At first glance, an official return policy might seem like one of those tedious administrative items that is easier to ignore than implement. In reality though, a retail business’s return policy intersects with everything from the business’s reputation to employee satisfaction, and even the rates the business pays on credit card transactions. For these reasons and more, it’s crucial to have a well thought-out and well defined return policy.
Avoid Legal Trouble
Accepting returns is required by law. If for no other reason than this, your business should have a return policy. Specifically, federal law requires that businesses accept returns of any goods that break the sales contract or are defective. In addition, if you are selling products remotely—for example, at a customer’s home, a convention center, fairground, or hotel room—you also are required to honor a three-day “cooling off” period for sales over a certain dollar amount, meaning the customer has a right to cancel that sale within three days.
On top of these federal laws, there are also various state laws pertaining to sales and returns, some of which are more strict and require you to post your return policy so it is clearly visible to customers. In order to avoid opening the door to legal troubles, you should make a point of looking up the return laws in your state and create a policy that ensures you at least meet the minimum requirements of those laws.
Save Money
While most business operators probably associate returns with lost revenue, a sound return policy can actually help your business save money in two significant ways. First, it can reduce chargebacks, which is when a customer contacts their bank to reverse the charges on their payment card—losing you both the product and the sale revenue, not to mention potentially leading to higher credit card processing rates for your business.
Chargebacks are typically the last resort for frustrated customers, so ensuring you are effectively communicating a fair return policy to your customers will, in most cases, prevent this from ever happening.
The second way a good return policy can save you money is by forcing you to really analyze what items are routinely returned and what it’s costing you. After doing an honest assessment, you can then formulate a return policy that makes sense for your business.
Some questions you’ll want to find the answer to include:
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- What items are most frequently returned?
- Why are they being returned?
- Are you able to get reimbursed from the manufacturer for the returned items due to them being defective?
- Are you able to resell the returned items?
- How much money are you losing for returned items that are not resalable or reimbursable from the manufacturer? Does it still make sense to offer those products?
- Are customers trying to take advantage of you by returning items that are simply worn out from normal wear and tear?
- Are customers returning items that they perhaps purchased elsewhere?
Once you’ve answered those questions, you can then formulate a return policy that makes sense for your business. Some of the specifics you’ll want to determine should include:
- Whether customers need to have a receipt in order to make a return
- How long after a purchase customers can return an item
- Whether you will only accept returns of items that are defective, in compliance with the law, or if you will also accept return items that customers simply changed their mind about
- Whether returned items need to be unopened in their original packaging or if they can be opened
- Whether you will give customers a full refund or store credit for returns
Create Loyal Customers
After assessing the cost of accepting returns, it’s easy to have a knee-jerk reaction and create a strict return policy that limits what items customers can return. Before doing so, make sure to first consider the perspective of your customers. Get too stingy with your return policy and you won’t win yourself many repeat customers. You also might find your business getting a lot of negative online reviews, which will scare away potential new customers.
On the other hand, create a return policy that is more customer-friendly and you’ll generally have happier customers. This can lead to more repeat customers, word-of-mouth marketing, positive online reviews, and even happier employees who don’t have to deal with disgruntled customers so often.
Unfortunately, there’s no formula for creating a perfect return policy that works for every retail business. Your goal, first and foremost, should be to create a policy that finds a happy balance between showing customers you care and protecting your financial security.
From there, it’s all about implementation. Make sure you communicate your return policy to all parties involved. With your employees and staff, make sure they are adequately trained on your return policy, know how to communicate that policy to customers, and know how to perform returns as expediently as possible. For your customers, make sure they know your return policy right from the start by posting it on signs near the checkout counter, having it printed right on your receipts, and by having your staff communicate it to them verbally during checkout.
Succeed in these regards and everyone will be happier in the long run: you, your employees, and your customers.
