How Amazon Sellers Minimize the Impact of Returns on Profit Margins (2023)

It’s an unavoidable reality for every seller who chooses to conduct business within the Amazon marketplace that they must deal with product returns and the ensuing refunds. A single return can turn a once successful transaction into a series of domino effect headaches.

Amazon has developed simplistic FBA return policies that have significantly contributed to an attitude of casualness on the part of shoppers regarding returns. It’s one of the most consistently cited reasons from online shoppers as to why they love shopping on Amazon. Unfortunately, this exposes sellers to the possibility of those policies being abused (fraudulent returns), and additional costs in managing the final outcome of the returned products.

There are a substantial number of sellers who view the return/refund policy as a very sharp double-edged sword that, at times, can cut deeply into their profit margins.

They believe that it’s just another way for Amazon to entice shoppers at their expense.

Provide a Comprehensive Product Description

Ineffective product listings often leave too much to the imagination. They force the prospective buyer to make quick assumptions based upon nothing more than a single image of the product and a short description, which may be overflowing with pitchy marketing jargon. If a specific product is returned more often than expected, there’s a good chance that the product listing lacks enough detail for setting the correct expectations with the shopper. Product descriptions should include details such as:

  • exact product dimensions
  • weight of product, if relevant
  • size and color choices
  • materials description
  • manufacturing location
  • warranty information
  • satisfaction guarantee and return policy
  • answers to FAQs
  • product instructions for use, if applicable

Create an “in hand experience” for shoppers.

Sellers should include…

The exact product dimensions of the product in an image. Prospective shoppers are very visually orientated. A thorough description of the product will help to reduce returns because it limits the number of misinformed purchases. These details are particularly useful for products that can vary in size, shape, and measurements like apparel or items for a pet (like a litter box or mat). Sellers can also provide a close-up of an ingredient label when applicable. A shopper who knows precisely what they’ve bought is far less likely to return the product once it’s delivered.

Provide a…

(Video) Amazon FBA Returns and Refunds Explained for Sellers

Sizing Guide – Sellers who have a line of products that are similar under one brand, but vary in their qualities (size, shape, measurements, color, accessory options, etc.), should provide a sizing guide. For apparel, sellers should include the specific measurements of each item, allowing potential buyers to take measurements at home in order to choose the best fit for themselves. They should also let shoppers know how their sizes compare with those of other popular brands in their niche.

Pro Tip: If you are having trouble producing a product sizing guide, you can consult with your supplier on what variables they use in creating your product(s). While tedious, the more precise and detailed you are in your size descriptions, the better off both you and your customers will be.


Be sure to use…

High-Quality 360-Degree Imagery with Variety – Making sure potential customers have a 360-degree view of a seller’s product helps to minimize returns. Use multiple pictures from different angles. Prospects want to see every side of the product: front, back, top, bottom, and all sides. A 360-degree view of the product provides essential visual information, so that potential buyers have a better sense of what they are purchasing.

If a product doesn’t have multiple ‘sides’ to photograph, use close-ups of noteworthy features, attachments, or accessories. Also, if a product is available in several styles or colors, they should be featured by high-quality photography.

Utilize modern technology (like a Smartphone) to create 360-degree product images that mimic in-store experiences. Shoppers will appreciate close-up views of a product’s stitching, material, logos, etc., and it will help them to better understand what sets a seller’s products apart from other niche competitors.

Create a…

Product Video – Videos are excellent marketing tools. Product videos compress product images and descriptions into an accessible visual package, giving potential buyers a look at the product from all angles in motion, a full description of the product in text form or with vocals, and a full explanation of the product’s features and how it works. It fills in the visual and sensory gaps that otherwise plagues online shoppers. A seller’s promotional videos are unique to their products and are possibly the most powerful tool for giving shoppers an experience that satisfies their sensory needs to see the product in action.


Be available to…

Offer Customer Service in Real Time. Providing a method for shoppers to ask questions in real time is an effective way to alleviate “buyer’s remorse” that may lead to product returns. If your product contains Amazon compliant marketing materials that lead customers to an external website, a live chat system on that site can go a long way in helping shoppers to be satisfied with their purchase.

Don’t hesitate to…

(Video) Amazon FBA Returns and Refunds Explained | What You Can Do and Actually Happens for Beginners

How Amazon Sellers Minimize the Impact of Returns on Profit Margins (1)Ask for Customer Feedback and Reviews. Sellers should use customer feedback and reviews to try to determine why their products were returned and work towards solving those problems in order to minimize return rates. Use Amazon compliant messaging to ask for reviews, and consistently monitor customer feedback for detailed information about reasons for returns. In all communication, remember that you can not ask customers for positive reviews specifically.


Bonus Tip
: Don’t just look at 1-2 star reviews. 3-4 star reviews often contain valuable information on the customer experience.


Be sure to have…

Excellent packaging. A shopper’s online experience doesn’t stop once a product has been bought. Packaging can help to minimize returns.

Packaging is not just about knowing how to pack a product; it also has to do with ensuring the right products are being packed in the first place. FBM sellers should always double-check their orders to ensure that customers are receiving the correct product. Delivering the wrong product not only guarantees the swift return of an unwanted item, but it can leave a massive dent in the shopper’s opinion of the seller’s business.

When packing products, FBM sellers should make sure they are following Amazon’s packaging standards. This will help prevent damage and reduce returns.

Price competitively

The perceived value of a seller’s products plays a large role in customer expectation and the level of disappointment they may feel if products aren’t exactly how they imagined when delivered. Shoppers are seeking products that are reasonably priced for the value they receive. If a seller’s price points are high and their products don’t last, they’re more likely to see a high return rate.

Sellers must make sure that they have a quality product…plain and simple. This means paying attention to the tiniest of details and making sure they are collaborating with a supplier that understands their expectations and the product, inside and out.

And don’t forget to…

Gather shopper data on product return rates. Tracking any patterns in the cycle between a customer purchase and its return can give sellers powerful insights into what to improve upon or do away with entirely.

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Sellers should be tracking data on:

  • which products are being returned (if multiple products are offered),
  • which products have the highest return rates (if multiple products are offered),
  • what is the principal reason given for customers returning the products,
  • if certain types of customers return products more often than others (you can stop targeting them with deals and discounts),
  • how much time passes between the initial purchase and when the customer asks for a refund, and
  • if products are returned more often during a particular time of year (knowing if there’s a seasonality to returns can be valuable information).

Along similar lines, another important process when evaluating return rate data is to look at it by parent products. By doing so, sellers are able to see if there are certain variations or products in their catalogs that have a higher-than-average return rate.

If a product is returned more frequently than expected, it is likely that your listing is playing a part. After identifying a high return rate product, sellers can then look internally to determine how this issue can be resolved.

What to Do When a Product is Returned to Amazon

How Amazon Sellers Minimize the Impact of Returns on Profit Margins (2)

When a customer initiates a return of an item ordered via Prime shipping, Amazon immediately issues that refund, without waiting for the item to be returned.

Amazon immediately takes the return funds from your upcoming disbursement and usually gives the customer a shipping label to return the item to the proper warehouse. Customers are on the honor system to return the item they no longer want within 45 days.

Amazon will notify you that the refund has been issued from your account.Keep a record of the return notification email sent from Amazon, so that you will have a record of this refund and can verify that the return actually occurs within 45 days.

If you have not previously saved these notification emails in a folder and need access to the information to determine which item(s) have been returned and why, follow these steps:

  1. Login to Seller Central and hover the cursor over REPORTS at the top of the screen.
  2. Click on the PAYMENTS link under REPORTS.
  3. Click on the TRANSACTION VIEW tab.
  4. From there, filter view by Refund, select the time frame, and click Update

Once you know which item(s) has been refunded, you need to find out if the item(s) has indeed been returned. Here is how to do this – (skip to step 6 if you have the Merchant SKU or ASIN from the Returns Report):

  1. Copy the order number from the Refund Notification email.
  2. Login to Seller Central and hover the cursor over ORDERS at the top of the screen.
  3. Click on MANAGE ORDERS, then click on ADVANCED SEARCH.
  4. Paste the order number in the search bar and click SEARCH at the bottom of the page.
  5. You’ll be able to see exactly which item was returned. From this page copy the item’s Merchant SKU.
  6. On the top of the Seller Central page, hover over REPORTS and click on FULFILLMENT.
  7. On the left side of the column, in the Inventory section, click on the SHOW MORE option.
  8. Click on INVENTORY EVENT DETAIL.
  9. Paste the Merchant SKU in the search bar, make sure the event date includes the date of the purchase (or just choose LAST 365 DAYS if you’re not sure, and click GENERATE REPORT.
  10. From there you should see all of the activity this item has experienced

Amazon should automatically reimburse you when an item is not returned, but this is not done 100% of the time. Things fall through the cracks…some incomplete returns are missed. When this happens, you’ll need to be proactive.

If you find that an item was not returned within the 45-day limit, it’s up to you to contact Amazon and remind them that they owe you a reimbursement.

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When you open the case with Seller Support, simply ask them to look into the return in question for you. Communication is key; be as succinct as possible.

  1. Enter the specific item information
  2. Tell them the buyer received a refund but has not returned the item to an FBA warehouse within the 45-dayperiod.
  3. Ask for a reimbursement of the original sales price.

If Amazon insists that the item in question was returned on a specific date, you have the option of sending them a screenshot of the Inventory Detail Report, to help substantiate that the item wasn’t returned to your inventory.

Several things may happen to a product after it is returned to Amazon’s warehouse:

  • the item is thrown away
  • the item is resold
  • the item is placed on hold
  • the item is sold via liquidation

When Amazon receives the return from your customer, the warehouse worker will look at the customer’s return reason and then make a decision on whether the item is still in sellable condition or not.

If you have multiples of an item returned and put back in your inventory as ‘sellable,’ then it’s up to you to decide if it’s worth it to have them all removed for inspection.If you are worried that the item isn’t really in sellable condition, then open up a removal order to inspect the item yourself.

If an item is deemed by Amazon as ‘unsellable,’ many sellers just click to have Amazon dispose of the item, assuming it’s not worth selling anymore. This can often be a mistake because it’s very possible that the item could still be in saleable condition.

Taking a few extra steps to see if that item is actually unsellable or not could help you minimize your loss, because often the ‘unsellable’ item can still be sold.

Don’t ignore your unsellable returned items because they will just sit in an FBA warehouse and continue to rack up monthly storage fees.


Pro Tip
: Between lost/damaged units, incorrect refunds, and lost inbound inventory, Amazon owes 99% of sellers money. You can have a team of reimbursement experts handle all of the claims and follow up work for you without having to pay anything up front (they’ll just charge a percentage of what they recover for you). For more information, click here.

Managing the Unavoidable

The occasional return is just part of conducting business and is nothing to worry about. Customers can return products for a variety of reasons.

While some returns are unavoidable, there are many ways in which a seller can reduce their Amazon product return rate. As long as you are diligent and transparent with your product listing, you can weed out the avoidable returns and maintain your seller reputation.

(Video) 5 Tips for INCREASING PROFIT MARGINS For Amazon FBA

Approaching this process proactively, with a game plan for minimizing the impact of returns and refunds on your Amazon business is crucial to its long-term success.


Entourage:
Software to Scale Amazon Ads and Results Driven Management.

FAQs

How Amazon is managing the return process? ›

Amazon will process and handles all Fulfillment by Amazon (FBA) returns. If the item is returned in sellable condition, the buyer will be refunded and the seller will be charged the equivalent amount. The seller will also be refunded some or all of the referral fee and the variable closing fee.

What is the profit margin of Amazon on a product? ›

Amazon net profit margin as of September 30, 2022 is 2.25%.

How does Amazon handle all the returns? ›

Returned items are put through a detailed inspection process, and if the product meets our high-quality standards, the item is tagged as “new” and is re-listed for sale. Most returned products meet this bar and are put back on our digital shelves for other customers.

How do I lower my return rate on Amazon? ›

Lessen Your Amazon Return Rate in 8 Ways
  1. Write a very precise product description. ...
  2. Provide a sizing guide. ...
  3. Upload high-quality 360-degree images. ...
  4. Include a product video. ...
  5. Offer real-time customer service. ...
  6. Gather previous Amazon return data. ...
  7. Coordinate with your suppliers. ...
  8. Ask your customers to give detailed feedback.
31 Mar 2022

Are Amazon returns profitable? ›

It also returned to profitability, making $2.9 billion after two quarters of losses. At the same time, Amazon projected that sales might slow to as low as 2 percent in the current quarter, which includes the vital holiday shopping season.

How can Amazon increase profit margin? ›

7 Easy Ways to Increase Your Amazon Profit Margins in 2022
  1. Use Repricing Software. ...
  2. Bundle Products Together. ...
  3. Switch to a Credit Card for Your Inventory Purchases. ...
  4. Track Your Suppliers' Changing Costs. ...
  5. Buy-Out Your Supplier. ...
  6. Capitalize on Out-of-Stock Items. ...
  7. Sell Items That Frequently Go Out of Stock. ...
  8. Final Thoughts.
6 May 2022

What is best profit margin for a product? ›

As a general rule of thumb, a 10% net profit margin is deemed average, while a 20% margin is deemed high and 5% low. If you want to compare your company's performance based on profit and merchandise margins, check out the average profit margin for your industry.

What is a good profit margin for a product? ›

What is a Good Profit Margin? You may be asking yourself, “what is a good profit margin?” A good margin will vary considerably by industry, but as a general rule of thumb, a 10% net profit margin is considered average, a 20% margin is considered high (or “good”), and a 5% margin is low.

Does Amazon care about returns? ›

Amazon keeps track of how many items you return and for what reasons. If you return 5-10 items per month or more than 10% of what you order for no reason other than that you changed your mind, you may receive a warning.

What reasons does Amazon give for returns? ›

For FBA, here are some of the most common reasons for customer returns:
  1. Unwanted Item. ...
  2. Item is defective. ...
  3. Unauthorized Purchase. ...
  4. The item was not received by the estimated delivery date. ...
  5. Accidentally ordered the wrong item. ...
  6. Product is not as described on the website.
28 Apr 2022

Who does Amazon use for returns? ›

Amazon's website gives shoppers a few options for returning items in the mail. You can have Amazon send you a UPS label for dropoff, go to a UPS store and have them print and attach it for you, or schedule a UPS pickup. Some clothing returns are free, but Amazon generally makes customers pay for return shipping.

What is the best way to return to Amazon? ›

Just go to Your Orders and select the item you wish to return. Tell us why you want to return this item, then choose a drop-off location that supports label-free, box-free returns. We'll send you a QR code; bring your code and item to the drop-off location, and you're done.

What is the limit of return Amazon? ›

Items shipped from Amazon.com, including Amazon Warehouse, can be returned within 30 days of delivery, with some exceptions: For information about products that can't be returned, see Items that Can't be Returned. To determine if a product sold by Amazon.com has a longer return timeline, locate the product type below.

Why is my Amazon return less than I paid? ›

Returned Damaged or Used

If you're at fault, though, then you'll get no more than 50% of what you paid, and often less. This applies to anything that you've clearly used or that has lost parts. For more information, see Amazon's About Refunds page.

Does Amazon allow so many returns? ›

It is free for Prime members and allows you to try up to 8 items at a time; Then you can keep what fit you and return all others without any penalization. Another tip is avoiding ordering large items like bicycles or furniture from Amazon.

How much of Amazon's sales are returned? ›

Where Do Amazon Returns Go? According to many Amazon third-party sellers, dealing with customers abusing Amazon's lenient return policy is considered part of the business. At least 30% of online orders are returned and nearly 9% of products are returned to brick-and-mortar stores.

Are Amazon returns really free? ›

Your return shipment is free of charge in some cases. If you return an item using the return label provided in the Returns Center and the reason for return isn't a result of an Amazon.com error, the cost of return shipping will be deducted from your refund.

How do you minimize the number of returns customers make? ›

Get a long-duration return policy

By increasing the number of days, customers are most likely to get attached to the item, or simply forget about it. This way the number of returns is reduced and the customer is most likely to be more honest with you about their reason for return.

How can you improve the return process? ›

Five Ways to Improve Returns Processes in 2021
  1. 1: Create a Clear and Easy-to-Find Policy on Your Website. ...
  2. 2: Establish Clear Internal Processes for Accepting and Processing Returns. ...
  3. 3: Use a Returns Management Portal to Limit Fraud and Improve Service.
29 Jul 2021

How can I improve my return policy? ›

8 tips for creating a better return policy for your store
  1. Make your policy prominent. ...
  2. Ditch the legal jargon. ...
  3. Stipulate a reasonable timeframe. ...
  4. Define the expected condition of returns. ...
  5. Be upfront about return shipping costs. ...
  6. Determine whether you'll offer store credit or a full refund.
14 Jan 2021

How do you increase sales and profit margins? ›

How to Increase Your Profit Margins
  1. Avoid markdowns by improving inventory visibility. ...
  2. Elevate your brand and increase the perceived value of your merchandise. ...
  3. Streamline your operations and reduce operating expenses. ...
  4. Increase your average order value. ...
  5. Implement savvier purchasing practices. ...
  6. Increase your prices.
3 Aug 2021

Why does Amazon have a low profit margin? ›

Despite colossal sales, Amazon's profit margin is low because of its strategy of aggressive growth and reinvestment, as Vox reported. "Our profits have remained low given our continued investments across Europe," the company wrote in a May blog post, which emphasizes the "millions" of dollars paid there by the company.

How do you add profit margin to a product? ›

Overview of Profit Margin

Subtract the cost from the sale price to get profit margin, and divide the margin into the sale price for the profit margin percentage. For example, you sell a product for $100 that costs your business $60. The profit margin is $40 – or 40 percent of the selling price.

What is profit margin example? ›

For example, if sales are $8,000 and costs total $6,000, the difference between the two is $2,000. Divide that difference by sales – $8,000 – and multiply by 100 to get 25 percent. That is the gross profit margin.

What is profit margin meaning? ›

Profit margin is the measure of your business's profitability. It is expressed as a percentage and measures how much of every dollar in sales or services that your company keeps from its earnings. Profit margin represents the company's net income when it's divided by the net sales or revenue.

What is a good return on sales? ›

What is a good return on sales? For most companies, a ROS between 5% and 10% is excellent. This may not seem like much, however, if your business is heading into financial trouble, this number would be in the negative. If ROS is above 0%, you are turning a profit.

How do you find the profit margin? ›

Profit margin is profit divided by revenue, times 100. There is a gross profit margin (bigger) and a net profit margin (smaller).

What are the main reasons for returns? ›

Why Do Customers Return Their Purchases?
  • The customer ordered the wrong product or size. ...
  • The merchant shipped the wrong product or size. ...
  • The product was damaged or defective. ...
  • The product arrived too late. ...
  • The customer no longer needed the product. ...
  • The customer experienced buyer's remorse.
12 Dec 2021

Why does Amazon refund without return? ›

For example, if you received a damaged or defective item, Amazon will usually issue a refund without requiring a return. Also, refunds will largely depend on the price of the item. If it's a cheap item, it may cost Amazon logistics more money to ship it back to the warehouse instead of keeping the item.

Do Amazon returns go to Amazon or seller? ›

When you order from a seller that fulfills and ships its own inventory (also called a third-party seller), your return is sent back to the seller instead of Amazon.com. Third-party sellers adhere to the Amazon.com policies that are outlined in About Our Returns Policies.

How do I guarantee an Amazon return? ›

Request an A-to-z Guarantee Refund
  1. Go to Your Orders.
  2. Locate the order.
  3. Select Problem with order.
  4. Select your problem from the list.
  5. Select Request refund.
  6. Enter your comments in the text box.
  7. Select Submit.

How many times we can return a product in Amazon? ›

10 Days Returnable

This item is eligible for free replacement, within 10 days of delivery, in an unlikely event of damaged, defective or different item delivered to you. You can also return the product within 10 days of delivery for full refund.

Can Amazon ban you for too many returns? ›

So, yes, it is certainly possible to get banned from Amazon—but, unless you are making an excessive number of returns and ignoring emails from Amazon, it's unlikely that it'll happen to you.

Can Amazon refuse a return? ›

I had a delivery stolen and Amazon advised me to file a police report and give them the case number in order to get a refund. YES, Amazon can reject a return. First off, you are required to submit a return request.

What is the returns management process? ›

What Is Returns Management? Returns management is a process in retail and e-commerce that starts with customers wishing to return a product, and ends with the business collecting, organizing, and restocking that product.

How long is the return process for Amazon? ›

We typically process returns within 3-5 business days after the carrier delivers the item to our Returns Center. When we complete processing your return, we issue a refund to the selected payment method. Learn how to Track Your Return.

How long does the return process take Amazon? ›

We will issue a refund within a maximum of 14 days and confirm it with an automated e-mail. You can see the refund in your bank account or credit card statement, within a maximum of 7 business days after the refund is issued. In certain circumstances refund time-frames may be longer.

Why is return to Seller important? ›

The product was damaged or defective

Items sometimes get damaged during shipping, or they leave the warehouse in damaged or defective condition. Once again, the merchant is obligated to issue a refund. The customer clearly has the right to receive an undamaged and functional product or get their money back.

How do you handle customer returns? ›

How to handle customer returns: top tips
  1. Keep records of all returns, exchanges and refunds. You can easily keep track of returns on your point of sale (POS) system, and this is essential to good customer returns practice. ...
  2. Providing stellar customer service. ...
  3. Analyze return data.

Who pays for returns on Amazon? ›

If you return an item using a paid method, we'll deduct the cost of return shipping and restocking fees from your refund. If you choose to ship the item on your own, you'll pay the carrier when you ship your return.

How do I return something on Amazon without returning? ›

Amazon Refund Trick Without a Return Summary

You contact Amazon customer service and claim that you have not received the item you ordered or that the item is damaged. Amazon will then issue a refund without requiring you to return the item.

How many times does Amazon let you return? ›

It is free for Prime members and allows you to try up to 8 items at a time; Then you can keep what fit you and return all others without any penalization.

Can I cancel a return on Amazon and then return it? ›

You'll have the option to create a new return after you've canceled the existing return. If you requested a pickup for your return, you can ignore the pickup attempts or contact the carrier to cancel the pickup.

Can I return Amazon items without packaging? ›

Any products returned without their original packaging and documentation will be rejected. Any products that are resized, altered, or otherwise damaged after delivery, won't be accepted for return.

Why do Amazon returns take so long? ›

Refunds can take up to 7 business days from when you submit your request for one. The time frame varies depending on your payment method and how fast your bank processes refunds. If your Amazon refund is not received in your bank account, keep in mind it takes 2 weeks for Amazon to send money to your bank account.

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