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Can Offering Free Returns Make You Money?

Updated: Jul 31, 2023

Who is this for: eCommerce businesses and brands

TLDR: Most eCommerce businesses offer or are considering offering free returns. But how can you determine if it's the right decision for your business? We conclude that for most eCommerce stores, it is profitable to offer free returns. Still, every business is different. So we created a Free Returns ROI calculator to help determine if it's profitable for your business.

Free returns - worth it?

If you sell products online and you currently offer or have considered offering free returns to your customers.

Do you know if offering free returns is a good idea for your online store?

That's what we will discuss in this article, as well as provide you with a free calculator to help better answer this question for your business.

The pros of offering free returns:

Increases your conversion rate

The number one reason is that it increases your conversion rate. Removing the risk of purchasing products from your business. Some studies have found that 12% of abandoned carts are due to inadequate returns policies. This will vary widely depending on your business and the products you sell.

For example, clothing will likely have a much higher percentage of people wanting free returns due to sizing concerns over a company selling cleaning products. So offering free returns to these customers can increase the number of conversions for your store.

Increases your customer retention

The second reason for offering free returns is to increase customer retention and your NPS (Net Promoter score), which is how likely people are to recommend your business. Making your return process super easy and free encourages people to shop at your store repeatedly.

In fact, according to an NPS study, over 70% of people said that their return experiences would impact their decision to buy again. This also goes towards them recommending your business to others and even leaving reviews.

Simplifies your customer service & reduces complaints

The third reason to offer free returns is that it simplifies your customer service experience. Allowing your team to instantly process free returns without having to go to a manager to get approval drastically improves the experience for your customers.

This is something that often gets overlooked, but the amount of time your team spends dealing with unhappy customers can add up and cost you more than the cost of the return. However, the time cost isn't even the main factor here. The reduction in negative reviews and complaints can have the biggest impact on your business.

A bad review can cost you thousands of dollars in lost revenue, so it is generally not worth it. We discuss the principle behind this in another video and blog called: Win Wars, Not Battles.

The cons of offering free returns

Increases your costs

So what are the cons of offering free returns? The most obvious one is simple. Having to pay the shipping costs for returns from your customers. Depending on your return rate and margins, it can eat into your profit margins.

More customer returns

The second con is the increased amount of returns that you might receive. There will always be a certain amount of people that would not have returned a product if they had to pay for the shipping but will do it once it is free.

This costs you money with shipping and handling, but you also lose the sales revenue, which must be considered when working out if returns are worth it for your business.

Exposes your business to fraud

The third problem with offering free returns is that it is much easier for people to defraud your business. Return fraud is a massive problem for many online businesses and is getting worse.

In fact, according to the National Retail Federation, about 10% of all returns to Amazon are fraudulent. Costing Amazon billions of dollars every year. While Amazon is a prime target for fraudsters and will have a higher return fraud than most, it’s still an incredibly high number.

There are best practices that will help your business reduce fraud (See this Blog), but you still need to consider them when deciding to offer free returns.

So should you offer free returns to your customers?

In general, for most eCommerce businesses, offering free returns is profitable and makes you money due to reduced abandoned carts and increased customer satisfaction.

As with all business decisions, it will depend on your business. So we created a free returns ROI calculator to see how free returns will impact your bottom line.

The calculator works by increasing revenue from decreasing abandoned carts minus the cost of offering free returns, such as shipping costs, wages, and increasing returns.

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