The goal of any retail establishment is to make a profit, and consumers are the cornerstone of that profit. However, as reverse logistics managers understand, consumer returns can have a heavier impact on profit than sales. Your return policy can make or break your company’s overall profit margin. Return policies that are too loose or too tight will affect consumer’s feelings about a product. A balanced return policy that addresses both your needs and the needs of the customer can reduce returns and increase profits.  

When your Return Policy is Too Loose

A company might try to encourage sales by implementing a return policy that’s too customer-friendly. Perhaps you want to encourage purchases by offering a never-expiring return date. Or maybe you start allowing returns without an original receipt. Perhaps your company also accepts returns with no questions asked.  

Loose or relaxed return policies like those might initially cause sales to jump, but they open the door to a worse issue. Customers know they can buy more because they also know they don’t have to keep the merchandise. That mentality leads to an increase in returns. The customer doesn’t have any loyalty to the product or the brand, and the relaxed return policy allows them to maintain that distance.  

When your Return Policy is Too Tight

While a loose policy encourages an initial influx of sales leading to more returned merchandise, a strict policy can do the opposite. A tight policy could mean returns aren’t accepted at all. Or perhaps a company limits returns to a one-week time frame from the point of sale. These policies are off-putting to consumers because they cause them to feel trapped.  

When consumers think a return policy is inflexible, they will question the establishment’s reputability and are less likely to spend their hard-earned money. Consumers will be less inclined to buy if they can’t make a return for whatever their reason might be. Though it cuts down on returns, a stringent policy also cuts down on purchases – lowering overall profits.  

Think like Goldilocks – adopt a Policy that’s Just Right

To ensure your profit margins remain intact, try to institute a balanced approach where the interests of your customers and your company are well aligned. When an open-ended date to return is too loose, but not allowing returns at all is too tight, a compromise would be the best plan. Try limiting to a 30-day return with a receipt. Or perhaps implement an RMA where a consumer needs to call a customer service representative for authorization to make the return.  

A consumer return can be born out of buyer’s remorse, financial reasons, or a host of other factors. Companies need to understand that returns are part of the sales process. Balancing your company’s needs with the needs of your consumers will help keep your consumer returns in check and your profit margins intact. 

Image credit: Colin Harris