E-commerce returns management covers everything that happens after a return: receipt, inspection, grading, restocking, refund and the analysis of return reasons. Good returns management brings sellable goods back into stock quickly, keeps the cost per return low and provides data that helps you avoid future returns. This article shows the process steps, the main cost drivers and practical measures.
Why returns management matters in e-commerce
Returns are part of online retail. Consumers in the EU generally have a 14-day right of withdrawal for distance contracts, and many retailers voluntarily grant longer periods. How many orders come back depends heavily on the sector: in fashion and footwear, returns are considerably more frequent than, for example, for spare parts or consumables.
Every return ties up money and working time. As long as an item is on its way back or lies uninspected in the warehouse, you cannot sell it. At the same time, the customer is waiting for their refund. A slow returns process therefore costs twice: through tied-up inventory and through dissatisfied customers. A fast, clearly regulated process has a positive effect in both directions.
The returns process step by step
A structured returns process always follows the same steps. The more clearly each step is defined, the faster and cheaper each individual return becomes.
- Register the return: the customer registers the return, ideally via a returns portal or their customer account. They select a return reason and receive a return label.
- Receive the return: the warehouse receives the parcel, scans it and matches it to the original order. A return number or barcode on the label speeds up this step.
- Inspect the contents: does the item match the order? Is it complete, unused and undamaged? The result is documented, ideally with a photo in case of defects.
- Grade the goods: the item is assigned a condition grade, for example A-grade, B-grade or defective (see next section).
- Refurbish and restock: sellable goods are folded, repackaged or relabelled if necessary and booked back to their storage location.
- Trigger the refund: the inspection result is sent to the shop system or marketplace so that the refund can be made.
- Analyse data: return reasons and inspection results are collected and analysed regularly.
Legally, in the event of a withdrawal you generally have to make the refund within 14 days. As a rule, you may withhold it until the goods have arrived back with you or the customer has provided proof of return. Details, for example on who bears the return shipping costs or on compensation for used goods, should be clarified with your legal adviser.
Grading returns: A-grade, B-grade and defective
Grading decides what happens to a returned item. A simple scheme with three grades has proven effective. It is important that the criteria are defined in writing so that every employee decides in the same way.
A-grade: as new
The item is unused, complete and in perfect condition. The original packaging is present or can be replaced with an equivalent one. A-grade goods go back into regular stock after brief refurbishment and are sold at full price.
B-grade: minor defects
The item works but shows signs of use, damaged packaging or missing accessories. B-grade goods can be labelled as such and sold at a discount, for example via an outlet section in the shop, via marketplaces or to clearance buyers.
Defective: not sellable
The item is damaged or does not work. Depending on the goods and the agreement, there are several options: repair, return to the manufacturer or supplier, harvesting of individual parts or recycling. Disposal should be the last step.
For each grade, it should be clear where the item physically goes and how it is booked in the inventory management system. Otherwise inventory discrepancies arise, and B-grade goods accidentally end up in regular sales.
Cost drivers in returns management
The cost of a return is made up of several blocks. How high it is depends on the value of the goods, the type of item, the quality of the process and your contracts. Fixed averages are of little help. It makes more sense to record your own costs per block.
- Return transport: the postage for the return label, if you bear the return shipping costs.
- Receipt and identification: working time for unpacking, scanning and matching. Missing return numbers make this step expensive.
- Inspection and documentation: working time for the visual inspection and, for technical products, a functional test if necessary.
- Refurbishment: folding, cleaning, new packaging, new labels.
- Restocking: booking back and transport to the storage location.
- Loss of value: price reduction for B-grade goods, total loss for defective goods and loss of value for seasonal goods that come back too late.
- Customer service and administration: status enquiries, refunds and queries with the payment provider.
A large part of these costs is working time. Clear processes, good return labels and fixed inspection criteria reduce them directly. How return costs fit into overall fulfillment costs is shown in our blog.
Reducing returns: identify and eliminate causes
The cheapest return is the one that never happens. The key lies in the return reasons. Record them for every return and analyse them per item. Common causes and suitable measures:
- Item does not fit: accurate size charts, product measurements and notes such as "runs small" in the product description.
- Item does not meet expectations: realistic photos from several angles, exact colour information, complete technical data.
- Wrong item delivered: scan-based picking and checks during packing. Mispicks can be almost completely avoided.
- Arrived damaged: suitable carton size, sufficient padding and testing of the packaging for fragile items.
- Late delivery: short processing times in the warehouse and carriers with reliable transit times.
If a single item comes back conspicuously often, it is worth taking a closer look: often the cause lies in a single incorrect detail in the product description. Fewer returns also relieve the environment, as our article on sustainable fulfillment shows.
Metrics for returns management
What you do not measure, you cannot improve. These metrics give a good overview and can be collected with most shop and warehouse systems:
- Return rate: share of returned items or orders, in total and per item, category and sales channel.
- Throughput time: time from the return's arrival at the warehouse to restocking and refund.
- Share of A-grade goods: how much of the returned goods can be sold again at full price.
- Return reasons: distribution of reasons, so you can work specifically on the causes.
- Cost per return: sum of the cost blocks mentioned above, divided by the number of returns.
Analyse these figures monthly and compare them with the previous month. This shows you whether measures such as new size charts or different packaging are working.
Handle returns management in-house or outsource it?
Processing returns is fiddly and hard to plan. After promotions, season changes or holidays, many returns arrive at once. If you cover this in your own warehouse, you need staff, space and clear workflows. A fulfillment provider that also handles your shipping has an advantage: returns end up in the same place as your stock and can be sold again immediately after inspection.
If you sell via several channels, returns come back from your shop and marketplaces with different rules. How to bring them together is described in our blog on multi-channel fulfillment.
With FulFra ReRoute, we take over returns management for you. As part of our e-commerce fulfillment from the warehouse in Lehrte near Hanover, returns are included in the scope of services alongside goods receipt, storage, Pick & Pack and shipping. There are no setup costs, no minimum contract term and no minimum volumes.
Frequently asked questions
What does returns management include?
Returns management includes registering the return, receipt and matching in the warehouse, inspection and grading, refurbishment and restocking, the feedback for the refund and the analysis of return reasons.
What is the difference between A-grade and B-grade goods?
A-grade goods are unused and complete and can be sold again at full price. B-grade goods have minor defects such as signs of use or damaged packaging and are labelled and usually sold at a discount.
How quickly do I have to refund after a withdrawal?
Generally within 14 days of receiving the withdrawal. As a rule, you may withhold the refund until the goods are back or the customer provides proof of return. Clarify details with your legal adviser.
How can I reduce the return rate?
Record return reasons and analyse them per item. Accurate product data, size charts, realistic photos, error-free picking and suitable packaging reduce the most common causes.
Would you like returns and shipping handled by one provider? Describe your range and your return volume in a fulfillment request, and we will get back to you.