How To Offer Free Returns and Shipping Without Killing Your Profit Margin

6/11/2021
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7 min read
Mark Trapani
Reimagine logistics hero

As an eCommerce business owner, you want to entice customers to purchase your products without sacrificing your profits. Free returns and shipping is a popular incentive, especially among startups, because it offers consumers some security in their money spending. If they don’t like an item, no worries! They can just send it back and you will return the expenses so there’s no harm done. For customers, free shipping, free returns, and free return shipping make online shopping less consequential, which will make them more willing to buy. That’s good right? 

 

As a business owner, you may find yourself still wondering if you should take the leap to offering free return shipping. Does the reward of satisfying your customers outweigh the financial costs to your business? 

 

Let’s uncover the logistics of free shipping and returns so you can make a solid, informed decision and enjoy the benefits that could follow. 

 

Free Return Shipping Works

Consumers like free return shipping. A lot. 

 

In fact, 82% of online shoppers who were polled claim they check out the return policy before clicking purchase. Why? When online shopping, they’re only looking at an image of the product being sold. While the pictures could show enough details to convince people to buy, whether the clothes will actually fit, or the item will look good on their mantle, can’t totally be decided until they have the item in their hands. There’s always some risk when buying online, but free shipping and a free return policy reduces the risk factor. 

 

For business owners, free return shipping means they have to put a prepaid shipping label in the package. Major eCommerce sites like Amazon and Walmart already know that free shipping and free return shipping are benefitting their business. They’re working on offering the most convenient solutions for free product returns, including adding premade return shipping tags to the product boxes, or offering at-home return item pickup. Sometimes they even let customers keep the items they didn’t like. (Now you don’t need to go as far as the big-box stores for your free return or free shipping policies, but you get the point!)

 

Free returns and shipping are excellent marketing tactics for attracting new customers. They can also push existing customers toward making another purchase, creating a loyal following for your brand and services. 

 

But does it work as a business tactic overall, especially for startups or independent eCommerce retailers? Shipping can be costly, and absorbing the cost may not always be the right move for your company. To find out, you will need to evaluate these factors: 

1. Your current revenue

2. Your product shipping costs

3. Your estimated revenue increases from new customers attracted by your free shipping or returns

4. The costs of providing those free services to customers

 

It Might Work Too Well

When a company has a free return policy, customers will be more than happy to take advantage of it. It is estimated that a third of all online purchases are returned. And free return shipping is a contributing factor. Clothing is the most returned item, followed by electronics and footwear. However, the amount of items being returned has the potential to become a real problem for businesses. For small businesses and independent eCommerce retailers, you could find yourself acquiring massive costs from high return volumes. In the past five years, returns have spiked by 95% as buyers feel more confident buying and then following the free return and free return shipping policies. 

 

Who Pays for Free Return Shipping?

To be clear, free return shipping and free shipping are not actually free. It just appears that way to the customer. The shipping company still charges a fee to the business, and that fee is either absorbed by the company, or the product price is raised to compensate. That means free return shipping may not be so free for customers, as they’re actually paying the shipping cost in the price of the product. But on their end, they think the retailer is doing them the favor of shaving the expenses. Quite a clever trick, really. 

 

The profit margins of your product will help to determine which route to take, but keep in mind that free returns could end up getting quite costly. Revolve, an online fashion retailer, sold $499 million in goods in one year but spent $531 million on returns, including shipping and processing. 

 

The Benefits of Free Return Shipping

Free returns are a marketing tool. Their purpose is to urge people toward a purchase and inspire customer loyalty. Done right, you’ll see an increase in sales as a result of your shipping and return policies.

 

1. Customers LOVE free returns, free shipping, and free return shipping. They will look for eCommerce shops that offer it and may go to a competitor who offers free returns if you don’t.

2. Free shipping can help to boost your conversion rate and lower the number of abandoned carts at checkout. 

3. Having a customer-centric return and shipping policy can improve your retention rates, and as you likely already know, it’s cheaper to keep a customer coming back than it is to attract a new one. The caveat here is that you need to determine whether the cost of developing that customer through shipping policies is financially sustainable. 

4. It’s expected—major retailers have made free returns the norm, with 59% of retailers offer free return shipping.

 

 

The Downside of Free Returns

For all the benefits that a free return policy may offer, there are downsides to it. The two major ones are cost and potential for abuse. It’s not free—your company has to pay for the shipping, and it can be expensive. Adding to that cost are customers who abuse the policy with excessive returns or who use it fraudulently to scam you out of merchandise and money.

 

Another issue worth considering is whether free returns work well for your business operations. It simply might not make sense for your business since some products may cost too much in shipping to offer the discount to customers. Heavy items with low margins, for example, would not be good candidates for free shipping. 

 

How to Make Free Shipping and Returns Work for Your Company

With free shipping, your company is paying the shipping costs so that the customer doesn’t have to when they originally buy an item. With free returns, you’re offering the same discount where the customer isn’t charged a penny for sending something back to your company. Whether the item is being delivered or returned, you’re acquiring the shipment costs with your free policy. To make this system work best for your customers and your business, here are some ways to minimize your shipping return costs:

 

  • Offer free returns only at certain periods of the year, like peak shopping periods, such as the Christmas season.
  • Consider how much is your item worth or how often is it purchased? If it's an expensive item or purchased repeatedly, paying for shipping makes sense.
  • Only offer free shipping once the order reaches a certain price threshold.
  • Include sizing calculators on your site to mitigate returns or exchanges of clothes. 
  • Control return costs by using ground shipping. Shop around for the best pricing from shipment companies.
  • Earn customer loyalty by using your free returns as a marketing tool. 
  • Put limits on what ships or returns for free. You could limit the offer to only high margin items.

 

More ways to reduce return costs

Knowing why people are returning items can also help you to lower costs. Defective items are one of the main reasons for returns among consumers. By digging into your data, or creating data through customer surveys, you can find the reasons customers are returning things, then work to solve those issues before they become a product return. 

 

For instance, if clothes are often returned because they don’t fit, an online sizing guide may help. If people often buy several styles at once but only keep one, a product video or detailed photos may help people to narrow their selections before ordering. Perhaps the best strategic move is to outsource to a copmany that will streamline your returns and batch shipments to save on return shipment costs.Just piggy back off a company that has preferred shipping rates and watch the costs lower before your eyes! At Return Bear, we have preferred shipping rates that have helped our eCommerce clients in Canada save 20%+ on their return costs.

 

Ultimately, the decision to offer free return shipping is about balancing potential sales growth with added shipping costs. Finding that balance can be tricky, but with the right approach and careful attention to how the policy is implemented, it could open opportunities for your business. 

 

At Return Bear, we’re experts in return shipping logistics and can help lower your costs associated with return processing and shipments. Contact us today to find out how we can help your business grow.

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