Returns Management: How to Handle Customer Returns Effectively

Table of Contents

• What is returns management?

• Benefits of effective returns management & its impact on e-commerce business

• The returns management process

• Common challenges in returns management

• Returns management best practices for e-commerce

• Final thoughts

What is returns management?

Returns management is the part of an e-commerce supply chain that deals with customers returning products to a retailer. It covers the return shipment of the product (logistics), the business of organising and restocking the product (inventory management), and customer support – to name a few things. An effective returns management strategy optimises every step of this process, from initial customer contact to the final destination of the returned product.

Benefits of effective returns management & its impact on e-commerce business

Processing returns can be costly and time-consuming, but an effective returns management process can turn a potential negative into a positive for your business. It’s estimated that returns cost businesses a staggering 66% of the product’s original price2, but optimising your process can mitigate these costs and provide several key benefits that enhance your business operations.

Improved customer satisfaction and loyalty

A seamless and hassle-free returns experience is crucial for building a positive relationship with your customers. In fact, research3 shows that a negative return experience can have a significant financial impact. Conversely, a positive return experience can be a powerful driver of future sales, with 70% of North American consumers saying they purchased more from a retailer afterward. By offering a quick and easy process for handling returns, you not only ensure customers receive their refunds or replacements without delay but also build trust and loyalty.

Efficient inventory management

An effective returns management process helps you regain control over your inventory. By quickly receiving and inspecting returned products, you can determine their next destination, whether it's restocking, repair, or recycling. This speed benefits your business by ensuring the returned product is back in your inventory and ready for resale without unnecessary delays. This reduces excess inventory and helps you maintain an accurate stock count.

Positive brand recognition

A well-managed returns process can turn a dissatisfied customer into a loyal advocate. Offering a transparent and fair returns policy shows your commitment to customer service, which can be a key differentiator in a competitive market. This positive brand image, bolstered by excellent customer returns management, can lead to positive online reviews and word-of-mouth recommendations, which in turn attract new customers and drive business growth.

Reduced return fraud

While it may seem counterintuitive, a clear and well-defined returns management process can help reduce return fraud. By implementing a system for inspecting and evaluating returned products, you can verify the authenticity of the return and ensure it aligns with your policies. This proactive approach to handling returns helps protect your business from potential financial losses associated with fraudulent claims.

The returns management process

So, what steps should your business follow for an effective returns management process? While the answer depends on your specific returns policy, these are the general guidelines to help you optimise your operations.

Step 1: Customer initiates the return

When a customer initiates a return, ask them if they prefer a replacement, a refund, or an exchange. A clear and easy-to-use online portal for this initial request can significantly improve the customer experience.

Step 2: Return authorisation

Once the customer has submitted their return request, you should review it against your policy. Upon approval, provide the customer with a Return Merchandise Authorisation (RMA) number and a prepaid return label. This helps to streamline the process for both you and the customer.

Step 3: Return shipping

The customer ships the product back to your processing location. By partnering with a reliable carrier like DHL Express, you can offer a door-to-door service where a courier picks up the return directly from your customer. This convenience is a key part of effective returns management.

Step 4: Inspection and quality check

Once the product arrives back at your processing location, inspect it for any damage or discrepancies. At this point, you should decide whether the customer is eligible for a refund, replacement, or exchange in line with your business’ returns policy.

Step 5: Customer resolution

It’s important to refund the customer or send them a replacement product as quickly as possible. This is key to building a positive relationship between them and your brand and is a crucial part of learning how to manage returns. Timely communication about the resolution also helps to manage customer expectations.

Step 6: Restocking or disposal

After the product has been inspected and the issue has been resolved, determine its next destination. Does it need to go for cleaning? Repairs? Replacement parts? Or perhaps it’s in a suitable state to go straight back to your warehouse for resale. Efficiently moving the product to be processed helps to minimise costs and maximise its value.

Common challenges in returns management

Despite a well-planned process, businesses still face common challenges when it comes to returns management.

High return rates

With around 30% of all products ordered online being returned, managing a high volume of returns can be a significant challenge, especially for small businesses. These high rates can strain resources, increase costs, and create logistical bottlenecks. Mitigating this requires a deep understanding of why customers are returning products in the first place, such as through feedback and data analysis.

Fraudulent returns

Fraudulent returns, where customers attempt to return counterfeit, used, or damaged items for a refund, are a growing concern for businesses. This can lead to financial losses and operational inefficiencies. A thorough inspection and evaluation process is essential for detecting and mitigating these risks.

Operational complexity

The returns management process involves multiple steps, from customer initiation to restocking or disposal. This complexity can be overwhelming for businesses with limited staff or resources. It requires seamless coordination between logistics, inventory management, and customer support.

Returns management best practices for e-commerce

Consider offering free returns

It may sound expensive, but research⁴ has shown that free returns are a leading motivator for online shoppers to buy directly from a brand, so the investment could pay off for your business in terms of increased sales. Perhaps you could offer the service on a trial basis to determine if it makes financial sense.

Have a clear and concise return policy

Many visitors to your e-commerce website or app will check your return policy before committing to a purchase, so ensure it is clear, simple, and fair. It should cover the cost of the return (whether it is free or if you will deduct the cost of shipping from their refund), timeframe (the window of time they have to send it back), and a FAQs section (this will reduce the number of customer enquiries you’ll have to deal with). Take a look at our tips on writing a small business return policy (with free template).

Prioritise speed in processing returns

Customers don’t want to wait a long time for a refund or replacement product; a bad experience in this area will deter them from buying from you again. Speed will also benefit your business, ensuring the returned product is back within your inventory and ready for resale without delay.

Make returns convenient for customers

The returns process should be hassle-free for customers. A couple of quick tips:

• Include a returns label with every product you send out. Customers will be frustrated if they have to print off a label themselves – not everyone has easy access to a printer.
• By partnering with a reliable returns management delivery partner, you can offer your customers a door-to-door service where a courier will pick up the return directly from them, saving them from having to go to a post office.

Practice effective customer communication

Transparency is key. A customer returning a product to your business should be kept updated regularly. Be sure to send them a message once you have received their return and once you approve their refund, with details on how long they should expect to wait before receiving it in their bank account.

Leverage technology

Integrating the right technology can improve the returns management process. For example, handheld scanners can be integrated with your reverse logistics management software. When a return arrives, staff can scan the product’s barcode to automatically update the inventory database in real-time, reducing the risk of human error.

A Returns Management System (RMS) is another powerful tool. This cloud-based software can automate many aspects of returns, from Return Merchandise Authorisation (RMA) initiation to inventory updates and customer notifications. An RMS provides valuable data analysis to help you improve operations, reduce costs, and identify product issues.

Final thoughts

Navigating returns management in e-commerce requires a strategic approach that prioritises speed, transparency, and convenience. By implementing some of the best practices for handling returns and leveraging the right technology, you can mitigate costs, reduce fraud, and turn a potentially negative experience into a positive one for your customers.

After all, learning how to deal with product returns is a key differentiator in today's market. 

Do you still have questions about returns management or any other logistics topic? Open a DHL Express business account and our international experts will be happy to help you out.