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Returns Management as a Profit Center

Matt Blevins
Updated 07/16/20 4:43 PM

Traditionally, returns have been deemed a cost center. Something to minimize, an unfortunate by-product of retail.

With return rates typically falling between 10% and 30% in ecommerce, it's easy to see why.

Undoubtedly, returns incur costs for merchants. They can create a negative customer experience if not handled properly. And returns most certainly have a negative impact on the environment.

But it's important to remember that returns management should be leveraged as a profit center, as well.

Table of Contents:

  1. Two Focuses of Returns Management
  2. Returns as a Cost Center and a Profit Center
  3. Maximize Profits with Returns Data

Two Focuses of Returns Management

In order to appreciate the impact of returns, we first need to understand the relationship between returns management and reverse logistics.

Returns management comprises all of the policies, workflows, and processes that enable a return to occur, both for the shopper and for the merchant. 

Let's say you purchased a pair of jeans online, and they don't fit quite right. Returns management allows you to start a return, enforces the return policies of the retailer, and collects key pieces of data about the return. 

The objectives of returns management are to create a frictionless customer experience, automate tasks on behalf of the merchant, and extract insights about returns. 

Returns management feeds into reverse logistics, which is the processes associated with physically shipping and handling a return, as well as directing the product to its next destination.

Once the retailer's team completes the return, they must determine what to do with that pair of jeans. This decision is directly informed by the grade (or disposition) the item has been given.

The product is then sent to its next destination, whether that be back into inventory circulation, a liquidation channel, or simply a recycling bin.

The goals of reverse logistics are to minimize the costs of handling and storing the inventory, and to recover as much value as possible on the merchandise.

These two focuses reflect, perhaps imperfectly, the cost center and profit center of returns. 

Returns as a Cost Center and a Profit Center

Reverse logistics largely encompasses the cost center aspects of returns.

Shipping expenses, physical touches, warehousing costs, liquidation: reverse logistics is what many of us envision when we think of returns. 

And, in most cases, it represents a cost to minimize.

Fueled by returns management solutions, retailers can drastically improve their returns process and their operations, overall. In fact, the JOLYN team was able to cut its processing time by 900% after partnering with ReturnLogic.

Employees can now accomplish more, customers submit less emails and support tickets, and products are more rapidly stocked back into inventory. Returns now have less of a negative impact on their bottom line.

But, returns management embodies a profit center, as well.

That's because returns are not just a logistical issue - they're a matter of customer lifetime value, and carry insights that will drive your business forward.

Maximize Profits with Returns Data

Returns data carries insights that allow you to make the most of your products and your customers.

Customer Lifetime Value

Just as a positive purchase experience can increase customer lifetime value, a negative purchase experience can decrease customer lifetime value. And returns data reveals the other side of the story.

It's as simple as that.

If you returned those jeans because they were a little snug, there is a fair chance you are going to repurchase in the next size up. But if you returned the jeans because there was an issue with the quality or product description, your relationship with the brand could very well be in jeopardy.

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Returns data can illustrate the impact of different return reasons on the customer relationship, and directly informs the likelihood of a future purchase.

We can use these insights to prioritize shoppers for outreach, and to craft messages and offers that are more personalized to their journey.

The objectives here are to stabilize the customer relationship, drive future engagement, and counteract customer churn. In turn, these goals will help maximize your customer lifetime value.

Prevent Returns before They Happen

In addition, returns data carries insights that reveal why products are being returned, and can help you reduce your return rate.

 

 

 

Since partnering with ReturnLogic, Ecru has been able to reduce its return rate by 9%, gaining potentially over $100,000 in lost sales revenue per year.

And none of this would be possible without returns management.

In Summary

Returns have traditionally been viewed purely as a cost, an unfortunate by-product of ecommerce, and a pain to minimize.

In certain aspects, they are. Returns generate a mountain of costs for retailers, and can damage the customer relationship.

However, returns management also represents an incredible profit center. Returns data allows us to more precisely understand the customer journey, and to prevent returns before they occur.

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