04 May Amazon FBA Returns: 5 Best Practices for Sellers
Half of Amazon’s staggering $386 billion revenue came from third-party sellers last year. There is no question that the market is booming with the growth of Amazon FBA Acquirers, businesses built from the ground up to buy and scale Amazon FBA businesses.
Despite the record growth figures that Amazon and the biggest Amazon FBA businesses are posting, the system can present a few problems that sellers need to be aware of. One perennial problem that sellers need to keep an eye on is Amazon FBA returns. If left unaddressed, returns can eat into margins and sink an otherwise successful business. But there are some strategies you can employ to minimize the risks associated with returns.
Possible Challenges For Amazon FBA Sellers
Fulfilled By Amazon (FBA) is Amazon’s service whereby they store, pick, pack, and ship seller’s products and also provide customer service for these products.
Overall, Amazon FBA is a great way for sellers to scale up their business but you do need to keep an eye on a few challenges. Firstly, as we’ve talked about in other posts, to succeed with Amazon FBA you need to keep your Amazon IPI score up. Put simply, Amazon will reward businesses who effectively manage their inventory with them, and penalize those who don’t through slightly higher fees.
What’s more, sellers need to be careful to keep their reviews mostly positive as poor reviews can impact your IPI score and have a knock-on effect on the cost of warehousing with Amazon.
But one of the biggest challenges that sellers face is Amazon FBA returns. Not only does Amazon charge you a returns processing fee which can equal up to 50% of Amazon fulfillment fees but depending on the item returned it may not be resellable so you will have also lost the inventory cost of the item and may even need to pay to dispose of it.
As part of the Amazon FBA process, when an item is returned a worker in the warehouse will review it and determine if it is resellable, defective, or damaged. However, it’s still a good best practice for these items to come back to you for your personal inspection before reselling them (if that appears possible).
How To Combat Issues With FBA Returns
Generally, the customer will have 45 days to return the product. It’s best to keep the copy of the Amazon email that notified you of the return and then check to make sure it’s actually been returned. If the customer doesn’t return the product in the allocated timeframe, then you should ask Amazon for payment because the customer hasn’t (and won’t be able to) return it.
Keep in Touch with the Customer
Amazon relies heavily on reviews to manage sellers, this is often called your seller feedback score. The seller feedback score impacts everything from your IPI score, which impacts your fees, to your product placement and will ultimately impact your sales. A customer returning a product doesn’t have to result in a bad review. Ideally, you will be in touch with them to ask for feedback, support them through the returns process and ask them if there is a different product that they are looking for. After you’ve helped them through this process, you should go back to them and ask if they would be willing to leave you a review. Since you’ve been so helpful, even if they didn’t want the product, generally this will result in a positive review.
Work On Your Shopfront
The best way to combat Amazon FBA returns is to reduce the number of returns you get in the first place. There are many reasons why a customer might return a product and some of them you have absolutely no control of.
But there are some things you can control, most notable your shopfront and product descriptions.
A product description lacking enough detail or clear information about the product sets the wrong expectations for customers which is probably the cause of so many returns.
A good product description will include exact product dimensions, weight, size and color, materials description, manufacturing location, warranty information, etc. Providing in-depth production descriptions demonstrates transparency and will ultimately lead to more sales and fewer returns.
The same is true for photos. Your pictures need to be honest and give a sense of scale for the products that you’re selling. It can be tempting to over-edit the photos of your product but you need to strike a balance. If the customer feels like what they received isn’t what they ordered then they are more likely to return it.
Look At Your Product Strategy
The average return rate on Amazon is between 5% and 15%, but for some categories, such as clothing, jewelry, and consumer electronics, this percentage can reach as high as 40%. In order to maximize profit, sellers specializing in these categories should monitor patterns and build those potential return rates into their margins.
Another way to limit the risk from Amazon FBA returns would be to sell a range of items on Amazon. With the right product mix, products that are less likely to be returned would counter higher returns of other items, helping to minimize loss. In short, you are mitigating risk by spreading your product strategy out between those with high potential return rates and those with lower potential return rates. Of course, depending on what market you’re in this may or may not be possible.
Optimize Your Margins
We’ve hinted at this point throughout the article but often problems from Amazon FBA returns actually are problems with product margins. Ideally, your margins should include some of the risks of returns so that you aren’t hit too badly by a wave of returns. There is also a seasonality here in some businesses. For example, after the Holiday rush, there is often a following wave of returns.
You need to analyze the data to find out the exact return rates of products and make sure that these are built into your margins to avoid losing money. If Amazon FBA return rates are high, you may need to look at reducing operating costs or raising prices on other products in order to increase profit margins and improve profitability. This can, of course, be a challenge if you’re in a highly competitive space with cutthroat competition on price. If that’s the case you may want to look at your overarching product strategy. Maybe you need to launch a product for higher up the market, where you can get higher margins? There is no right answer here for all businesses and it’s the kind of thing that our seller success team at Yardline works on every day with sellers.
Although all of these solutions to try and reduce Amazon FBA returns sound fairly simple, they all take a lot of time and money to implement into your business. As a small company, you may not have the funds to fulfill these needs, which is where Yardline can help. At Yardline, we offer capital advances to support companies looking to grow their e-commerce business on platforms such as Amazon, Shopify, eBay, Etsy, and more.
Our funding will help you to launch new product lines, scale up your marketing, and purchase inventory. We also offer personalized business insights to measure key metrics to see how you are performing compared to your biggest competitors. This model allows your business to grow quickly and with no hassle as we handle auto repayments on the back end.
To learn more about what metrics you should look at to scale your business, you can download our ebook: 5 Metrics the Savviest Online Sellers Use to Measure Success.