Key Returns Metrics For Successful Returns Management in E-commerce
Returns management has become a natural part of supply chain management, especially for e-commerce platforms. Reverse logistics refers to the process of moving products from their final destination back to the seller or manufacturer for return, repair, refurbishment, or recycling.
While ‘usual’ logistics operations focus on getting the products to the customers, the reverse logistics process takes these products from the consumers to the ecommerce business if the customer is not satisfied. Managing these returns has become a critical aspect of operations for these e-commerce platforms, but they will struggle to do that without monitoring the right returns metrics.
Like every other metric, returns metrics allow for easy identification of problems or areas that need improvement. Monitoring them effectively will improve decision-making, promote efficient resource use, and enhance cost optimization. Unlike the forward-looking supply chain, which focuses on delivering goods to customers, the reverse supply chain involves customers in the process slightly more. Therefore, reverse logistics can benefit from proper analysis of the returns metrics, leading to satisfaction and loyalty.
1. Returns Rate
Monitoring the returns rate gives the online store or retailer an idea of how many times a particular product is being returned by customers. This metric shows the percentage of total orders for that product being returned. With this, e-commerce businesses can make better decisions about stocking that specific product/SKU in the future.
For instance, a low to no return rate means the business is getting the product fit, description, and delivery process right. More importantly, customers are happy. On the other hand, a high return rate either means the product is not great, or the company is making mistakes in the delivery process. This can spark an investigation that will reveal the true cause of the issue.
A clear return policy can significantly impact return rates by setting customer expectations and reducing misunderstandings.
Regularly tracking return rates across product categories can help e-commerce businesses uncover patterns that need attention. Addressing return causes can reduce future return rates, cut costs, and improve customer satisfaction.
2. Return Reason Analysis
Returns happen for various reasons. They could be due to the wrong size, fit, delivery, or description. Whatever the reasons, this metric is important because it helps the e-commerce platform identify the reasons behind the returns and tells them what they need to do to reduce them.
For example, if customers return an item because it is the wrong size, the platform may want to investigate why that is happening. Is it because the wrong description is on the e-commerce platform or because customers do not understand what is being written? Sometimes, it could also be because they do not trust the sizes described, so they buy various sizes to get the right fit and then return the rest.
Customer feedback is crucial in understanding why customers return items. It enables companies to address common problems, like refining product descriptions, improving size accuracy, or enhancing packaging quality. This way, e-commerce companies can make strategic improvements that not only reduce return volume but also boost customer satisfaction.
3. Return Processing Time
Timing and speed are critical to their success in modern-day retail and supply chain operations. Customers are obsessed with speed more than ever. They want their deliveries as soon as possible, and they want companies to process their returns even faster. That is why the returns processing time is very important. It captures the average time it takes to process a return from receipt to completion (refund or exchange).
The faster the e-commerce platform processes returns, the more product returns it can handle and sort out quickly. Beyond operational efficiency, it can also settle return disputes and customer queries faster, leading to better customer satisfaction, which will enhance or build customer loyalty. On the other hand, a prolonged return cycle can lead to dissatisfaction and impact cash flow.
By tracking this returns metric, these online retailers can identify bottlenecks in the returns management process, equipping them with the information they need to implement solutions that enhance operational efficiency and customer satisfaction.
4. Refund and Exchange Rates
At this point, returns are inevitable. Too many factors make it so that customers are inevitably forced to return some products, and in many cases, it is beyond the business. Meaning it is not their fault. For example, holiday sales come with massive return rates because customers do not like the gifts they receive. That in no way reflects the business, but it is only half the problem. Considering the business has made that sale, the rate of refunds or exchange rates could impact profits.
The refund or exchange rate returns metric tracks the percentage of returns that result in a refund or product exchange. Ideally, the latter is better than the former because high refund rates compared to exchange rates can indicate a lack of customer confidence in product replacement options.
Knowing what is happening can help the e-commerce platform take steps to reduce one while increasing the other. Analyzing this metric helps e-commerce businesses understand customer preferences and can inform strategies to promote exchanges over refunds, reducing potential revenue loss. Please note that one way to enhance product exchange is to provide options for store credit(s).
Implementing a customer retention strategy can also help manage refund and exchange rates. By focusing on retaining customers, businesses can build trust and encourage more exchanges rather than refunds, ultimately improving profitability.
5. Cost of Reverse Logistics Processes
Although customers pay for the logistics or transportation of their products when they purchase them, it is difficult to find a platform that insists customers pay for returns, especially when it is not the customer’s fault. In cases where it is the customer’s fault, many online retailers will insist that the customer pay for the returns, but the vast majority do not charge customers for these returns.
Whether or not the customers pay for it, reverse logistics costs are real. They typically include expenses related to the reverse flow of goods, from transportation and handling to restocking. They can be costly because they entail the same processes and resources as the main logistics operations, although the volume may not be as great.
This means that tracking this returns metric is critical for managing and optimizing the cost of operations. Lowering these costs through cost optimization reduces the financial burden of returns on the business.
6. Customer Loyalty and Satisfaction
Customer experience in the return process is important because, in a very competitive industry, the wrong move can drive them away. Conversely, doing things right will improve the customer retention rate. This is why you want to know their feedback regarding their returns experience. Positive experiences usually mean confidence in the business, which drives repeat purchases. When the business can effectively track customer satisfaction throughout the returns process, it can gauge how well the returns experience meets its customers’ needs.
Implementing a customer feedback loop is crucial in improving the returns process. By continuously gathering and analyzing customer feedback, businesses can make informed adjustments to enhance the overall returns experience.
7. Inventory Recovery Rate
With this returns metric, the e-commerce brand can identify the percentage of returned items that can be resold or refurbished. Take, for example, electronics. A higher recovery rate minimizes financial loss by increasing the resale potential of returned items. Inventory management is critical when managing ecommerce returns, and tracking the recovery rates allows the platforms to identify which product categories are most viable for resale and improve inspection processes to maximize recovery.
By understanding the resale value of returned items, businesses can better assess the financial benefits of recovering and reselling these products.
Tracking Key Returns Metrics With ReverseLogix
ReverseLogix is built with meaningful metrics and game-changing insights in every module. With end-to-end returns management and best-in-breed tracking and analytics, it is the solution to unite all your existing business technologies and deliver metrics and data to every team member.
Gain total visibility across the entire returns journey, optimize performance to stay competitive, and increase your real-time edge. Utilize data analytics to track key returns metrics and operationalize all your data so it’s usable and understandable. Access customized reporting based on departments, user roles, or locations so distributed teams can always stay in sync. Put ReverseLogix in your hands and unlock more value from every return. Your free demo is on us, connect with us today.
Frequently Asked Questions
Reverse logistics costs cover expenses associated with transportation, handling, and restocking returned products. This is why every e-commerce brand must have a solid reverse logistics plan. It can help identify inefficiencies and opportunities for reducing expenses in the returns process. Additionally, effective customer service plays a crucial role in managing returns, ensuring a smooth and satisfactory experience for customers.
Proper packaging protects items during shipping, reducing the chance of damage, a common reason for returns. Environmentally friendly packaging also aligns with customer preferences and may improve satisfaction.
Analyzing return rates by category helps pinpoint specific products or types of goods with high customer returns, allowing businesses to effectively address quality, fit, or description issues in specific categories.
