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5 Hidden Costs in the Reverse Logistics Process

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When your e-commerce business makes a sale, the last thing you want is to have to deal with a return. You’ll lose the sale and incur additional costs. To accommodate a return, the product must reverses its way through your supply chain. All activity associated with accepting the return of a product is known as reverse logistics.

The assoicated costs are always higher than just the price of shipping. According to Supply Chain Dive, reverse logistics cost companies upwards of $260 billion annually.

Here are five hidden costs in the reverse logistics process many e-tailers overlook.

Labor Costs in Return Process

Labor is one of the most commonly overlooked because it’s felt indirectly. When a product comes back, employees need to receive, inspect and possibly restock the item—depending upon its condition. This usually involves multiple workers across various departments. Time that could be spent growing the business is consumed handling returned product.

Reselling Returned Products at a Discounted Price

Product condition can play a huge factor in determining price. In some cases you’ll have to resell at a discount or discard it all together. On top of losing the profit from the original sale and incurring the cost of labor to get the product back into your inventory, selling the product for a discount or discarding it all together adds even more salt into the wound.

Returned Product Can Lead to Inventory Mismanagement

Product returns can throw a monkeywrench into your inventory tracking process. Resources are redirected toward returned product, which takes away from the inventory control operating procedures. E-retailers have the option to outsource their inventory management to a third-party logistics company (3PL), but others who chose to handle inventory in-house could benefit from a cloud e-commerce platform. Cloud-based platforms can help with inventory management because of their speed, security and scalability.

Offering Free Return Shipping

A growing trend in return processes for e-commerce companies is free return shipping. This usually has a positive impact on how the customers perceive an organization because it shows them that the company is taking care of the extra expense instead of putting it on the customer. Around 49 percent of online retailers offer the service While this goes a long way toward engendering customer satisfaction, it’s detrimental to the bottom line. On average, about 30 percent of e-commerce orders are returned, so these costs add up very quickly.

Customer Frustration Can Lead to Higher Customer Churn

While positive return experience can drive loyalty, a bad one is likely to lead a customer to shop your competitors. Per the Narvar Consumer Report, customers who return product are likely to be the best customers. Eighty-two percent of customers who previously returned products were repeat shoppers, and 95 percent of customers satisfied with the returns process said they’d purchase from the retailer again. A key report takeaway — high value customers are also the most likely to utilize the returns process.

E-retailers need to implement or update their reverse logistics strategy in order to become as efficient with their returned product as possible. E-commerce companies who do not pay attention to this process could be losing upwards of 10-20 percent of their profits, and possibly, a devoted chunk of their customer base.

Running an e-commerce store demands attention from every angle, but by focusing on these five hidden costs in the reverse logistics process you’ll recover more of your margins and better satisfy the needs of your customers.

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Latest Issue

BDC 301 February 2023