The Return Policy: The Forgotten Fundamental of Online Sales

E-commerce is based on trust. Customers see a picture and a description of a product on your Web site, and, based on the information you provide, make a purchase. An e-commerce site that does not inspire this trust in its users will do precious little business. One of the best ways to put customers

at ease is through a well-thought-out and prominently posted return policy. Spending a little time now developing a return policy may spare you a whole lot of headaches down the road.

First, decide which type of return policy will work for you. If you are already doing business offline, you probably already have a return policy; in this case, it's as simple as typing up your policy and posting it on your site.

Exchange Only

As the name suggests, an exchange-only policy means that if a product is defective, you can replace it or offer the customer a different item of equal value. For example, if your customer purchases a digital camera from you and it does not work, the customer would first have to return the defective camera and then you would send a replacement out once the defective product is received. While you will lose revenue from the replacement product, you won't have to process a refund and give back the revenue from the sale.

Store Credit

Next, you can offer a store credit for merchandise. This means if customers are unhappy with a product, they can return the items to you and receive a credit for the amount of their purchase, usually less shipping costs. However, this may not appeal to a customer who has had a bad experience with your product, and it may not be effective if you only sell one type of product.

All Sales Final

You can also offer a no-refund, exchange, or credit policy, where all items are sold on an as-is basis. An as-is policy may save you money in the short term, protecting you against merchandise being damaged in shipping and fickle customers; but in the long run, it will assuredly cost you money. Many online shoppers won't buy something both sight unseen and unreturnable.

Complete Refunds

On the other end of the spectrum, you could consider offering complete refunds, but you'll need to consider the costs of this policy as well. When customers return items, especially if they used a credit card to purchase them, you will still need to pay the processing fees for the purchase, increasing the amount you will need to pay for the return. For example, if a customer purchases a book for $15.95 and your merchant account charges a 2 percent processing fee, you have only received $15.39 for the item. When the return is processed, you will still need to pay the customer $15.95, leaving you $.60 short. This can add up over time.

Restocking Fees

Charging a restocking fee can help mitigate this. Many businesses charge a restocking fee of 10 percent to 20 percent to help cover any processing fees, handling, and other costs associated with processing returns. Restocking fees are normally charged only on returns and exchanges made at the customer's discretion, not on returns of defective merchandise.

You could offer the most generous return policy ever, but if your customers don't see it, it won’t do you, or them, much good. A return policy that a customer does not see is nearly impossible to enforce without creating a dissatisfied customer. Once you decide which policy will work for your business, post it prominently.

It is also a good idea to print your return policy on the receipt, including any information customers will need to provide if they have a problem with the product. You can state that the customer will have to pay for the return shipping, or you can supply them with a return shipping label that will be charged to your business. Include contact information for your customer support service as well.

The best return policy is one that you can adapt to meet the needs of your business. You can take various policies and mix and match them to create your own policy. Whatever policy you decide on, post it prominently and stick to it.