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Returns for online stores: reverse logistics that will not eat your margin
What one return really costs, a worked example you can redo with your own numbers, and how the Sendcloud return portal helps with labels, reasons and refund options.
Most online stores know exactly what it costs to send an order out. What it costs to get one back is less clear, and that is where margin quietly disappears. Below you will find what a return is made of, how to work out your own number and what return tools can do for you.
The legal side (the 14-day withdrawal period, refund deadlines) is covered in Online store returns: how to set up a process. This article is about the money.
What one return is made of
Say “return” and most people think of postage. That is only the most visible part. A return has four cost items:
- Return shipping. Paid by you or by the customer. For a free return it is a direct cost.
- Outbound shipping. Standard delivery is refunded to the customer along with the goods, but you paid the carrier. You will not get that money back.
- Labour. Receiving the parcel, matching it to the order, inspecting, restocking, sending the refund. Each step takes minutes, yet none of it appears on an invoice.
- Value of the goods. What comes back undamaged goes back on the shelf. Opened, handled or boxless goods are sold at a discount or written off.
Work out your own return
The figures below are an illustrative example only, so use your own. An item sells for €48 with a €12 margin. Outbound shipping cost you €4, return shipping another €4, and handling takes ten minutes of work, say €2. If the goods come back in a state where you can only resell them at 30% off, that is another €14.40 gone.
| Item (illustrative example) | Return, goods back in stock | Return, goods resold at a discount |
|---|---|---|
| Margin you lose | −€12.00 | −€12.00 |
| Outbound shipping (already paid) | −€4.00 | −€4.00 |
| Return shipping | −€4.00 | −€4.00 |
| Handling labour | −€2.00 | −€2.00 |
| Discount on returned goods | €0.00 | −€14.40 |
| Total versus the order going through | −€22.00 | −€36.40 |
One return here wipes out the profit of roughly two to three other orders. Only with a number like this can you decide sensibly whether free returns make sense for you. The e-shop ROI calculator can help with the rest.
Who pays for return shipping: three considerations
There is no universal answer, but these three points help:
- Expensive goods that are rarely returned. Free returns work as a reason to buy, and there will not be many anyway.
- Fashion and footwear, where returns are frequent. Free returns are often the expected standard. Build them into your prices and track what share of orders comes back.
- Cheap goods with a thin margin. A return at your cost can eat the whole profit. Charging for returns, or offering them free above a basket value, makes sense here.
If you want to charge for returns, say so in your terms before the purchase. Otherwise, as explained in the returns process article, you pay.
What tools can do for you
Sendcloud return portal
Sendcloud’s return portal links each return to its order. The customer enters the tracking number and postcode, selects the items, gives a reason and chooses what they want: an item exchange, money back or store credit (you can offer just one option or all three). They then receive an email with a label or QR code. You set the return period, the return address and the return cost, which the customer sees when choosing. Return reasons also end up in analytics, and that is exactly the data you need. For a wider comparison of platforms see Sendcloud, Packlink and direct carrier contracts.
Available return methods differ by country and carrier, so check what works in your market before you launch.
Your carrier’s own return service
Many carriers sell return labels or return portals of their own. Ask yours whether returns are priced differently from outbound parcels, whether the return can be linked to the order number automatically and whether there is a drop-off option that needs no printing. Prices and terms depend on your contract, so confirm them with your account manager.
The cheapest return is the one that never happens
Shipping is only part of the bill. The bigger savings are elsewhere:
- Record the reason for every return. Portals do it automatically, otherwise a drop-down in the form is enough. After a month you will see whether the wrong size, a misleading description or damage in transit is behind most of them.
- Fix descriptions and photos. A size chart helps with fashion, exact specifications with electronics.
- Improve packing. A damaged parcel comes back and the goods are gone. The basics are in how to pack a parcel.
- Track returns by product. Often most returns come from a small part of the range. Fix that product or drop it.
How to start
- Work out the cost of one return using the table above and your own numbers.
- Decide who pays for return shipping and put it in your terms before purchase.
- Switch on a portal or return labels with the carrier you already use.
- Collect return reasons and, after a month, fix the three most common causes.
More on shipping for online stores is in the e-commerce section.
Quick facts
Returns for online stores: reverse logistics that will not eat your margin
schedule Updated
Summary
A return costs an online store more than the postage: on top of return shipping there is the labour of receiving, inspecting and restocking the parcel, and for goods that can no longer be sold as new, a discount or a write-off. That is why it pays to work out your own cost per return and use it to decide who pays for return shipping. Sendcloud offers a return portal in which the customer enters the tracking number and postcode, picks the items and a reason, and receives a label or QR code; the merchant sets the return period, the return address and the cost shown to the customer. The customer can be offered an exchange, a refund or store credit. Availability of return methods varies by country and carrier, so check what works in your market before launch. The cheapest return is the one that never happens, so record return reasons and fix the causes instead of only optimising the postage.
- What a return costs
- return shipping + labour for receiving and inspection + any discount or write-off on the goods
- Sendcloud return portal
- customer enters tracking number and postcode; merchant sets return period, return address and return cost
- Customer receives
- a return label or QR code by email
- Outcome options in Sendcloud
- item exchange, money back or store credit (merchant can offer one, two or all three)
- Return reasons
- captured in the portal and reviewable in Sendcloud Analytics
- Availability
- return methods vary by country and carrier