How to offer free return shipping as a small business

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A free return is no longer a perk — it’s an expectation. 

Your customers are sitting there, scrolling on their phones and hopefully adding items from your web store to their cart. On the checkout page, they see the promising “free return shipping” option and swipe their credit cards. 

But what’s promising to customers can be harmful to small businesses. Free returns can cut deep into your profit margins, become a logistical nightmare and wreak havoc on inventory management. 

To help you offer free returns without compromising your margins, we talked to Nick Malinowski, co-founder of OTW Shipping, and Kris Gösser, CMO at Shipium. 

In this article, we explore why consumers demand free shipping and how to offer it without compromising margins. Let’s dig in. 

Why consumers demand free return shipping

Somewhere between the introduction of the iPhone in 2006 and public access broadband in 2009 — consumers started shopping on their phones. And the pandemic gridlocked it. In fact, 51% of consumers said marketplace websites, such as Amazon and eBay, are their favorite places to shop, followed by brand websites at 20% and social media at 4.5%.

Then, in one fell swoop, people began demanding more from online retailers — better prices, more discounts and premium add-ons. Here’s why:

The Amazon effect

Amazon has set the gold standard for online shopping. With its hassle-free, no-cost return policy, it has conditioned customers to expect the same level of service from other retailers. This isn’t just about convenience; it’s about trust and reliability. If Amazon can do it, why can’t everyone else?

A risk-free experience

Online shopping has risk built into its premise — customers can’t touch, feel, or try on products before they show up on their doorstep. Because free returns eliminate this risk, customers are more tempted to hit that “buy” button. They know they can return items without any financial penalty when products fall short of their expectations. 

Customer-centric service

Today’s consumers demand more than just a transaction — they want an experience. Offering free returns shows that a brand values its customers and is willing to go the extra mile to ensure satisfaction. It sends a clear message: “We care about you and want you to be happy with your purchase.”

The benefits of free returns for businesses

When customers know they can return items hassle-free, they shop with confidence, meaning higher conversion rates and average order values for you. In the long term, this policy builds trust and shows customers that you care about their satisfaction and are willing to back your products with an easy, no-cost return process.

And the benefits don’t stop there. 

Free return shipping can also be a powerful marketing tool. It can encourage new customers to give your brand a chance, without getting hung up on “What if it doesn’t work out?” 

Also, the data collected from returns can offer invaluable insights into customer preferences, which can help you refine your offer. 

When executed strategically, free shipping on returns can prove to be an investment in your business through: 

  • Increased customer loyalty: Shoppers are more likely to return for future purchases because the onus of selecting the right product is not on them. 
  • Higher conversion rates: Confidence in a hassle-free return process boosts initial sales.
  • Larger basket sizes: Customers tend to buy more when they know returns are easy and free.
  • Market differentiation: Stand out in a competitive market by offering superior customer service.
  • Invaluable insights: Return data provides critical feedback for product and service improvements.

But return shipping also comes with a complex set of challenges. 

The problem of free return shipping for small businesses

The problem with free return shipping is two-pronged: Customers who abuse the policy and are becoming harder to weed out and the continuous tradeoff between marketing, operations and finance. 

Just-for-fun shoppers

Online shoppers are spoiled — and rightfully so. They’re drowning in options, discounts and hyper-targeted advertisements and retailers are incentivizing them to “buy and try” instead of the other way around. 

But this becomes a problem when they start abusing the policy and cutting into — or worse, eliminating — your profit margins. When they send back their just-for-fun purchases, you’re left without money in the bank.

“I may be looking for one sweatshirt, but if there is no penalty to ordering more, especially if I have free shipping, I might as well order three different ones I sort of like.” – says Nick, explaining how customers think. 

As a business owner, you now have 10 items to pack — eight of which you’ll probably have to ship back. 

The continuous tradeoff between finance, operations and marketing 

For businesses in the ecommerce space, tradeoffs are now cross-functional. You have to balance the demands of marketing, operations and finance. The digital team might want to follow the Amazon motto, “Everything gets there the next day and shipping is free.” The operations officer might say, “Okay, to do that, everything needs to be sent via a priority courier — which means $30/shipment.” The finance officer might say, “We don’t have those margins.”

“These tradeoffs are challenging and demand that you constantly push and pull across the organization. The companies that don’t figure this out are dead in 10 years,” says Kris. “Because if you look at the way consumers and shoppers have changed, you’ll realize you can’t grow margins without coming to terms with tradeoffs on how to meet the needs of consumers — profitably.”

So, is there a workaround? 

Is there a way to build free return shipping into your costs?

Short answer: yes. 

Long answer: yes, but you need to test different strategies and continuously monitor your inventory levels and couriers. 

Here’s how to do it: 

  1. Diversify carriers so you can pick the most reasonably-priced one for returns. This will make return shipping costs easier to swallow.. 
  2. If you’re a physical retailer, use a “drop off at store” option. For purely online businesses, set up local drop-off points by partnering with small retail outlets or third-party logistics providers.
  3. Implement a membership program that offers free return shipping as a benefit. Charge a membership fee to offset the return shipping costs. 
  4. Incorporate dynamic pricing: adjust prices based on factors such as demand, seasonality and competition. This way, you maintain pricing flexibility and ensure that you can factor in return costs. 
  5. Use lightweight, durable packaging to reduce shipping costs. Avoid over-packing items and choose the right size box or envelope to minimize dimensional weight charges. If possible, implement a “no returns without original packaging” policy. 

How to make free returns work for your business

While the tactics we discussed above are a good start, you need to think about return shipping long term. Ideally, you want to discourage customers from ordering products they actively intend to return. Otherwise, you’re fighting a losing battle — or worse — setting yourself up to compete with Amazon. 

Here are our top recommendations on how to make free returns work for your business day in and day out: 

Improve purchase confidence 

The “move to checkout” is a precarious journey and adding steps to it seems counter-intuitive. But it helps reduce returns. When your customers are better informed on materials, sizing, colors, they’re less likely to send products back.

For example, say you sell apparel. Instead of relying on your customers to pick a suitable size, ask for their measurements and recommend an appropriate one using AI-recommendation engines. You can even add explainer text to say: “Based on past purchases, customers with your measurements who bought a size S, returned it only 1 in 10 times” 

Nick says, “Take steps to increase customer confidence in their purchase and ensure the customer knows what they are buying and have a high intent of keeping.”

Add contextual information such as yourmodels’ heights and weights to help people visualize how the product will fit. You invest in virtual reality to help customers visualize products in their space. 

Switch to minimum threshold free returns

Offer free returns above a cart value that works for your margins. When customers see this policy, they’re more likely to toss in those extra items. It’s a win-win — your average order value shoots up and customers feel they’re getting more bang for their buck. 

Nick says, “While this may decrease your conversion rate, you will increase your average order value. This, in turn, increases the net margin per order since postage will be a smaller share of the total order costs.” 

But keep thresholds within reason. If you’re selling a $500 bag, you should ideally include free shipping on all orders. However, if you’re selling $10 bracelets, encourage customers to buy three to four to balance out the shipping costs.

Offer an option to opt out of returns for a discount 

A free-returns opt-out option in exchange for a discount can help you keep your profit margins because it incentivizes your customer to buy for keeps. They work harder for the extra discount by reading material compositions, reviews and sizing guides. Nick says, “You want the customer to think about what they’re buying before they buy it, not on a whim.”

Say you sell a $100 shirt which costs $30 to ship and nets you $40 profit. Instead of including “free returns” as an option for every item, offer customers a $10 discount if they “opt out” of returning. This way, you still maintain a $30 margin. 

Make free returns work with Linnworks

The key to making free returns work is to know your products, carriers and margins inside out so you can establish — and enlarge — wiggle room. 

Linnworks gives you control over the entire ecommerce operation — inventory, warehouse, shipping, fulfillment and order management — so you can implement new return strategies and monitor how they perform. 

Ready to see how Linnworks can help you offer free returns without pecking away at your margins? Sign up for a demo and get started today.  

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Bani Kaur

Bani is a B2B SaaS writer for AI and eCommerce brands. She specializes in interview-based writing for brands like Shopify and Klaviyo. When you don’t find her typing away at her laptop (or scribbling in her notebook), she’s probably in the ocean, scuba diving with majestic manta rays.