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2016-03-09 00:00:00Starting a BusinessEnglishCreate Return Policy for Your Business: Why is it so important to have a return policy and what should a good policy entail? to Create Return Policy for Your Business

How to Create Return Policy for Your Business

2 min read

Why is it so important to have a return policy and what should a good policy entail? When it comes to spending hard-earned money, individuals want to know that a) their money has been well spent and b) that they have other options open to them if they’re not happy with their purchase.

In other words, they want to have an ‘out’—“if I don’t like it, then can I return it?” To paraphrase a business journalist’s take on this issue, there is no better return policy for small businesses than actually having one.

Benefits of a good return policy

One recent study shows that having a return policy, particularly one that’s customer-friendly, is an integral part of a business’s short-term and long-term success. This is because, as in any meaningful relationship, people should be able to say no to something and to have a change of heart. So why is this so important? It’s important because it gives customers a sense of freedom.

Companies that have a liberal return policy are giving their customers the freedom to make risky, sometimes expensive, purchases by allowing them to renege on the decision to buy. There more such chances that customers are willing to take, the better it is for the company’s profit margins.

Do returns hurt company profitability?

A recent study that examined the impact of a relaxed, but financially sound, return policy found that companies that instituted them experienced a sustained increase over time in the sales-per-customer. The study authors referred to this positive financial impact as Customer Lifetime Value or CLV. Businesses, they suggest, shouldn’t focus so much on acquiring ever more customers while spending as little as possible while doing so.

A much more lucrative strategy would be to maximize the value of the relationship they have with existing customers, that is to say, their CLV. Examining customer behavior, particularly the ratio of purchases to product return, they could focus on offering products/services that customers are most likely to buy, instead of trying to protect the bottom line by constraining customers’ ability to return products.

What elements should a good return policy have?

Small businesses don’t have the luxury of extremely liberal return policies. For example, large retailers like might be able to offer free return shipping, something that would be prohibitively expensive for a small business. Nevertheless, here are a few suggestions for creating a transparent and non-punitive return policy that won’t bankrupt your small or medium business.

  1. Specify a product-return time frame: Since refusing to accept a return is not an option, it is perfectly acceptable to impose certain basic rules and requirements. You can decide if you want to offer a 30-day or less trial period, to give customers a chance to try the product and return it if they don’t like it.
  2. Refund vs. exchange: Clearly state whether you have a money-back guarantee, or if you only offer exchanges. You can have different policies for different types of products.
  3. State which party is responsible for product-return shipping charges (if your customer is from another town or you’re an e-tailer.)
  4. Make sure your return policy is clearly visible, whether in a brick-and-mortar shop or on your webpage.
  5. Use simple, unambiguous language.
  6. Give them contact information, just in case they run into any snags while returning the product etc.

Product returns are actually a vital part of the company-customer relationship and must be carefully nurtured and attended to.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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