How to Create the Best Retail Return Policy for Your Small Business

Last Updated: October 30, 2020

There are many steps involved in the process of converting a sale. You worked hard with your business plan, came up with ways that would set your store apart from the competition, designed a great space, optimized your product line and inventory, worked hard at your marketing strategies and pricing, and brought in the right foot traffic.

But, unfortunately, people change their minds, and most retailers can’t afford to make all sales final. It’s important to have a fair and comprehensive return policy. But how can you write a great retail return policy for small businesses? A policy that is too strict can lead to frustrated customers and negative reviews, but one that’s too friendly to your shoppers can cut your profits and open the door to fraudulent returns. Like most business operations, finding that perfect balance is essential, albeit difficult. And once you do, you don’t want to deal with the image above. It must be simple and automated. Consider the ideas below!

Why a Great Retail Return Policy Is Important

Getting returned products is never fun. It hurts your bottom line to have a sale erased, but it can be frustrating on a personal level knowing that someone didn’t enjoy your product. These impacts are even more difficult to overcome for small businesses.

Yet, it’s important not to take this too personally by understanding that they happen to even the best businesses. And even more importantly, it’s important not to ignore your return policy.

Small businesses that have a poor or nonexistent return policy will eventually start to see some serious adverse effects. A few poor experiences can start to pile up on review sites, comments that Google snippets, and word of mouth. Likewise, a poorly organized return structure will make processing each return difficult, and time-consuming, and perhaps lead to mismanaged inventory.

On the other hand, a great small business return policy that benefits the customer without harming your business will boost sales conversions. Customers will feel more comfortable spending money on new products or gifts. A returned item will still hurt your profits, but it will benefit your business in the long run. An improved shopping experience for your customers will go a long way.

Create Unique Return and Exchange Policies

Create a policy regarding your returns and exchanges. Many retailers only allow exchanges for certain products, including gifts. Others differentiate allowances between individual products.

Understanding which your customers want also better help you gauge overall satisfaction. If many customers are returning products for refunds, there is a problem with your quality or marketing – the shopper is not receiving the value that they anticipated. On the other hand, exchanges indicate more of a positive. You carry the products that your customer base wants, but in this particular instance, a shopper feels like they could have made a better choice.

Keeping a strict distinction between these can help give you better customer feedback, while also minimizing lost sales to returns.

The Most Important Things to Consider with Your Return Policy

Writing a return policy needs to be approached as one would when writing a contract. The fine print is legally critical, but the policy needs to also be simple and readable. Below are factors to consider and clarify in any business’s return policy.

Determine Any Items That Are Exceptions

For most businesses, there will be some items that shouldn’t come with the same return policy. Electronics, sporting equipment, and formal apparel are a few of the most prominent types of goods that should have a more strict policy. These are common products subject to return fraud. And since they’re also expensive, they can have a big hit on your bottom line.

Look at Local, State, and Federal Laws

Contact your local government or the U.S. Small Business Administration (SBA) for some basic guidance on your return system and the legal implications behind it. Each state has different return and refund laws.

Time Frame

Decide on a fair time frame in which to make a return. Most retailers hover around the 30-day period, with some leeway in either direction. Sometimes allowing for longer time periods can actually cause reverse psychology where your customers will end up keeping the product the longer they have it in their hands due to building an attachment.

Also, take into consideration the effect of many retailers having to keep the fitting rooms closed and inaccessible during this pandemic. SMBs may have to extend their window for returns to accommodate these types of inconveniences.

Shorter periods of return options are good if you sell seasonal or trendy products. In these instances, getting too generous with your return window will most likely leave you with dead stock.

Consider Requiring Receipts

Though less so these days, many retail businesses still require receipts in order to process a return. A modern point of sale system keeps track of all inventory, even after the sale is made, allowing the business to scan the item and confirm its purchase. This makes the return procedures that much easier.

Condition Requirements

Of course, if the product was purchased damaged or broken, a full refund is in order. But in cases in which the item was altered once purchased, be very careful with your return requirements. Does the item have to be in its original packaging? Can it have been worn? Must it have the tag? Be very clear from the outset.

Make Unique Gift Returns

Be very careful with gift returns; many fraudsters use generous gift return policies to steal from retailers. If you don’t require a receipt for a gift return, make sure that you only offer a store credit rather than cash.

How Will You Accept Returns

Will you refund the purchase with store credit, cash, or simply refund the credit/debit card itself? Also, determine if there are any instances that you might charge handling or packaging fees. Repackaging electronics or other similar purchases can be costly and time-consuming.

an infographic illustrating 'how to write a great return policy'

How to Write a Refund Policy

There is no one size fits all approach to writing a return policy but there are some basics that every business must clarify with their policy. Below are 8 easy rules to follow:

  1. Once you finalize the details mentioned above, dealing with each return situation will be much easier. You and your staff will know how to handle each customer, making the process faster and more pleasant.
  2. Next, anticipate your most common types of returns. For most retail stores, an item is returned because it’s damaged, a customer has simply changed their mind, the purchase was a mistake, the item was not what they were expecting, or the product was a gift that didn’t suit the recipient. Come up with a response and set of questions for each of these scenarios.
  3. Make sure all responses and questions are friendly in nature. You never want to sound upset about a return, and certainly never accusatory.
  4. With the policy itself, don’t copy and paste behind each product. Consider every item individually, especially your higher-end goods.
  5. Keep it simple with basic language. Establish your promise for each customer and how each return or exchange will be handled.
  6. Don’t speak in absolutes. They tend to scare people away. You have to protect yourself legally, but try your best to avoid phrases that make it seem like you might trap a customer.
  7. Clearly iterate the details you’ve determined from the section above.
  8. Train your salespeople and cashiers to clearly explain the return or refund policy to each shopper upon making their purchase. Reiterating your policy leaves less up for misunderstanding and arguments down the road.

Look for return policies templates that will fit your business. There are thousands of templates out there for your reference. And if you still have doubts or questions, consider speaking with your lawyer about some of the details and legal implications.

Where to Display Your Return Policy

Not only must you carefully write your retail refund policy, but you must also place it strategically around your store and website to make sure that your customers are well aware of it. Don’t let it come to the point of having to tell an angry customer that they should have read the policy; make it so apparent that they can’t avoid it.

First, make it visible at the checkout, whether at the checkout of your eCommerce site or at the point of purchase in your brick and mortar store. This is especially important if you don’t have a necessarily friendly return policy. You never want your shoppers to think that they’ve been tricked.

For brick and mortar stores, consider other opportune areas where you could post the policy. These might include on the shelves, labels attached to the product, and, most importantly, on the receipts.

In eCommerce stores, think about other areas that you can highlight the policy besides your checkout. An FAQ page is a great place to reiterate this, but you might also attach it to the footer or your product pages, or your cart view page.

Finally, increase visibility by having your staff make it clear to your customers prior to completing each purchase. It is important to not only display your business’s return policy but also communicating it clearly to your customers. According to a survey by Chargeback, 41% were not aware of the retailer’s return policy when they purchased at the store, with 56% claiming they were not communicated to regarding the current policy.  Train your staff to remind your customers to hold on to their receipts in case they would like to make a return.

Follow the rule of 7 for marketing and drive the information home for your shoppers.

How to Minimize Returns and Increase Profits – Make the Most of Your Return Policy

While you want to offer a friendly retail return policy for your shoppers, you also want to minimize the number of returns. Of course, the easiest way to do this is to market your products accurately and provide exceptional quality. But smartly structuring your return policy is also a key factor. There are some ways of appeasing your customers without hurting your profits.

Try to Convert Returns Into Store Credit or Exchanges – A total refund means the sale is completely lost to your business. It also might come with additional costs of repackaging, labeling, stocking, shipping (for eCommerce), etc. An exchange, on the other, keeps the sale and only requires you to eat said additional costs. Some retailers will even offer an extra 10-20% of store credit if a shopper decides to return an item and chooses credit or refund.

Take Advantage of the Customer Being in Your Store – Even if it’s to make a return, it’s a positive thing to have a person come into your store. Make the most of it. Friendly, knowledgeable, and organized staff make a huge difference. Make sure they are all properly trained in how to handle customer returns. You still have the chance to keep them as a loyal customer and perhaps make a different purchase. Maybe you can learn something new about the customer and find out what they really need that you may be able to offer them right away or even in the future. View every interaction as a new opportunity.

Keep the Process Short – Keep your return desk well-staffed and moving quickly. There are few more annoying shopping experiences than a long line for a product return. It might mean the customer gives up and keeps the product, but you can be sure they won’t be returning any time soon. And they’ll probably also tell a few friends about it.

Avoid Return Fraud – Structure your policy to minimize any fraudulent returns. “Gift” returns with no receipt are the most common attempts. You should also have everything logged in your point of sale to see that the purchase was actually made. The National Retail Federation estimates that 8-10% of all returns are still frauds. While this number has gone down in recent years, 8-10% is still too high.

Make It Easy with Your Retail POS System

The biggest factor in making this whole process fast, easy, and accurate is by using a great inventory management system with your retail point of sale software. There are several ways that your POS helps with this process.

Every single item in your store is accounted for in your POS. So when a sale is made, the product is withdrawn from inventory and accounted for. Likewise, when a return is made, the product is added back into the inventory and the loss of that sale is also accounted for. Find a software with reliable product returns management.

Your point of sale should also be able to print the return policy at the base of every receipt. This adds another level of apparency for each of your customers.

If your product has any warranties attached to it, these should also be printed with each receipt.

Finally, you must be able to set different policies for different products. Many retailers don’t accept returns for certain types of items. This should be easy to customize in your POS and prevent cashiers from accidentally accepting non-returnable items.

KORONA’s retail POS can do all of this. Click below to sign up for your free trial and a demo with one of our product specialists. They can walk you through this entire simple process. You’ll be ready to go in no time.

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About the Author

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Michael Chalberg

Michael has long focused his writing on the world of retail and small businesses. He''s been a part of the KORONA POS team since 2018 and loves helping entrepreneurs find ways to adapt and succeed. In his spare time, you'll likely find him hiking somewhere in the Southwest.

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