance operational efficiency, reduce costs, and improve the overall customer experience.
By utilizing return management software like ReturnGO, you can offer customers self-service return options while streamlining your internal workflows.
Managing returns with ReturnGO can help you improve your ROI in a few ways:
- Efficiency – ReturnGO automates the returns process, reducing the time and effort required to handle returns manually. This efficiency saves operational costs while freeing up your team to focus on other revenue-generating activities.
- Cost savings – By automating communication, label generation, and tracking, ReturnGO minimizes the need for manual intervention. This results in lower labor costs and resource allocation, which can be redirected towards driving sales and growth.
- Improved customer experience – ReturnGO provides a seamless self-service return experience for customers. The convenience and simplicity of initiating and tracking returns contribute to higher customer satisfaction and retention rates, ultimately leading to repeat purchases.
- Reduced friction – The automated nature of ReturnGO’s process reduces the potential for errors and delays in the returns process. This reduces customer frustration and negative experiences, further strengthening your brand’s reputation.
- Data-driven insights – ReturnGO offers valuable analytics and insights into return patterns, helping you identify areas for optimization. By understanding return reasons and trends, you can make informed decisions to reduce returns and improve product quality.
With the time and resources saved through automation, you can redirect your efforts towards revenue-generating activities, increasing your eCommerce ROI.
Chat with our experts to boost your customer return experience and LTV today.
Resell Returned Products
Maximizing ROI involves finding creative ways to recapture value from returned products. Reselling returned items at a discounted price can minimize losses and help recover some revenue.
Lightly used products can be sold on your store as open-box items, at a discounted price. For large quantities, bulk liquidation to resellers is an option.
Thoroughly inspect each return first and refurbish if needed – test functionality, clean, and replace parts and packaging. Transparently describe its condition and offer a short return window to manage expectations. Promote open box inventory on-site and via ads to attract deal-seeking shoppers.
While reselling returns nets less than the original price, it beats losing the entire transaction value. Viewing returns as inventory to monetize rather than waste boosts ROI.
Reduce Return Rates
Return rates are the percentage of products that are returned, and they can have a significant impact on your store’s ROI.
A high return rate can mean that you are losing money on returns, as well as the time and resources it takes to process them.
A low return rate, on the other hand, can help you improve your ROI by reducing costs and increasing customer satisfaction.
The average eCommerce return rate is 19%. Keep an eye on your return rate to ensure you’re getting a good ROI.
Here are some tips for reducing your return rates and increasing ROI:
- Provide clear product descriptions – Enhance your product descriptions with detailed information and high-quality images.
Accurate and comprehensive descriptions help customers understand what they’re buying, reducing the chances of returns due to unmet expectations.
- Display user-generated content – User-generated content (UGC) such as product reviews and customer photos can be effective in reducing return rates.
Providing customers the opportunity to get first-hand feedback can help them make informed buying decisions and reduce the likelihood of returns.
- Implement quality control – Establish an effective quality control process to ensure that products are shipped in optimal condition.
By minimizing the chances of shipping defective or damaged items, you can decrease return rates and boost customer satisfaction.
By implementing these measures, you can create a more seamless customer experience, lower your return rates, and maintain a high ROI.
Improve Inventory Management
Improving inventory management is a critical factor in optimizing your ROI and profitability.
Effective inventory management requires a strategic approach to ensure that your available stock aligns with customer demand while minimizing excess inventory costs. This reduces the chances of overstocking and understocking situations while improving operational efficiency.
Make sure to forecast demand and plan inventory accordingly in order to make informed decisions about the stock quantity to order and keep in stock, preventing scenarios where products are unavailable or where excess inventory ends up being written off.
Utilize data analytics to identify trends and seasonal fluctuations, allowing you to adjust your inventory levels accordingly, and ensuring that you have the right products available at the right times.
As a result, your business will be better positioned to respond to changing market conditions and customer needs, leading to reduced return rates and a more efficient workflow.
Analyze Returns Data
Returns data provides valuable insights into the patterns and reasons behind returns, enabling you to make data-driven decisions to improve your products and processes.
By closely examining trends in returns data, you can identify common issues leading to returns such as sizing problems, defects, or discrepancies between customer expectations and the actual product received, enabling you to take targeted actions to address these issues and reduce return rates.
Furthermore, analyzing your returns data can help you make decisions about discontinuing or improving certain items that consistently generate a high number of returns. This enables you to improve your ROI and streamline your product offerings.
Some of the insights you can gain from your returns data include:
- The most common reasons for returns – This can help you pinpoint areas where you need to improve your products or customer experience. For example, if a lot of returns are due to sizing issues, you may need to improve your sizing guide or offer more size options.
- Most frequently returned products – This can help you identify products that aren’t meeting customer expectations, so you can improve the quality of these products, discontinue them, offer them at a lower price, or restrict returns of them.
- Customers who are most likely to return items – This can help you figure out which customers most frequently request returns. You may need to improve your communication with these customers or restrict their returns.
- Time of year with the highest return rates – This can help you plan your inventory levels and your marketing campaigns. For example, if you sell seasonal products, you might need to increase your inventory levels in the lead-up to the holiday season.
ReturnGO tracks all these aspects of returns and also provides you with actionable insights, enabling you to optimize your strategies and processes and increase your store’s ROI.
Case Studies: Increasing ROI Through Effective Returns
Here are some examples of eCommerce stores that optimized their returns process to boost their ROI and drive up profits.
Underoutfit, an innovative activewear & underwear brand, faced challenges with high return rates due to incorrect product sizes and restrictions on restocking worn items.
To tackle this, they introduced store credit and variant exchanges as alternatives to refunds.
Within a year, refunds decreased by 25.6%, while sales increased, and variant exchanges made up 19.8% of returns.
“We have always seen high return rates because of size reasons, but since we started using ReturnGO our refund rate dropped by 25.6%.”Felix Leshno, Co-Founder and CXO, Underoutfit
As a result of optimizing their returns process with ReturnGO, Underoutfit has experienced an increase in profitability in the following areas:
- The introduction of store credit led to a 16.4% boost in new revenue as customers who redeemed it spent more.
- By offering customers the option to donate the item or keep the item instead of shipping it back, Underoutfit lowered their reverse logistics costs and improved their sustainability.
- Customer support requests decreased tremendously due to the simplified return process, saving them thousands of dollars each month.
Implementing these returns management strategies improved Underoutfit’s ROI, minimized refunds, and improved the customer experience.
Read the full Underoutfit case study.
Travelpro is a leading manufacturer of luggage and suitcases with a reputation for innovation and quality, with products sold in over 100 countries.
The company had a high volume of returns, and the manual process for processing returns was time-consuming and inefficient. This was especially a problem during the holiday season, when the company received a surge of returns.
Travelpro implemented ReturnGO’s returns solution to automate its returns process, eliminating the need for customer service agents to manually generate return labels and send them to customers. Instead, customers can generate their own return labels online and print them out.
“With ReturnGO, you create a return portal on your site that offers a similar, and even easier, experience to major retailers like Amazon or Target.”Mark Costigliola, eCommerce Operations Manager, Travelpro
Automating the returns process has paid off in a number of ways, including:
- While the manual process they had previously for processing returns took 15-20 minutes per return, the automated process with ReturnGO takes just 90 seconds.
- Customers appreciate the convenience of being able to generate their own return labels online, leading to improved customer satisfaction and repeat purchases.
- Automating the returns process has saved Travelpro thousands of dollars in labor costs.
- The automated process has made it easier for Travelpro to process returns at scale, even during peak seasons.
Overall, using ReturnGO has transformed Travelpro’s returns process and improved its ROI by reducing return processing time, improving customer satisfaction, and saving money.
Read the full Travelpro case study.
3. Silk & Salt
Silk & Salt is an eco-conscious fashion brand that ensures that the fabrics they use are ethically sourced and that their packaging is sustainable. The company is committed to providing a great customer experience, and they knew that their returns process was an important part of that.
Silk & Salt faced a number of challenges with their returns process.
1. They lacked visibility into the return process, not knowing how many returns came in, what the reasons for the returns were, or how long it was taking to process them.
2. The returns process was time-consuming and inefficient. Customer service agents had to manually process each return, which took up a lot of time.
3. The company was losing money on returns. The cost of processing returns, including shipping, restocking, and refunds, was eating into their profits.
Silk & Salt automated the returns process with ReturnGO to address these challenges, giving Silk & Salt the visibility and control they needed.
“In apparel commerce, it’s very important to know how to benefit from your reverse logistics, and not drown in it.”Assaf Neuman, Head of Operations, Silk & Salt
Streamlining their returns management has benefited Silk & Salt in the following ways:
- Silk & Salt has seen a 24.1% decrease in refunds since offering store credit as a return resolution option.
- When customers redeem store credit, they tend to spend more money, resulting in an average increase of 24.9% in revenue.
- The automated returns process has reduced Silk & Salt’s costs on shipping, restocking, and refunds.
As Silk & Salt continues to grow, ReturnGO provides a scalable returns management solution that improves Silk & Salt’s ROI, reduces refund rates, and improves customer satisfaction.
Read the full Silk & Salt case study.
Maximize Your ROI by Managing Returns Effectively
Managing returns effectively is about more than just resolving customer concerns – it’s a strategic move that can significantly maximize your ROI.
The connection between eCommerce returns and profitability is strong. Reducing return rates, automating the returns process, and optimizing your inventory management can help you retain revenue while reducing the costs of returns processing.
The importance of returns management goes beyond simply handling returns; it’s about gaining opportunities to increase ROI and provide the best experience for your customers.