Episode 011: Developing a Return and Refund Policy for Your Ecommerce Website

Episode Summary: 

If you are selling items online, at some point you will need a return and refund policy. In this episode, Julie dives into the different parts of the policy you will need to think through, how to implement a policy, and knowing when to make exceptions.

Episode Links:

Episode Transcript:

Announcer:

Are you looking to take your online business to the next level? Well, you're in the right place. Welcome to The Savvy Business Method, with your host, Julie Feickert.

Julie Feickert:

Hello, and welcome to episode 11 of The Savvy Business Method podcast, where we talk about how to plan, start, and grow your small business online. I'm Julie Feickert, and my goal is to help you build practical business skills so you can provide a better life for your family.

Alright, before we start today, a couple of quick notes for you. A reminder that a full transcript is available in the show notes if you need to go back and find a piece of information. That's there for you. You can also find me both on Facebook and YouTube. On YouTube I have a bunch of short videos up if you'd like to check those out. Lots of quick tips for managing an online business.

Alright, today's topic is designing a refund and return policy. Now, I realize this does not sound like a good time So before we get too deep into a what your refund and return policy is going to look like, let's stop and talk about why you really need to have policies in place as a website owner. Now, I realize, especially if you're just getting started, there is a lot of temptation to just go with the flow and make it up as you go along. And I'm not saying you can't do that in the very beginning. There is definitely something to be said for getting to know your market, your customers behavior, kinda the nature of the products, and just kinda see how things go. But once you have maybe a few months at the most under your belt, maybe shorter if things don't get off with a bang for you, really important to sit down and start thinking through some of these issues so that you can get a written policy pulled together.

Now, why have a written refund and return policy? First and foremost, it's reassuring to customers. Think about your own online behavior. How likely would you be to go purchase something from a website? You're probably gonna know it's a fairly small website, right, you're a pretty savvy online shopper, so you know it's a small website. If there doesn't seem to be any information about what happens if you're not satisfied, that probably lowers your incentive to shop with that website, okay. So that reassurance we can provide our customers by having even a really simple refund and return policy can be huge. It's just that legitimizing factor there. This is a safe place for you to spend your money.

Alright, next, having a policy in place keeps you and your staff consistent. Okay, again, if you're just getting started, it may just be you. You may not have a team. But let me tell you something. From years of experience, as well as years of experience, there was a couple years there in the beginning that I didn't have a team. It was just me with my first company. You don't really want to be making all your decisions on the fly. It's exhausting. Having thought through some of these issues in advance can really help streamline your processes, even if you're answering every email. And then really, we always want to preserve our ability to very easily hand off these tasks to a virtual assistant or customer service person in the future. We don't necessarily want to do all of the things in our business ourselves long-term. So having these policies written out can be really useful. I've seen cases where entrepreneurs went for many years without written policies and it just got passed down from one person to another and there was definitely a point in my business where that was happening. And boy, it makes it really hard if you suddenly do need policies, if you need to hire somebody new, or train someone. So just something to think about. Having that consistency by having a written policy can be really helpful and save you a lot of frustration later.

Alright, having a policy also really does save some awkward conversations with customers. If a customer can quickly find a policy on your website that let's them know what they need to do if they want to return a product and receive a refund, then you're not constantly having to have that conversation. Those conversations can be tricky, awkward. You really end up walking on eggshells sometimes. So having that written policy in place means at least part of the people that you're going to need to work with this on are not going to actually contact you and have that conversation. So that's a win-win. You're not paying for that customer service interaction, paying someone to do it, or taking away your time, and you're not having to have yet another awkward conversation.

Okay, well besides benefits directly to you as a website owner you may have some outside factors too that really drive whether or not you need to have a written policy. One is that a lot of payment providers, especially the higher quality payment providers, we talked a couple episodes ago about credit card processors, some of these processors are going to require you to have a written policy on your website. It is a way for them to help prevent problems with customers. Going forward, it's a way for you to demonstrate that you're a legitimate company to work with and that you have your act together. Also, site verification processors might require it as well. I'm trying to remember, it's been a few years, but I think when we went through the Google verification process that was one of the things they wanted to see. We did have the policy on the site, but the policy was not as very specific as they wanted it to be and didn't include certain terms that they wanted. So that's just something to be aware of too, is when you go through if you apply for any site verification or badges or anything like that, you may need to have a better return policy in place, even if you have one then you might have currently. So that's just something to keep in mind as well.

Alright, well hopefully I've convinced you that having a written refund and return policy is important. So let's talk about what that looks like. Grab a cup of coffee or a glass of wine, depending on the time of day, or not, because I just simply won't judge you, because I truly understand what it's like to run your own business

Alright, let's talk about the parts of the policy that you need to develop. First off, let's talk about the actual policy itself. This is the thing that you are going to write down. Those terms that you need to come up with.

Now, there's a couple of factors to take into account here. One is the number of days someone has to return an item or apply for a refund. A minimum here is 30 days. You are probably going to run into problems without outside payment providers, the site verification services, if you don't have at least a minimum of 30 days for a return policy. And realistically, 30 days really is considered like an E-commerce minimum. A lot of stores have longer than that. So if you are less than 30 days, that might be a red flag to your customers. Now, you will need to factor in your customers behavior, the prices of the items, what bracket you're in there, your cost of the items. All of those things can play a role into the number of days you actually decide on. If returns are very rare in your industry, or you are in a highly competitive industry where you need to be the most forgiving, awesome website out there, I would really encourage you to be as generous as possible in terms of these number of days. You know, you don't want to get into a bad situation where you're being taken advantage of. I am not advocating that at all. I'm just saying play your cards wisely here. Take into account all of the different factors, like how likely your customers are to actually take advantage of the policy, and if you could have that longer policy, it looks good on your website. It can help people decide to purchase from you versus someone else.

Okay, next step you're going to need to give some thoughts to the reasons someone can return an item. Are you going to have any rules about this? So for example, common rules have to do with whether an item's been used or if it's in unused condition, whether it's resellable or not. I would really encourage you to keep this as simple as possible. You may, as a website owner, be in a position to dive into a ridiculous level of nuance on this. Your customers are not. They are going to simply look at it as whether or not you are being difficult. So when you're thinking about these things, you really are thinking about them in terms of hills you want to die on, okay So I would encourage you unless there is a really good reason that you not be putting a lot of restrictions on what can be returned. A good rule to keep in mind is that showing grace can salvage an otherwise bad situation with our customers. We'll talk more in a few minutes about what a bad situation might look like.

Next up, whether there will be any fees involved with returning. I'm talking mainly about restocking fees. Restocking fees used to be really common. So if you haven't run into this before, this is where let's say you bought something for $10 and you decide to send it back. The company keeps like 15% to offset their cost of putting that item back in stock. So it used to be really common, not so common anymore. And I'll tell you, I would really encourage you to avoid these like the plague. I used to use them too. I think most E-commerce websites did. But they are now looked as being petty for lack of a better word, and they really tend to make customers who are already not thrilled with the situation angry, and we do not want angry customers. Restocking fees can also make it hard to get through a site verification process, again. So that might be something to think about as having that restocking fee may make it harder for you to do some of the other things that you need to do.

Alright, along with restocking fees something to think about is who pays for the return shipping. So if the customer's gonna send this item back to you, who's gonna pay for that shipping? Now, it is general rule of thumb, it is okay to have a customer pay the return shipping if it's the customer's fault they're returning the item. So if it's something like they decided they didn't want it, or they ordered two of something and they should have only ordered one. Something like that. In theory, you're on fairly solid ground by telling them that they need to pay for the return shipping to get it back to you, okay. Now, Amazon, Zappos, some of these other big E-commerce companies are kinda make this more problematic. They've been doing it for a few years where they have these free return shipping situations for a lot of their items. Not everything. I mean, you can return just anything to Amazon and get free return shipping. But especially if you're looking at things like clothing and shoes, generally you can return those items for free. And that, if you're in one of those industries, that can put a lot of pressure on you to do the same. So again, this is something you really need to be thinking about in terms of how often is this actually happening? Can you factor this cost into your margin? All of those things will come into play when you decide whether or not to do this.

And along with that who pays shipping, you need to be thinking about whether you're going to be issuing return shipping labels. And there's two ways to do this. If you've ordered clothes online recently, you have probably received a return shipping label in the box with your order. And that's very common because if you aren't in the clothes industry, you may not know that the return rate for clothing is ridiculous. Like, it's a mind-blowing number. Don't, yeah, just be afraid. Now, if you have a high return rate, if you are in one of those businesses, putting those return shipping labels in the box actually might end up saving you a ton of customer service costs. Last time I checked there's a cost to print those return shipping labels. It's like 50 cents a label or something, but check into that. If you're in a high return rate industry, it might be well worth it to just go and put those in the box. Now, even if you're not putting them in the box, and I've never personally been in a situation where that made sense for my company, if someone's gonna send something back, there is an argument to be made that sending them a return shipping label is good customer service. It keeps things simple. It helps control that process of that item coming back to you and helps you be able to track that item. So you're a little bit more in control of that situation. So that's just something to think about as well along with who pays for shipping. Just how that shipping is actually going to occur.

Okay, next up and the last thing we need to talk about in terms of just the actual policy itself, these are things you're writing down to put on your website for your customer, how are you going to do refunds? Are you going to do a refund to the payment method they used? Or are you going to issue store credit? I'm gonna tell you upfront the best practice is to issue refunds to the form of payment that they used. So if they used their Chase credit card, then that's what you're going to issue the refund to. Store credit is a little bit of a dangerous game to play, especially if you made them return the item. You might be able to get away with store credit if you let them keep the item. But once they've returned the item, you're in kind of a dangerous situation in terms of chargebacks and things. I'll talk about that in a minute. But your customers have a lot of options to make your life pretty miserable if they decide that they're not happy. So I would encourage you to stay away from store credit if you can.

Now, couple things to think about, sometimes you're not going to be able to refund to their credit cared. For example, 90 to 120 days after that purchase, you typically lose the ability to refund that payment. Also, if the credit card's been closed or has expired since that purchase was made, that can happen really quick, then you can have a problem as well refunding the payment. You know, cards expire all the time, of course, and then if somebody has like a fraud issue with their card and has to close their credit card, you won't be able to easily issue them a refund. So just a side note, you'll need to have a process in place potentially for issuing checks to customers for refunds. And that makes no one happy at all. Not you, not them, no one. But you do need to have that process in place, because usually by the time you're having to explain to someone you cannot issue a refund directly to their credit card and no, you can't issue a refund to their other credit card that they didn't use, people tend to be a little bit upset. And so you're gonna need to be able to get a check out to them really quickly. Okay, so now we've gone through all of the things that are gonna go on the policy itself, right. The number of days, the condition the item has to be in, whether they're gonna be fees involved, who's gonna pay for shipping, how those refunds are gonna happen. All that goes into your refund and return policy.

Now let's talk about a couple of other factors that kinda come into play as a website owner. Some things we need to be thinking about. The first one is knowing when to make exceptions. Having rules and policies in place is really helpful to efficiently and effectively running our companies. But it's also just as important to know when you need to throw those rules out the window and just do the best you can in a difficult situation.

Alright, the first place that you need to be darn sure you are making an exception if something happens is if the return is happening and it's not the customer's fault. So they were shipped the wrong item, the item was not described accurately on your website, the item was broken in transit. I mean, there are so many reasons that someone could get an item and legitimately not be happy with it and it's not their fault as a customer. I would strongly encourage you that you're number one goal in that situation is to make as sure as you possibly can that the customer does not feel penalized. This situation's already a massive inconvenience to them, and so you need to pull out all the stops to try to make this as slick as possible if you're gonna have that item sent back to you, or get them a refund as quickly as possible, or get them the item they did order in the condition they ordered out to them as soon as possible.

Alright, the other thing I would really encourage you to think about in terms of exceptions is it is really important as a website owner to have some judgment on this and know when a fight is not worth having. As a general rule of thumb, I would encourage you not to fight with your customers. You will almost never win. And the consequences can be devastating. So there's a couple of reasons that you might want to think about a fight not worth having. You have a customer's contact to do, and you're not able to quickly resolve the situation. Every time that customer contacts you, every time you or your staff have to respond to that customer it is costing you money, right. It's costing you either time that you're paying someone to handle this or it's costing you time that you could be doing something else, hopefully something to make your business money, versus cost your business money.

Alright, so there have been points with customers, with one of my past companies in particular, where we didn't have very many problems, but if we had a really difficult situation, we tended to cut our losses pretty early, because the products just weren't that expensive, and the time my customer service people were spending was costing me far more money. So just something to think about. You gotta make that calculation. The other thing you need to think about is that customer who use credit cards to pay for items, and this include PayPal accounts, okay. So PayPal account, credit cards, Amazon accounts, they have a lot of power in terms of getting their money back from their credit card company or PayPal. You know, honestly, they really just have to go to their credit card company and say I don't think I got what I thought I should get. And in almost every case they're gonna get their money back really quickly. And then it is on you as a company to prove that what they were saying in not true. And let me tell you, winning those fights is not only incredibly time consuming and stressful, you almost never will win. You are not the credit card company's customer, right. Their customer who's paying interest on their credit card is their customer. They're the ones they want to keep happy.

So you need to be aware in the back of your mind when you're talking to a customer, when you're trying to figure out how to resolve a problem, that that customer has the ability to just go get their money back anyway. So sometimes it's best to say you know what, I see where this is headed and I'm just gonna give them their money back now before this ends up costing me even more money, okay.

And of course, we have to be terribly concerned, especially in this age of social media about bad PR. Someone can get out there and trash us so quickly and so effectively. In the last 10 years I've been doing this, I've been very fortunate. I feel like we did a good job of managing situations so that things didn't spin out of control. But I have seen cases where companies made some small mistakes and how they handled a customer and should have been more accommodating, and should have seen where things were going with that customer, and had it end up being devastating for them. That customer would get on social media and start saying this happened and this happened and this happened. And maybe it's not all entirely true, but maybe there's just enough truth there that people pick up on it. I've seen it spread through the blogs as wildfire. It just can be really devastating.

So I'm not telling you to be paranoid. I'm not telling you to make all your decisions from a place of fear, but I am encouraging you to be very thoughtful and remember that your customers have options, okay. They have ways to make your life miserable. So you need to be thoughtful and really deal with these interactions with integrity and know when you're fighting for the sake of fighting versus for an important point. As much as it stinks, sometimes you are far better off just letting them keep the item, refund their money, and move on. Don't do that too often, but every once in awhile that's gonna be your best idea.

Next up, let's talk about educating customers on the policy. Now, once you have this policy written, a good general rule of thumb is to be upfront and put the policy in places where it's likely to be seen. So this needs, of course, to be on your website, probably on your shipping or ordering information page. Generally, you'll want to see it in your terms and conditions, even if, you know, nobody ever reads those, or hardly anybody ever reads those. I would also encourage you if you have the ability to do it to put your return policy on your packing slip. Now, I realize at first glance that sounds like a terrible idea. Why would we want to encourage our customers to return something by putting the policy on the packing slip?

Okay, so here's the thing. Customers don't decide to return something because they see that you'll take it back. If they're about returning something, they're already thinking about returning something. And at that point salvaging that situation is about making that return process as easy as possible. So putting that information on the packing slip isn't about encouraging them to return. It's about intercepting that thought process and making sure that they have the information, that they feel satisfied with the information. Hopefully it also means that you'll get that item back in the way that your hoping to because they had that information early on.

Alright, final thing, when you're looking at designing refund and return policies, you need to make some decisions about what you're going to do with returned merchandise. Now, of course, there are going to be times when an item can be resold and can't be resold. So those might be simple decisions. But if you are selling things that are perishable, or are lot controlled, that means things like food, or supplements or something where you're tracking lot numbers so that you can do an effective recall, you're probably not gonna be able to resell those items. So that's something where you potentially need to look at best practices, talk to your regulatory agency, talk to your attorney.

But just something to think about. You can't always resell something that comes back. So in the end you probably do need to sit down and think about what your loss here is. You might need to budget in the loss. If you're dealing with items that are very low cost to you, and you have fairly large margins, this may not even be of issue. But if you're dealing with small margin high cost items, then budgeting in for your return rate's gonna be pretty important for keeping your margin from disappearing.

Alright, well refund and return policies aren't exactly fun. But they can definitely save you some headaches. And having a good policy can potentially salvage some good will with your customers. And that needs to be your goal, because refunds and returns happen. Thanks so much for joining me today. I'll be back in your feed in a few days, and in the meantime take a few minutes to either review your return and refund policy if you have one, or if you're just getting your business started, start sketching one out while this is top of mind. Just take a few minutes to think about what are the factors I've talked about today that apply specifically to your company and your situation.

Alright, now don't forget I'd love to hear from you. If you have feedback or ideas for future shows, you can find me at savvybusinessmethod.com, as well as on Facebook and YouTube. Be sure to hit that little subscribe button in iTunes and Stitcher so you don't miss an episode. Also, subscribing, rating and reviewing helps other people find this podcast. This is just a weird world, let me tell you But I'd like to get this information to as many people as possible so that we can all be in a better position to have some flexibility in our lives and support our families by starting our own small businesses online. So I will see you next time.

Announcer:

Thanks so much for listening to this episode of The Savvy Business Method with Julie Feickert. If you enjoyed today's episode, please leave a review and subscribe. And for more great content and to stay up to date, visit savvybusinessmethod.com and Savvy Business Method of Facebook. We'll catch you next time.

Episode 011: Developing a Return and Refund Policy for Your Ecommerce Website