It may seem pretty counterintuitive to proclaim that customer returns can actually be fairly profitable for your business, but the truth is that if they’re handled well by your returns management team, it can be true.
Not only do good experiences with returns help improve customer retention, which opens all kinds of doors, field research by MIT actually demonstrated hard evidence of significant profit increases with lenient product-returns policies that favor the customer.
Profiting From Customer Returns
MIT wanted to know if companies were better off with a strict returns policy that favored themselves or one that was more lenient and favored the customer, so they examined two very different strategies within the same company to see how customers would respond.
What they found was telling. Customers responded positively to a more friendly and easy returns policy. Even though the average return increased to $67.90 from $20.50 per customer per year under the company’s standard strategy, the average number of new customer referrals increased to 1.6 from 0.8 per customer per year.
More importantly, the average profit per customer per year rose from $247.58 to $302.36, a full 22 percent increase! Note, this was based on a non-optimized company strategy. MIT estimated that under an optimized, ideal company strategy, profit could have risen as high as $371.34 during the same period. Under the strict returns policy, the most profit the optimal model predicted was $254.56.
The MIT study was only considering direct profits from increased purchases due to a breakdown in the psychological barriers to purchase. They didn’t look at additional revenue sources that returns management companies can generate, like refurbishing returns that are damaged, recycling items that contain precious metals or reselling outdated items to a secondary or foreign market.
Your Repeat Customers are the Most Profitable
If you think about it, a good returns policy and team can really help you encourage repeat customers.
People won’t come back if they’re afraid what they buy can’t be returned or exchanged if it doesn’t meet their expectations, after all. Data analytics company SumAll found that a customer who has bought from site once has a 27 percent chance of coming back and once they’ve shopped three times, they’ve a 54 percent chance of buying again. Adobe Systems discovered that those repeat visitors generate about 40 percent of your revenue, even though they only make up an average of eight percent of your visitors.
It would seem that being ready and willing to accept returns works in the favor of your business, even though it’s not necessarily an intuitive move. It probably doesn’t hurt to add that 70 percent of shoppers will buy something additional when returning an order in person and 45 percent will when processing a return online. It seems customer returns can lead to greater profits in a lot of different ways, especially if you have a great reverse logistics team!