The Hidden Costs of Processing Returns

August 16, 2024

The Hidden Costs of Processing Returns

Have you ever placed an order online only to receive a damaged/faulty product? Poorly packaged products are more likely to get damaged during shipping, leading to damaged packaging and a damaged product.

We’ve all dealt with our share of angry, disgruntled customers. Not only would they send the product back, it’s likely they shared a scathing review of their purchase experience on social media, impacting your brand’s credibility. And of course, there’s the separate matter of them becoming wary of ordering anything else from you again. A study by Invesp found that damaged packaging is the second most common reason for returns, accounting for 28% of all returns.

While the direct costs of processing returns (shipping, refunds, restocking fees, etc.) are fairly straightforward, there are still some hidden/unnoticed costs for the same:

Lost Revenue:Each time a sale is returned, the sale has to be voided and hence represents a lost sale, and potentially a lost customer.
Inventory Issues: Managing returns can disrupt the inventory levels being stocked and lead to piling of deadstock or improperly maintained inventory levels.
Brand reputation: Recurring returns can damage your brand’s image and reputation.
Additional Staff: With increasing returns, one will need additional protocols and people to handle the processing of such returns leading to staff being misutilized.

Another cost of returns that is often overlooked are the environmental costs. Each return leads to further carbon emissions, fuel consumption, and creates waste:

Increased carbon footprint: Each time a return is processed, a round trip has to be initiated for said return hence doubling the carbon footprint compared to a single delivery.
Waste generation: Packaging materials used in both the original shipment and the processed return have to be discarded leading to additional waste dumped into the environment, contributing to landfill waste.
Resource depletion: The production of new packaging materials for the goods/products requires substantial energy and natural resources which are being depleted on use for each return processed.

A study by the National Retail Federation found that online returns generate an estimated 5 billion pounds of packaging waste annually in the U.S. alone.

So contrary to popular belief, poor packaging can actually be expensive in the long run! A study by the Retail Industry Leaders Association (RILA) found that the average cost of processing a return is around $7.50. For retailers and sellers with high return rates, these costs can quickly add up to millions of dollars in losses.

While we cannot control the multitude of reasons that can trigger the return of a sale, one thing an online retailer has full control over is their packaging. efficient packaging design and a sound structural design guarantees that your shipment is not only sturdy, durable and ergonomic but also provides a quality unboxing experience through aesthetically pleasing packaging and visually appealing storytelling.

The impact of poor packaging extends far beyond just the unboxing experience. It’s a complex issue with financial, operational and environmental consequences, each of which can pile up without your notice. By prioritising your product’s packaging quality, retailers can help reduce returns, improve their customer experiences while contributing towards a greener planet.