So you read the last Magento Data Series post, and made a lot of progress in reducing your cart abandonment rate. Sure, you’re still losing carts, but nowhere near the industry standard of 68%. You sit back in your chair, relishing in the job well done, and think to yourself: “Now I can relax. I’ve done everything I can to maximize my conversion rates.”
Right? Well…no, not quite.
Although you may be converting a greater percentage of customers to the checkout phase, you can’t really count a customer as a conversion until they decide to keep the product. Unfortunately, e-commerce return rates are high, and only getting higher as consumers move towards online stores. A recent National Retail Federation report found that nearly 30% of e-commerce orders are returned, meaning that for every hard-earned dollar of sales, you can expect $0.30 to be returned. To make matters worse, many consumers expect you to pay the shipping and restocking fees, incurring an additional $0.10-$0.15 of losses on the dollar.
Returns: a balancing act
Given the above, you may be tempted to make your return policy strict or convoluted to discourage returns. However research suggests that this is often counter-productive to the bottom line. A UPS study of the top 500 online US retailers found that 67% of shoppers review the return policy of retailers before they make their first purchase, and more than 15% abandon their shopping cart if the return policy is unclear or unfavorable.
Moreover, a painful return process is likely to lose the future loyalty of a customer, especially if they find similar products at other stores that offer more lenient return policies. Researchers at the University of Texas found that, in general, the revenue gained from return policy leniency outweighs the losses incurred by returns.
At this point you may be wondering — what you can possibly do? If you make your return policy too lenient, you’ll eat into your margins. If you make it too strict, you’ll risk alienating prospective customers. Before you make any decisions on policy changes, you first need to collect your data and ask a few questions. Remember that your goal here is to gain a better understanding of the behavior and cost of returns for your business, so that you can be more lenient while maximizing your profits. Some initial questions you might ask are:
- What’s my overall return rate, and how does this vary based on product and season?
- How much does a return actually cost? Should I include free return shipping in that calculation? Should I charge a restocking fee?
- Did I make changes to my return policy in the past? If so, how did this impact the return rate? Or the cart abandonment rate? Or my margins?
In the end, it’s a balancing act between leniency and losses. Every business has their own sweet spot, and it’s only through analyzing your data that you can determine what works for you.
Reporting on returns in Magento
If you’re a Magento Enterprise customer, you already have all of the information you need in your enterprise_rma and enterprise_rma_item_entity tables (sometimes called just rma and rma_item_entity, depending on how they were implemented). Now it’s just a matter of setting up some reports!
More specific details on the rma schema are available here. But to summarize, you’ll need to connect your returns data to your orders and order items tables to identify important trends among returns, along the metrics of:
- Product value: total returned value by product. Helps you determine which products represent the largest proportion of returned value
- Customer value: lifetime value and repeat order probability of customers after making a return. Keep in mind that the cost of a return can be offset by future purchases from a customer, if you can keep them happy
- Time: elapsed time between order placement and return. How long after an order are most returns placed? Should you adjust your return window to be shorter or longer?
- Seasonality: rate of return over time. Does the return rate depend on the season? Are there any spikes or dips in the return rate corresponding with changes to policies?
Returns are often considered to be the bane of online sales. But with careful planning, you can turn your losses from returns into long-term profits from loyal customers.
Before you can make any plans or changes to your policy, you first need to collect your data and set up some smart reports. If you’re already a Magento Business Intelligence customer, there’s nothing holding you back from gaining control over your returns. Contact Magento Business Intelligence for support in setting up returns reports. And if you’re not yet a customer, schedule a demo today and see what you’ve been missing out on!