In Episode 5 of Common Mistakes, we discuss Amazon return data, and the money brands are leaving on the table by not paying attention to it. We have recapped and expanded on our CEO, Laura Meyer’s, thoughts on using return data. Watch the digestible episode below, or continue reading for additional insight.
Amazon Return Rates
Returns. Customers love them and brands hate them. Around 68% of Amazon shoppers are Prime members who are incentivized to purchase and return items frequently through features like the “one-click” order and the promise of free returns. The average return rate on Amazon ranges between 5% to 15%, but the return rate for some categories, including consumer electronics and clothing, can get as high as 40%.
For sellers, Amazon’s lenient return policy can be a huge saboteur to their ability to be profitable on the platform. Amazon has its own customer return policy to reference when determining if a product in question is eligible for a return. Unfortunately for sellers, they have no control over whether a product is accepted as a return.
When the item arrives at Amazon’s warehouse, they determine if the product is in sellable condition (unused, not damaged) and if so it is returned to the seller’s inventory to be resold. If the product is considered unsellable, Amazon decides who is at fault- themselves, the seller, or the buyer. If Amazon is at fault the seller is reimbursed. However, even if it is clear that the product issue was caused by the buyer, Amazon will not reimburse the seller and instead, the seller must submit a removal order within 30 days after the returned item arrives at the fulfillment center.
Offering Refunds Instead of Returns
It has become increasingly popular to offer customers refunds for items without requiring an actual return. This stems from some sellers wanting to avoid the time and cost of managing returns, shipping, and processing them – especially for lower-priced items and for items that would be hard to resell. According to UPS, processing returns often range between 20 percent and 65 percent of the cost of goods sold. For Amazon, offering this “Returnless Refund” option to sellers benefits their business as it results in more uniform return policies across its platform and goodwill with customers.
Know Your Return Rates and Tracking Rates Over Time
One of the first mistakes when it comes to managing returns, of course, is not knowing what your return rates look like and how much it is costing your business. At Envision Horizons, we know firsthand how difficult this is to track and calculate. That’s why we created myHorizons, the software solution built by our team of talented developers. One of the many features included with myHorizons is a tool dedicated entirely to return analysis. Here, you can see an example of what it looks like to track your return rates over time. One reason this data is important is because knowing if there’s a seasonality to your returns can be valuable information.
Look at Return Reasons as Valuable Feedback
Additionally, tracking your returns allows you to delve deeper into the reasonings. The nice part about Amazon’s returns is that the customer is required to give a reason for the return, and as a brand, this can offer great insight. For example, if you are receiving common concerns such as apparel sizing being too large, you have an opportunity to fix this issue and improve reviews by either adjusting the product detail page to better set expectations or updating the product itself. Amazon lists 72 different official reasons for a customer’s return, and many of these return reasons can and should be used as valuable feedback.
Evaluate High Return Rates Within Your Catalog
Along similar lines, another thing that’s important to do when evaluating return rate data is to look at it by parent products. Learn more about parent products and product variation here. This way, you are able to see if there are certain variations or products in your catalog that have a higher-than-average return rate. If a product is returned more frequently than expected, it is likely that your listing is playing a part. After identifying a high return rate product, you can then look internally to figure out how that can be resolved.
Reducing Amazon Return Rates
There are a lot of ways to work to get your return rates down, and as previously mentioned taking the feedback of the return reasons is number one. Assessing how can better adjust your imagery and how you can better describe the product is a great way solution. Providing helpful creative assets (such as a close-up of the ingredient label) and using in-depth product descriptions demonstrate transparency with your customers which leads to more sales and fewer returns. For apparel (or any product that varies in size/measurements), including a detailed sizing guide helps customers choose the best fit for them, resulting in fewer returns. Return reasons aren’t the only way to check if your products are meeting the expectation of the customer. In addition to looking at the return reasons we always advise clients to be looking at negative reviews and even three and four-star reviews for valuable information on the customer experience.
Know How Much Returns are Costing You
Not knowing how much returns are costing your business is a common mistake because of the complicated nature of return fees on Amazon. Refund Administration Fees apply to almost all products fulfilled by Amazon FBA, including any products with Prime shipping.
When reimbursing you, the seller, for a buyer refund, Amazon determines the amount of the order-related fees that are credited back to you and the amount in fees that Amazon retains, based on the item’s product line and the order amount.
When a customer requests a refund, Amazon will refund the referral fee you paid for that sale, but then charge you the applicable refund administration fee, which is the lesser of $5.00 or 20% of that original referral fee.
For example, let’s say a customer purchased a foundation from you for $30 and you issue them a full refund. To calculate your refund administration fee, you must check what the referral fee percentage is for your product category. Foundation is in the beauty category, which has a 15% referral fee for products over $10. In this case your Refund Administration Fee will be $0.90, because $30.00 x 15% referral fee = $4.50 and 20% of that $4.50 is 90 cents. For products that are returned more frequently (like clothes and shoes), these refund administration fees can add up quickly.
Media orders, which include books, music, Video, and DVDs work differently. For media products, full refunds are simple. When you issue a full refund to the buyer, Amazon will refund all of the original order-related fees. However partial refunds for media products are more complicated. Amazon retains the variable closing fee and will credit you a proportional amount of the referral fee originally charged for the order, based on the percentage of the item price you refunded to the buyer. Additionally, for Individual sellers Amazon also retains the $0.99 fixed closing fee, however, this fee is waived for Professional sellers.
For example, if you are selling a textbook for $50 and the shipping fee is $3.99, the buyer’s total will be $53.99. From this, we calculate the seller’s total by subtracting the referral fee of 15% which would be $7.50, and the variable fee for books, which is $1.80. This variable fee is based on Amazon’s Fee Schedule. The seller’s total would then be $44.69 because the total fees for the order added up to $9.30. Then let’s say you issue a partial refund in the amount of $15.00 of the product charges. The amount returned to you is calculated as a percentage of the referral fee, or commission, paid on the product charge, not including shipping. The variable closing fee is retained by Amazon. The formula for refund credit in this case is $15.00 (partial refund) ÷ $50.00 (product charge) = 30%. We then take this 30% and multiply it by the $7.50 referral fee to get a $2.25 credit for the refund. So finally, the Amazon refund administration fee, in this case, would be 70% of $7.50, which is $5.25, plus the $1.80 variable closing fee, for a total of $7.05
Amazon’s 2021 Returns Processing Fee Changes
Stay up to date on Amazon’s return processing fees. Review 2021 FBA returns processing fee changes here. Amazon has stated “On June 1, 2021, we will make the following changes…We will reduce the returns processing fee for customer-returned products in the Apparel and Shoes categories. We will eliminate the returns processing fee for customer-returned products in the Watches, Jewelry, Luggage, Handbags, and Sunglasses categories.” See the charts below…
Selecting Your Ideal Return Settings
Now that you know your return rates and how much returns are costing you, you can make an informed decision about which return settings will work best for you. Returns can go back to Amazon FBA (Fulfillment by Amazon) or go directly to you. And don’t forget about the option for removal orders. Even if a product is not subject to Amazon’s long-term storage fees, it is still costing you money if it’s at an Amazon warehouse. If your product sales can’t cover these costs, it’s advisable to take down the listing and remove the product from FBA centers. Finally, you also have the option to donate or dispose of unfulfillable items.
Final Thoughts
Managing returns is complicated. Don’t let it hurt your business. It is essential to know your return rates! Use return reasons and reviews as actionable feedback to reduce return rates, know how much returns are costing you, and choose the right return settings for your business.
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