5 questions to ask before establishing your returns policy

April 5, 2018

Return policies are more than legalese—they can really help generate trust with customers and promotes sales. Studies show that 66% of online shoppers check a return policy before making a purchase, and 81% will only purchase if returns are free. Clearly customers are more likely to take a chance on a purchase if they feel they can return items that didn’t work out, and a generous return policy can lead to phenomenal growth. Just take a look at Zappos—an online shoe company that grew to more than 2 billion annual revenue and report their most valuable customers return a staggering 50% of purchases. Yet overly generous return policies can backfire as retailers such as L.L. Bean discovered. After 106 years of offering a no hassle returns L.L. Bean recently restricted their policy to one year after purchase when accompanied by a receipt, which earned them some backlash in the marketplace. Here are 5 questions you should consider when evaluating your return process.

1. What does your state require?

The Federal law only requires merchants to offer a refund if the product was defective or if you’ve broken a sales contract. In some cases, purchases may be subject to a “cooling off” rule, which allows customers to cancel a sale within 3 says if they made the sale in a location other than your place of business such as within their home or workplace. Many states require that you post your policy visibly, so customers know your terms before they complete a purchase. Every state, though, handles returns slightly differently and you should check your local laws to make sure you’re in the clear.

2. What do customers expect?

These days customer expectations are often shaped by major retailers such as Amazon and Walmart, but that doesn’t mean you have to follow suit. Check the policies of similar businesses in your area—how does your policy compare? Does your policy allow for wiggle room? Some policies, such as L.L. Bean’s newly revised policy, allow for exceptions by saying that after the specified period they will work with customers to determine whether there was a defect in the product. This allows their local managers to have discretion over situations where customers might reasonably expect a refund. A simple line at the end of your policy saying, “We stand by our products—please speak with a manager if you’re unhappy” can help deal with grey areas. It also allows managers to bend the rules for your most valuable customers.

Train your staff to handle unhappy customers and address the kinds of things they can do to appease customers who aren’t eligible for a full refund. For example, perhaps they can’t get their money back, but you can offer them a free trial of a new product, or a discount on a replacement product. Often these gestures, along with superb customer service, will satisfy the customer.

3. Will the terms you’re considering endanger your business?

Some research indicates that as much as 30 percent of items purchased will ultimately be returned. If you’re considering a “customer-is-always-right” or “lifetime warranty” policy, make sure you can afford to live by it. L.L. Bean, REI, and Macy’s found that some customers will abuse an overly generous policy and that it was better to place restrictions on returns. If you already have a return policy, check to see what percent of sales get returned and why. Are there particular products that are disproportionately returned? Perhaps you should reconsider stocking them. Are the items returned in saleable condition? If not, perhaps tweaking the policy would help limit your losses. Above all, make sure your policy is sustainable, because your most loyal customers will come to expect consistent service and policies.

4. Under what conditions will you allow customers to return or exchange items?

Most return and refund policies will specify how long the customer has to return or
exchange items, whether they need proof of purchase, and in what condition the items need to be. Here are some conditions you should consider:

  • Time limit. Even retailers who are historically very generous are now limiting their return policy to a year or less.
  • Condition of product. Common phrases such as “normal wear and tear” or “products found to be defective” are helpful for defining grey areas. Ideally, most of your returns will be in resalable condition, so try to word the policy to require good condition barring any defects or error on your part.
  • Shipping or related costs. Don’t forget to consider costs associated with doing business such as shipping. Make sure your policy is clear on who pays those fees. Some businesses charge a restocking fee to help cover these miscellaneous costs.
  • Full refund or store credit. How will you issue a return—cash or credit?

To make sure your policy covers all the basics, consider using Clover’s Return Policy Tool.

5. Will you require proof of purchase?

Many merchants require proof of purchase before issuing a return, such as a receipt. This can be a hassle for customers who received your product as a gift, or who simply didn’t keep the receipt. In these cases, some merchants will allow returns with a valid photo ID, or will attempt to look up the purchase in their POS system. Carefully consider whether you’ll require proof of purchase and then make sure your staff know how to look up purchases if the customer no longer has a receipt.

In the end, return policies are all about setting expectations on how your customers will be treated, and following through with those promises. Once you have a clear policy in place, be sure to communicate it online and in your store. Besides setting clear expectations, consider adding a little personality or humor to your policy. For example, “We hate chipped nails as much as you do! We’ll happily touch up any manicure within 24 hours of service” is a subtle reminder that you’re a small business, not a big chain store, and that superb customer service and quality products are your goal.

Ready to raise your return policy game? Check out these posts on using Clover’s Return Policy Tool and dealing with super-demanding customers.

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