How to Minimize the Impact of Returns on Your Profit Margins

Profit
Amazon Returns Product Refund
It’s an unfortunate reality that returns and the ensuing refunds that they generate are part of the game for every seller who chooses to operate on the Amazon marketplace.

If an Amazon seller wishes to limit the risk of an account or listing’s suspension, they must make peace with the fact that they will need to accept returns and issue refunds more often than they would care to.

How much those returns, and the customer issued refunds impact their business’ profit margins will be determined by

  1. their commitment to taking the time to research the proper steps necessary in order to minimize the extent of those losses, and
  2. them possessing the willpower, tenacity and patience to see things through with the powers that be at Amazon to their conclusion.

 

Why Some Sellers Favor Amazon’s Return/Refund Policy

When a seller chooses to sell on Amazon, he or she must adapt to Amazon’s strict dedication to customer service. It’s their way or the highway.

Amazon has a no-hassle return policy (return anything for almost any reason, no questions asked).

It’s one of the most consistently cited reasons from online shoppers as to why they love shopping on Amazon, and yet another way Amazon has bested smaller competitors, who can’t afford to offer to online consumers this level of flexibility.

Many sellers feel that Amazon should be applauded for its firm adherence to its no-hassle return policy, because they believe that when an online shopper knows that a return will be easy, it adds credibility to the business selling the product(s), and consumers will be more likely to purchase a product from that seller.

They are confident that the policy will serve as a catalyst for greater efficiency within the seller community and while some may have to suffer through some growing pains, it will be a good thing in the long run.

Amazon doesn’t have to work on their relationships with sellers; they have all the leverage. It might hurt sellers to some degree, but not nearly as much as being left off Amazon.

Those that favor Amazon’s no-hassle return policy feel that if merchants find themselves with too many returns, then that should be taken as a wake-up call to find out why, and not a reason to blame Amazon.

 

Why Some Sellers Have Concerns…

However, there are a substantial number of sellers who view the return/refund policy as a very sharp double-edged sword that, at times, can cut deeply into their profit margins.

They don’t feel the policy is truly helpful, but is instead, just another means for Amazon to lure consumers at their expense. These merchants believe that the policy treats Amazon sellers as if they have the same or similar resources as Amazon itself, resources to absorb the costs associated with increased returns due to pre-authorization by Amazon.

On top of that, by putting customer convenience ahead of seller control and cost viability, many merchants are of the opinion that it suggests that Amazon does not trust sellers to adequately handle returns without Amazon’s supervision and systems.

No matter which side an Amazon seller’s perspective may fall upon, it’s incumbent for the success of their businesses, that they both have effective strategies in place to reduce returns and a precise action plan that minimizes lost revenue when a refund occurs.

 

How to Reduce Your Customer Returns

One significant advantage that brick-and-mortar stores have over Amazon is the ability to satisfy any or all of the five senses in order to influence the decision to purchase an item. Shoppers have the ability to see the item, feel its texture, smell its material, taste a sample (if it’s a consumable), or even hear it.

Using sensory data alone, the majority of shoppers can make a wide range of judgments about an item, including durability, perceived value, quality of construction and materials used, as well as confirm in their minds reviews on the item.

In the Amazon marketplace, ineffective product listings often leave too much to the imagination. They force the prospective buyer to make quick assumptions based upon nothing more than a single image of the product and a short description, that may be overflowing with pitchy marketing jargon.

For example, clothing, consumable goods and jewelry have long been plagued by a higher rate of customer returns due to the multi-variable issues that arise such as sizing, “actual” color (versus image), dimensions, and dissatisfaction derived from the customers’ senses once in hand.

 

Reducing Returns

To help reduce returns, start by creating a…

Comprehensive Product Description – a robust, detailed product description will help your online prospects to have a better sense of what they are buying. By adding more relevant details to your product description you will help to supplement the “in hand experience,” and your customers will appreciate the transparency while affording you more trust.

Make sure that you include…

Exact Product Dimensions in One of Your Images – For online prospects who are very visual, it is helpful to include the exact dimensions of the product pictured. This information can set the expectation for the shopper so that they are not unpleasantly surprised by the physical attributes of the item they are looking to purchase. These details are particularly useful for products that can vary in size, shape, and measurements like apparel or items for a pet (like a litter box or mat).

Be sure to provide a…

Sizing Guide – If you have a line of products that are similar under one brand, but vary in their qualities (size, shape, measurements, color, accessory options, etc.), create a sizing guide. By giving online prospects a guide that includes all possible combinations of your product, you can help set expectations before a purchase, thus minimizing the likelihood of a return. If you are having trouble coming up with a product sizing guide, you can consult with your supplier on what variables they use in creating your product(s).

Be sure to use…

High-Quality 360-Degree Imagery with Variety – Use multiple pictures from different angles. Your online prospects want to see every side of the product: front, back, top, bottom, and all sides. A 360-degree view of the product provides essential visual information, so that potential buyers have a better sense of what they are purchasing. If your products don’t necessarily have multiple “sides” to photograph, then use close-ups of noteworthy features, attachments, or accessories. They will serve as good alternatives to give prospective buyers the full scope of your product. If your product comes in different styles or colors, those would also be useful choices to showcase with high-quality photography.

With today’s technology, you can even create great product images using your Smartphone. This can influence them to make the purchase and resist the ‘returns syndrome’ if it matches the detailed description of your product.

 

Create a…

Product Video – Including a professional promotional video of your product on your listing page can give your online prospects the information they need to decide to purchase and keep it. A video can serve in several capacities…as an image, description, or marketing copy all at once, giving potential buyers a look at the product from all angles in motion, a full description of the product in text form or with vocals, and a full explanation of the product’s features and how it works. Your promotional videos will be unique to your product and are possibly the most powerful tool for giving your online prospects an experience that satisfies their sensory needs to see the product in action.

Be available to…

Offer Customer Service in Real Time – Providing a means for online prospects to ask questions in real time is an effective way to alleviate “buyer’s remorse” that may lead to product returns. A live chat system can go a long way to helping shoppers to be satisfied with their purchase, once put into place. A live chat system can be placed on your website or used to communicate with shoppers through social media channels, in order to boost their purchasing confidence.

Don’t hesitate to…

Ask for Your Online Customers’ Feedback – Ask your online customers directly for feedback about product returns. Try creating a refund email that requests concise information about their reasons for the return in a dialogue box, or link them to a multiple-choice survey, after they have initiated a request to return your product. Another straightforward method to acquire the information needed about a return is to poll your customers. This method will sometimes require you to incentivize them to participate, so giving a special discount/promo code to those who complete the survey can work.

And don’t forget to…

Gather Online Customer Data on Product Return Rates

Tracking customer product return rates is an important cornerstone that can reduce returns, thereby saving you money. Knowing the trends, discovering any pattern of events in the cycle between a purchase and its return will give you powerful insights as to what to improve upon, or do away with entirely.

You should be tracking data on which items are being returned (if multiple products are offered), which item has the highest return rate (if multiple products are offered), what is the principal reason given for returning products, do certain customers return products more often than others (you can stop targeting them with deals and discounts), how much time passes between the initial purchase and when the customer asks for a refund, and if products are returned more often during a particular time of year (such as the holiday season).

You can also identify those customers who have legitimate concerns about your product and shipping methods to make changes in your processes.

 

What to Do When a Product is Returned to Amazon

Returned Product

When a customer initiates a return of an item ordered via Prime shipping, Amazon immediately issues that refund, without waiting for the item to be returned.

Amazon immediately takes the return funds from your upcoming disbursement and usually gives the customer a shipping label to return the item to the proper warehouse. Customers are on the honor system to return the item they no longer want within 45 days.

Amazon will notify you that the refund has been issued from your account. Keep a record of the return notification email sent from Amazon, so that you will have a record of this refund and can verify that the return actually occurs within 45 days.

If you have not previously saved these notification emails in a folder and need access to the information to determine which item(s) have been returned and why, follow these steps:

  1. Login to Seller Central and hover the cursor over REPORTS at the top of the screen.
  2. Click on the PAYMENTS link under REPORTS.
  3. Click on the TRANSACTION VIEW tab. 4. From there, filter view by Refund, select the time frame, and click Update.

Once you know which item(s) has been refunded, you need to find out if the item(s) has indeed been returned. Here is how to do this – (skip to step 6 if you have the Merchant SKU or ASIN from the Returns Report):

  1. Copy the order number from the Refund Notification email.
  2. Login to Seller Central and hover the cursor over ORDERS at the top of the screen.
  3. Click on MANAGE ORDERS, then click on ADVANCED SEARCH.
  4. Paste the order number in the search bar and click SEARCH at the bottom of the page.
  5. You’ll be able to see exactly which item was returned. From this page copy the item’s Merchant SKU.
  6. On the top of the Seller Central page, hover over REPORTS and click on FULFILLMENT.
  7. On the left side of the column, in the Inventory section, click on the SHOW MORE option.
  8. Click on INVENTORY EVENT DETAIL.
  9. Paste the Merchant SKU in the search bar, make sure the event date includes the date of the purchase (or just choose LAST 365 DAYS if you’re not sure, and click GENERATE REPORT.
  10. From there you should see all of the activity this item has experienced.

Amazon should automatically reimburse you when an item is not returned, but this is not done 100% of the time. Things fall through the cracks…some incomplete returns are missed. When this happens, you’ll need to be proactive.

If you find that an item was not returned within the 45-day limit, it’s up to you to contact Amazon and remind them that they owe you a reimbursement.

When you open the case with Seller Support, simply ask them to look into the return in question for you. Communication is key, be as succinct as possible.

  1. Enter the specific item information
  2. Tell them the buyer received a refund but has not returned the item to an FBA warehouse within the 45-day period.
  3. Ask for a reimbursement of the original sales price.

If Amazon insists that the item in questioned was returned on a specific date, you have the option of sending them a screenshot of the Inventory Detail Report, to help substantiate that the item wasn’t returned to your inventory.

 

Ask them to look into it again. hopefully, the screenshot will help you avoid a Seller Support rep who is using a standard ‘copy and paste’ response and not actually looking into the details of the item.

Protect your seller feedback score by contacting the buyer. It doesn’t matter if the customer has left negative feedback or not. It’s a good idea to contact the buyer and personally apologize for the customer’s negative experience.

Sometimes just sending such an email will stop the buyer from leaving you negative feedback. If negative feedback has already been left, then this email opens up the door for the customer to see you as a helpful and they may even consider removing the negative feedback.

When Amazon receives the return from your customer, the warehouse worker will look at the customer’s return reason and then make a decision on whether the item is still in sellable condition or not.

If you have multiples of an item returned and put back in your inventory as ‘sellable’, then it’s up to you to decide if it’s worth it to have them all removed for inspection. If you are worried that the item isn’t really in sellable condition, then open up a removal order to inspect the item yourself.

If an item is deemed by Amazon as ‘unsellable’, many sellers just click to have Amazon dispose of the item, assuming it’s not worth selling anymore. This can often be a mistake because it’s very possible that the item could still be in sellable condition.

Taking a few extra steps to see if that item is actually unsellable or not could help you minimize your loss, because often the ‘unsellable’ item can still be sold.

Don’t ignore your unsellable returned items because they will just sit in an FBA warehouse and continue to rack up monthly storage fees.

Some buyers return an item to Amazon and say it’s defective in order to get free return shipping, but the item is not actually defective. Because of this free return shipping issue, you want to verify whether any items returned as ‘defective’ are in fact defective.

If you find that an item has been returned to you as ‘defective, but it’s never been opened, or you test it and find that it is not defective in any way, you should immediately open a ticket with Seller Central.

In your message, tell them that the item was returned as defective, but you have no doubt that it is not defective, and you suspect the customer was trying to get free shipping.

If a customer claims an item is defective but in reality, it’s not, then it’s up to you to protect your account and fix this false claim. Too many claims of ‘defective’ can hurt your seller metrics and put your account in danger of suspension.

 

The occasional return is just part of conducting business and is nothing to worry about. The important thing to remember, is that what occurs after a return and refund is not a foregone conclusion. Approaching this process proactively, with a game plan for minimizing the impact of returns and refunds on your Amazon business is crucial to its long-term success.

Be vigilant.

Monitor your inventory, returns, damaged items, etc. so that you are aware of how these “Margin Eaters” impact your bottom line. Explore new software (Entourage Margins – coming soon), designed to help with tracking all of your costs on a SKU-by-SKU basis, so that you can make money-saving tweaks as needed.

 

Mike Zagare

Mike Zagare

Founder, PPC Entourage

Michael Zagare is a serial entrepreneur, a recovering physical therapist, and the founder of PPC Entourage. Using the same tactics and strategies he shares through Entourage, he scaled his business from $50K per/m to $250K per/m in less than seven months.

Mike has an unquenchable thirst for knowledge in all things Amazon, and loves sharing that knowledge with other sellers to help them take steps towards personal and financial freedom.
Mike Zagare