The Hidden Costs of Inefficient Returns: Why Upgrading Your System Pays Off 

Managing returns is more than just about ensuring positive customer experiences. 

In their zeal to simplify the process for customers, many businesses lose sight of the true cost of managing returns. 

This often results in a gradual impact on the profitability, growth, and brand reputation - especially in competitive markets. 

In this post, we will help you understand what accounts for return costs, what often goes unnoticed, and how a good returns management system can help. 

What is ‘actually’ included in the cost of returns 

Typically, businesses assume returns only incur reverse logistics, return shipping fees, and restocking. But there are several other direct and indirect costs involved: 

• Return shipping costs - Returns include paying for shipping and tracking of returned items; especially if you’re offering it for free. This cost can significantly add up for smaller ecommerce businesses. 
• Inspection and restocking fees - When returned items arrive, they need to be put through a quality analysis and reconditioned (when required) before they are restocked. This process requires labor and time which can add to the costs. If a product is marked unfit for re-selling or cannot be resold at full value, the involved cost here goes to waste. 
• Product depreciation - Returned items often lose value; especially in fashion, beauty and cosmetics, tech, or seasonal goods industries. If your industry sees rapid demand changes, you may be required to discount these items or liquidate them at a loss. 
• Packaging and disposal fees - Damaged packaging, unsellable items or goods that fail inspection incur disposal costs. Businesses adopting sustainable practices also incur additional recycling costs. 
• Lost revenue - The time a product is in transit, inspection, or restocking often represents lost opportunities to sell. This delay along with markdowns needed to resell can reduce profits. 

What are the ‘hidden’ costs of inefficient returns management system

A lot of eCommerce businesses today are using automations to handle their returns. However an inefficient management system that does not integrate well into their operational systems can have a significant impact on the costs incurred in many different ways: 

• Customer dissatisfaction - If a customer has a poor experience returning a product due to unclear policies, complex processes, slow refunds, or a lack of transparency, they are less likely to come back to the brand. Studies have shown that 70% of consumers will purchase again from a brand they could return products to, easily. Conversely, poor experiences can lead to an increase in negative reviews, customer churn, and lower lifetime value - all impacting the bottom line of the business. 
• Increased workloads - There are several steps involved in accepting and processing a return request. Without an optimized system, businesses would need to rely on manual data entry, tracking, and communication which can lead to increased workloads and a risk of human error. 
• Inventory disruptions - Poorly managed returns can lead to disruptions in inventory tracking. This can result in items getting stuck in transit or storage without being added back into the system. Inaccuracies caused by this can lead to stockouts or over-ordering, impacting cash flow and demand forecasting. 
• Increased fraud risk - Inefficient systems can increase return frauds like wardrobing and falsified return labels. Without clear tracking and data analysis, these fraudulent returns can be difficult to identify and prevent. 

• Missed data insights - Return analytics can be used to identify product issues, change in consumer or market demand and gather behavioral insights. A manually managed system can make it harder to analyze data in real-time, leading to missed opportunities that impact overall business revenue growth. 
• Environmental impact - Inefficient returns create added carbon emissions due to excessive shipping and disposal of unsaleable goods. This can impact a brand’s image in the market, leading to lesser market capture. 

Why should you upgrade to an advanced returns management system 

Here’s how a returns management system helps streamline your process and also improves the overall customer experience: 

1. Reduce agent workload  

Good returns management platforms can help businesses set up a branded self-service portal. Customers can use this portal to initiate returns, print labels, and also track the status of their requests. This reduces the need to wait for customer support teams to intervene, leading to fewer queries for agents to handle. 

2. Improved customer experiences 

Advanced returns management systems come with features to set up instant refunds, live chat automations, flexible return policies and timely notifications for milestones. This can help the brand keep customers engaged to drive positive experiences during and after the returns process. 

3. Returns process automation 

One of the biggest advantages of a returns management system is automation. You can automate the entire workflow - data entry, tracking, notifications, inventory updates, and more to reduce labor costs, reduce human error, and bring more efficiency into resolving the requests and moving products back in for sales. 

4. Centralized data and analytics 

If you’re a brand selling across different sales channels like social media shops, marketplaces, and different aggregators, you need to consolidate all data into one place. An advanced returns management system can help unify the data and help you track returns by channel, product type, customer segment, and return reasons. This can be beneficial for better inventory planning, product improvements, and optimizing marketing strategies. 

5. Fraud detection and prevention 

Advanced returns management systems come with AI-powered fraud detection algorithms. They can monitor all return requests for pattern ambiguities such as frequent returns by the same customers or suspicious reasons. The system can then flag and notify of potential fraud, saving costs and preventing return benefit abuse. 

6. Integrated workflows 

When a return is processed, it should automatically update inventory levels, trigger inspections, and restock products if they meet quality standards. An advanced returns management system integrates seamlessly with your eCommerce platform, CRM, and ERP systems for the same to keep running updates in real time. 

7. Sustainability tracking and reporting 

Advanced returns management systems now help businesses monitor and report the environmental impact of returns. Brands can also use this to identify wasteful practices across different departments and processes to optimize their returns for lower emissions. Communicating these efforts towards being environmentally friendly can also help brands build a positive reputation in competitive markets. 

8. Customizable return policies 

An advanced returns system can help you create policies by product type, customer profile or seasonality. This helps businesses meet diverse customer expectations and stay competitive, while ensuring their revenue or profits are not impacted. 

Conclusion 

Returns management is far from straightforward. 

Overlooking the smallest of steps in the process can lead to businesses incurring these hidden costs. 

By upgrading to modern returns management systems, businesses can not just streamline their processes but also optimize them for fewer revenue leaks. 

Looking for a way to turn returns into a competitive advantage? Learn more about Returns Prime today.