Shopping Cart Software


How to Handle Refunds, Returns and Lost Orders

 by zack on 28 Mar 2013 |
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Part of any online store’s overhead is the cost of returns and lost orders. Consumers are finicky and prone to fits of indecisive action. Out of every hundred purchases, you’re bound to have at least a few returns. You need to prepare accordingly. That means working out a consistent and agreeable return policy that favors consumer habits, without making it too difficult for you to keep in business.  Refunds, returns, and lost orders can be quite an unpleasant bit of business. However, as long as you’re clear, consistent, and fair in your policies, you can actually end up adding value to your business.


Your return policy is going to be unique to your business. It needs to be personalized so that it makes sense for you, while still accommodating your customers. You can always offer a money back guarantee, however if your product is an impulse buy or something of the sort, you’ll need to actively work against buyer’s remorse in your return policies. Something like that can be addressed with time constraints. Time constraints are the limiters that you put on your returns. In other words, the length of time that you will allow before you no longer offer a refund for a returned item.

For example, let’s say you’re selling Girl Scout cookies and an inebriated forty something who’s feeling lonely, hungry, and depressed wants to put in a rather large order. You’ve got to limit the time he has to return his cookies or he might come to his senses and realize he doesn’t actually need 100+ boxes of delicious thin mints. Of course, you might actually feel bad about feeding him sugar coated obesity and not leaving a sizable window for returns but keep a stiff upper lip. You’re running a business here not a charity.

Store Credit vs. Money Back or Item Exchange.

You also need to decide what kind of a refund you’re willing to dole out. Do you offer full money back? Store credit? Or even exchange? The choice is up to you, but you should realize decisions like these have a direct effect on conversion rate. Customers like options, and the more you give, the more appreciative they’ll be. Conversely, if they feel locked into a purchase by an overly strict return policy with no refunds accepted regardless of circumstance, their confidence drops along with your credibility and conversion rate.

A store credit or exchange only policy can also limit your viability in a shopper’s mind. Especially if your store has a limited selection. Giving money back is never pleasant, but it’s a necessity if you want to keep your customers truly happy. Some might deal with an exchange or credit policy, but they’ll do so begrudgingly.

Policy Design

The Return policy itself, in its written form, should be easy to understand and easy to find. You want to
make things run smoothly for your customers. Use easily digestible languages so as not to intimidate, bore, or in any other way discourage your customer from understanding your return policy. An easy rule of thumb to remember when creating an effective return policy goes like this: easy to read, easy to find, easy to do.

That means being up front with any costs associated with returns. These need to be stated explicitly in order to avoid unseen or hidden costs. Note clearly whether or not a customer has to pay for return shipping. Otherwise this will come as quite an unpleasant surprise and leave a bad taste in the customer’s mouth. They’ll be far less likely to buy from you again.

You should prominently display a button/banner/link for your company’s return policy. It’s an important part of any consumer purchase, and should be treated as such. It gives the wrong impression of your company if this piece of important information is tucked tightly out of sight. It seems like you’ve got something to hide, which is no good. Because in your business, transparency is very much a good thing.

If your customer is returning an item they’re dissatisfied with, you should use this as an opportunity to better serve their needs. Don’t forget that when they’re returning a purchase, they have to actively engage with you. Engagement is half of your marketing strategy already, or at least it should be. So take the chance to offer customers an extra something special whenever they’re looking to return an item.
Some valid options include discounted items, similar products, or additional free content. It’s also an excellent opportunity to ask them for feedback. You know what they say; you can only truly count it as a loss if you lose the lesson.

Minimize returns

Ideally, there would be no returns to your online store at all. However, this is far from an ideal world, and we have to be prepared to live in reality. So the question becomes: how can we minimize the returns that we are obligated to process. There are a few proven successful strategies. One is honesty. You need to give consumers an accurate product description of the item they’re considering for purchase. Vivid and high quality product photography can also go a long way to help inform customers of the exact appearance of your products.

We mentioned time constraints briefly above in this capacity, but these can be such powerful tools in limiting the number of return requests you’ll receive, they bear a bit more emphasis. Although above we stopped short of recommending a small window for returns, it can sometimes be the way to go, depending on the products you’re selling. In the somewhat specified and silly scenario we drew, the time frame was kept short so as to reduce the likelihood of a consumer realizing a mistake. However, this tactic could have the opposite effect, making a consumer nervous about the small window could make them more determined to void the purchase entirely.

Another tact to take is to give a large window of opportunity to make the customer feel comfortable with their purchase. It’s simple reverse psychology. Not surprisingly, 30, 60, or 90 day periods for accepting returns are very common for online stores.  

Some brick and mortar spots will actually extend the grace periods past the point of common sense. Sam’s Club for example has been known to accept a mattress return YEARS after the initial purchase. Wal-Mart, being the retail giant that it is, can afford to have a stupid policy here and there. But for a small ecommerce business, it’s best to stick to a month or so for your limitations.

It’s also important for clarity and credibility sake to have a separate policy in place for damaged or malfunctioning purchases.  

What not to do
  • Be inconsistent. Don’t make allowances for some customer while taking a hard line with others. Be firm with your return policies, only making exceptions for the truly adamant high value customers.
  • Write an angry return policy. Using threatening or aggressive language in your return policy can make a consumer cringe and flee your checkout page in a hurry. Makes sure the tone of your return policy is consistent with the friendly and amiable copy that you’re using to sell the products in the first place.
  • Assume that nobody reads the fine print. A lot of people won’t, but then again, a lot will too. Savvy shoppers will always check a return policy, because they want to feel comfortable with the purchases their making. If you assume that poorly written or inconsistent or vague language will work for your return policy, simply because “nobody reads the fine print” you’ll definitely pay the price in the form of a disproportionate bounce rate on your checkout page.

Lost Orders

An even more frustrating ecommerce happenstance is a lost order. Lost orders are particularly annoying because you technically didn’t do anything wrong. The delivery guy messed up. Or it could be a fraudulent claim. These are difficult and largely unavoidable circumstances that you need to be prepared to address. You also need to know what to do if your item is actually lost in the mail. Here are a few guidelines on how to handle such a situation.

Impose a waiting period before giving a refund. This way you can be certain that the package isn’t just arriving late. It can also help minimize capital lost. Depending on the product ordered, a lot of customers might just forget about it after a few days, and never request the replacement or refund.

You can help guard yourself from these unfortunate circumstances by employing a delivery service that offers delivery tracking and verified delivery. Being able to track your packages and have their delivery verified brings the chances of fraudulent claims of lost items down significantly. It also increases your own sense of security about the safety of your packages, and if you give your customer’s the tracking data, it will increase their confidence in your company as well.

Refunds, returns, and lost orders can be a real pain, but they can also be an opportunity for you to improve customer relations. It’s not like having to hand money or additional inventory over at no additional profit is a lot of fun, but if you look at the glass half full you can find ways to exploit these situations in your favor.


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