What to Consider When Creating a Return and Exchange Policy

This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.

Returns are a normal and expected part of running a retail business, but if it seems like the amount of returns you’re getting has increased recently, you’re not wrong. According to the latest research from Appriss and the National Retail Federation (NRF), U.S. retailers took back returns totaling $428 billion in 2020, representing just over 10% of overall sales. In 2019, the number was $309 billion. Online returns nearly doubled from 9.6% in 2019 to 18% in 2020, significantly contributing to the overall increase. 

While retailers often factor returns into their yearly forecasting, it doesn’t change the fact that handling returns can be costly. Returns processor Optoro estimates that it will cost retailers $33 to process a $50 returned item, which is up 59% over 2020. This recent increase is largely being attributed to supply chain issues, higher transportation costs, and losses from discounting and liquidation. 

While no retailer looks forward to a customer return, viewing it as an opportunity instead of a liability can help improve your business. According to the NRF, your best shoppers often make the most returns, and how you handle the process is what can build loyalty. A 2019 survey from UPS found that nearly three in four customers say the returns experience affects their likelihood of buying from a particular retailer again. 

In-store returns are also a great way to meet and convert an online buyer, especially if they received the item as a gift and are unfamiliar with your store. The key is to make the process customer-centric, with flexible policies that help build relationships and customer loyalty. 

How to write a return policy

To improve customer confidence, make it easy to return your goods. A comprehensive and transparent policy establishes rules and timelines for returning or exchanging unwanted products. Additionally, be sure to consult federal and state laws and regulations around refunds before drafting your policy. While your return policy will reflect the type of products you sell, consider including the following information:

  1. Items accepted for returns. Decide what items can be returned, what items can be exchanged, and the condition required. For example, you may decide to accept returns of items in original condition, such as in the sealed box or with tags attached. You may also decide to require a receipt for a return and an exchange without a receipt. You can also identify items considered “final sale,” such as something custom-made, personalized, or deeply discounted for liquidation.
  2. The window for return. For example, depending on the laws and regulations in your state, you may consider allowing returns up to 30, 60, or 90 days from the date of purchase. Or you could offer a combination, such as returns within 30 days, and exchanges or store credit within 60 days. You can also have unique timelines for holidays. Many retailers extend the deadline for returns and exchanges until after the holiday season to account for gift-giving. Some retailers also opt to have open-ended return policies, letting customers return or exchange products for extended periods of time, or with no deadline at all. The most important thing is that you are upfront and transparent about when customers can make a return.
  3. The type of refund. Decide how you will compensate the customer for the return and the documentation needed, such as a receipt or an order number. Like every part of your return policy, what is permissible may vary according to federal and state laws.  For example, you can provide a full refund to the original form of payment; you can exchange the return for the same item, such as a different size or color; or you can give the customer store credit. Determine if you’ll charge restocking fees, which are common with electronics. The type of refund you provide will often be connected to your timeline or the documentation the customer needs to provide.
  4. The process for completing the return. Your business operations will impact your return policy, including whether you’re brick-and-mortar only, online-only, or a combination of both. You may accept items in your store or ship them to your eCommerce warehouse. The return policy should state who pays for shipping if returns are accepted by shipping. You can also encourage exchanges by paying for return shipping when the customer swaps out the product instead of asking for a refund. Some retailers choose to include return labels in their packaging to make returns quicker and easier for customers. 

How to implement a return policy

Once you’ve created a concise and comprehensive return policy, ensure it’s implemented consistently across your company. Inform your customers about your policy, and make it clear. You should post it in your store, such as a sign behind your checkout station or laminated to your counter. Add a Returns page to your website and include the process in your FAQ section. Include your policy on your online ordering pages for customers to view before checking out. Print your policy at the bottom of your receipt and include it in your email order confirmation. By publishing your policy in various areas, you reduce the risk of confusion for your customers and avoid disappointment later that can negatively impact the customer experience. 

Your return policy should be considered part of your overall customer service training. Make sure your associates understand how to accept a return. Some retailers only allow managers to process returns, which can help reduce return fraud. However, during busy seasons you may want to ensure that having this manager-only policy doesn’t slow down business, inconveniencing your shoppers and leaving a negative impression. 

Choose a POS system that allows you to process returns and exchanges efficiently. You want to choose software that adds the product back to your inventory if the item is salable. If the item is damaged, however, you want the option to skip the restocking process so you don’t inadvertently sell an item online that isn’t available for delivery.

Common return questions and issues

Consider collecting information from the customer, asking for the reason for the return. Common questions you might ask are:

  • Is the return due to an improper fit?
  • Was the item too big or small?
  • Did the customer not like the item?
  • Did they find the product at another retailer for a different price?
  • Was the item damaged?
  • Did your warehouse ship the wrong product?

Capturing this information can provide some insight into your product selection and operations. Damaged or incorrect items could indicate problems in your warehouse, either in receiving inventory from your vendors or in your shipping processes. If you see a lot of items returned for improper fit, that could indicate a need for better sizing charts. Review your returns data when you order inventory in the future to ensure that you’re offering products your customers like.

Returns and exchanges can be viewed as a sales opportunity, especially during the holidays when the customer may be new to your store. The easier you make it, the greater the chance you encourage customers to return to your store to make more purchases in the future.