Paying the Price of Being Small

3 strategies for SMBs to reduce e-commerce returns

By Mikel Lindsaar, CEO and Founder of StoreConnect

When you are playing the game of online commerce, you know that invariably some of those hard-won sales will be returned by the customer. In fact, across the entire industry, between 15 and 20% of all goods bought online are sent back by the customer for refund, replacement, or repair. This totals a staggering $750 billion dollars in 2023.

Whilst an individual SMB share of this massive return figure, might be small, it can represent a significant cause of lost profitability. No surprise, when the retailer often must fund the original postage cost to compete with the accepted free delivery, plus the return cost, and then the 3rd postage and cost of replacing the goods. To make matters worse, it may be impossible to even resell the original item when it comes to personal items like clothing.

Returns are just one reason why we always caution the SMB owner to find a market position where they compete on their terms, and not try and beat the bigger retailers on price. When you factor in returns, if you’ve tried to match prices or offers of the big retailers, you are likely to be hard-pressed to make any margin at all on your online sales.

A complicating fact is that many SMBs are running multiple systems to support their overall e-commerce operations, and these multiple systems can introduce opportunities for mistakes as data gets passed from the online shop to the finance, to the dispatch system. When you look at the reasons why people return goods, some of the reasons are within the control of the retailer, such as sending the wrong item, the wrong size, or some other failure to deliver the correct, ordered item.

There are three key strategies the SMB can employ to improve their profitability and their return rates, and at the same time make running their business less stressful and more fun. It all comes down to getting closer to the customer.

I don’t mean closer in terms of distance since online commerce is the antithesis of being close. In fact, it is the ability to scale beyond our physical location that is behind the appeal of online commerce. I mean closer in terms of understanding the customer.

The first strategy is using the data you are collecting in your systems to improve your understanding of the type of customer you are attracting and each individual client. In this way, you are essentially surveying your market which should allow you to provide a more personalized experience for each customer. Using this data for example, you might be able to provide a better way for customers to understand if an item is going to suit them, fit them or otherwise be the item they really want.

The second strategy is to provide real time updates. Using a Customer Commerce system for example, you’ll be on one platform with one single source of truth, which will allow you to respond to customers even more rapidly as they are ordering the products online. This could also include a real-time offer for that customer based on past purchases. It might seem all a little Matrix oriented to you, but newer systems are indeed giving us this capability to understand and service customers.

The final strategy is to streamline your returns process. Use automation, and user-friendly interfaces and systems. If you are going to get a percentage of returns, at least make it easy for both the customer and your team to reduce any stress, frustration, or waste. Like any part of the customer experience, one return doesn’t mean they will leave you, but one poorly handled return might mean losing a customer forever. If you can keep the customer happy then their overall lifetime value will increase as well as your lifetime profitability on that customer. So you might lose out on one sale, but you win overall.

There is no doubt that a move to the new Customer Commerce systems that are far simpler – being a single system – and far more effective – being customer-oriented is an overall strategy now being employed by SMBs to improve their competitive edge. These newer systems will allow SMBs to do what they do best, without being held back by poor technology or not being able to offer similar online experiences compared to larger corporations with their huge technology budgets. These systems are now within reach of the SMBs with their tighter budgets. As such they no longer have to keep paying the price of being too small.

About the Author

Mikel Lindsaar is the CEO and Founder of StoreConnect, a Salesforce Partner Innovation Award Recipient.  Mikel is a serial technology entrepreneur having successfully built and sold four SaaS companies within the last decade. StoreConnect has one goal: to help small and medium-sized businesses become scalable Customer Companies powered by Salesforce.