I am currently in the process of writing a return policy for my business as well. Mainly because it is a requirement to obtain my Internet merchant account.
My Research on Return Policy
Investment, Marketing Tool, & Insurance
I have determined that a lenient and simple return policy is actually an investment that can increase sales. It is also a marketing tool that builds trust with potential buyers and increases perceived value of your product or service. A business claiming to take back their product if the customer is not satisfied shows real commitment to the customer and confidence in their product. This combo inherently instills confidence in the buyer regarding their purchase decision.
On the contrary, a strict return policy could cost you dearly. An unfair or complex return policy can invite chargebacks from unsatisfied customers. Chargebacks may be more expensive than a return. Worse yet, Merchant Account Providers will typically terminate your account if chargebacks exceed 0.5% to 2% of total order volume. This would devastate any online business! You also get placed on VISA and Mastercard's TMF blacklist for 5 years. Therefore, your return process must have a lower barrier for customers than a chargeback process. A simple and fair return policy is insurance against chargebacks.
The conditions of your return policy should be based on many factors, including your business model, product or service sold, and legal considerations. For example, if you sell packaged software or food items, you must be careful. Software can be copied and then sent back for full refund. Returned food can be contaminated, which cannot be resold. Both of these examples represent a total loss for every return.
On the other hand, my business sells heavy-duty welded steel target stands. Not much damage can be inflicted on our stands. So if a customer is not satisfied, no problem. I'll take our stands back no questions asked. It is not a big risk. We can then resell them for full price or slightly less than full price if they are scratched. We incur very little loss per return.
Let the Math Build the Policy
I believe your return policy should be based on a calculation. Always remember to never leave money on the table. Initially, employ a gracious return policy, including free return shipping. If the policy gets abused, tighten it up; cut off free return shipping. If it continues to get abused, be more stringent on eligible returns or charge a restocking fee. The most important thing here is the "calculated decision." You MUST measure this entire process to make sure it is not costing you or better yet, making you money.
For example, let's say you have a 2% return rate and each return costs you $24.50. The math indicates you must add $0.50 to every order somehow (increase price, add handling charge, etc.) to cover the cost of doing returns.
What is paramount is that your lax return policy will likely get you business that was previously off limits and may possibly increase sales 10% to 30% or more. Never stop testing, measuring, and calculating.
What Customers Say About Return Policies
Zappos and Nordstrom are great businesses with extremely lenient return policies. The following links are interesting customer conversations and testimonials about these two businesses' return policies:
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