E-commerce businesses should have their margins factored into their business model. It’s the only way to guarantee a certain amount of profit per item sold. But what is the game plan when someone returns their product? Have you factored reverse logistics into your e-commerce model?

Reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value or proper disposal. Remanufacturing and refurbishing activities may also be included in the definition of reverse logistics.

In the early stages of any e-commerce business, many proprietors forget to factor in the additional costs of replacing or discarding returned product. As the e-commerce market grows, so does the product return rate. This is where a lot of e-commerce businesses end up losing most (or all) of their sales margins.

Product returns add an estimated seven to 11 percent to the base price of goods sold. That figure is expected to rise sharply, according to Tony Sciarrotta, executive director of the Reverse Logistics Association. As an example, Sciarrotta notes return rates are typically higher than 40 percent in the e-commerce apparel industry.

Extra costs pile up in the reverse-logistics process through refurbishment/recycling of the product, customer support and the return itself. However, there are ways within these sequences to ensure profit margins remain relatively intact.

Refurbishment/Recycling Returned Product

When a defective product comes back through the return process, it takes time and money to refurbish it for resale. Sometimes a product may need be recycled all together if it is not fixable. For example, e-commerce businesses that sell makeup  cannot refurbish any cosmetics where the packaging seal has been broken. But, if there are only superficial problems with the case and the integrity of the makeup has not been compromised, then vendors can re-sell these products.

If e-commerce businesses do not want to list product exhibiting superficial issues, then they can still recoup some costs by listing these products on other sites that sell these types of items at discounted rates. Buyvia.com sells recycled/refurbished items for discounted rates. As far as their policy onrecycled cosmetics goes, their products may have minor cosmetic wear that does not impact performance or quality. If the consumer can look beyond this to realize they would cause the same wear in a coupleof  months saving money is worth it.

Customer Support

E-commerce companies need to be on top of their game when it comes to customer support through the return process. This experience can bring customers back or push them away depending upon how smooth the return process is.

According to Smart Returns, many online shoppers are wary of e-commerce stores that either don’t have clear returns policies, or have terrible reputations for handling returns. A strong commitment to reverse logistics as a part of the customer service effort goes a long way toward repairing damaged customer attitudes and enticing new shoppers. Cash flows in reverse logistics are generally issued in credits, discounts and reduced operating costs. Developing credit rules and policies will help manage cash flows for e-commerce companies.

Returned Product

E-commerce businesses can understand a return on a product if it is defective upon arrival, but sometimes the customer can change their mind and decide they no longer want the product. Reverse logistics is unpredictable in this way because even if the product is in perfect condition, it could still end up back at square one.

According toMulti Briefs, the return process is more complicated than shipping things outbound as customers or consumers are the ones who start the reverse-logistics process. What many manufacturers don’t realize is that by handling returns correctly, they can get five percent of the return cost back in revenue.

Factoring reverse logistics into your ecommerce model is incredibly important. As the market continues to flourish, this is going to become even more integral to preserving as much of the profit margin as possible.