Ecommerce Returns Management: Best Practices for Reducing Costs and Improving Margins

Returns in ecommerce silently cut profits when businesses only treat them as a post-purchase issue. The real opportunity to protect margins is to stop fulfillment errors before they lead to a bad customer experience.

In this guide, we’ll explore operational strategies high-volume retailers can use to enhance ecommerce returns management and preserve their bottom line.

Key highlights:

• Ecommerce returns management is the end-to-end process of handling returned products, from the initial buyer request through shipping, inspection, and restocking.
• Understanding the primary causes of returns in ecommerce is critical to reducing product return spending and improving overall operational stability.
• Businesses that leverage data analytics can identify trends to optimize their ecommerce returns and protect profit margins.
• Shipium’s order management solutions help high-volume retailers reduce returns by automating fulfillment decisions and ensuring every delivery promise is backed by real-time data.

What is ecommerce returns management?

Ecommerce returns management is the process of organizing and executing the flow of goods from customers back to the fulfillment center or point of origin. 

In a standard setup, the ecommerce returns process begins when a customer initiates a return, usually through an online portal. Next, the system issues a return merchandise authorization (RMA) and generates a shipping label, triggering the reverse logistics phase. Once the physical inventory is transported back to the fulfillment center, it undergoes a detailed inspection and dispositioning process to determine if the item can be restocked, refurbished, or liquidated.

For high-volume retailers, returns management should be viewed as a part of the full lifecycle that begins before the customer even makes a purchase. The most effective way to manage customer returns is to prevent them. For example, if the delivery promise made is inaccurate, the likelihood of a return increases before the package even leaves the warehouse, as it sets the stage for delays and, ultimately, buyer frustration.

The impact of returns in ecommerce businesses

According to McKinsey, online channels have higher return rates than the overall retail sector. Returns represent a direct hit to profitability that compounds through three pain points:

1. Stagnant inventory and lost sales: Letting items sit in transit means losing the opportunity to sell them while they move from the customer back to the warehouse. This is especially costly for seasonal or trend-driven goods that lose value the longer they’re off the shelf.
2. Profit margin erosion from multi-leg shipping: Shipping an item twice for a single sale reduces the total profit margin. The rising costs for transportation and labor often result in a financial loss.
3. Increased labor and operational friction: Requiring more manual labor than outbound shipments wastes resources, because every item must be opened and inspected. Warehouse teams must grade and fix every return before it can be restocked, which slows down overall productivity.

How to calculate the ecommerce return rate

Calculate the ecommerce return rate as a primary diagnostic of the gap between the delivery promise and actual fulfillment performance.

The standard return rate formula is: 

Return rate % = (Number of returned items / Total units sold) x 100.

According to the 2025 Retail Returns Landscape report, the industry benchmark for online sales returns is 19.3%. Going above this limit often indicates a mismatch between sales promises and actual service levels. 

To determine the true cost of returns, calculate the total lost profit instead of just the refund amount. The total value includes direct expenses like shipping labels and restocking fees, as well as hidden costs such as:

• Warehouse labor 
• Packaging waste 
• Liquidated inventory 

What are the causes of ecommerce returns?

The causes of ecommerce returns are often controllable issues in which the physical product or delivery experience fails to meet expectations set during the digital shopping journey. These scenarios include:

Poor merchandise quality

Nothing erodes brand trust faster than a customer unboxing a product that fails to meet their expectations. Poor quality remains a leading driver of returns and can signal a disconnect in manufacturing standards or weak quality control. These quality control failures can indicate an upstream supply chain breakdown that reverse logistics needs to resolve at a financial loss.

Sizing and fit discrepancies

Mismatched expectations regarding product specifications and sizing are a leading cause of returns across retail categories. In the apparel and footwear segments, for example, research by the Association for Computing Machinery suggests poor size and fit are the number one factor in online fashion returns, with overall return rates reaching 25-40% and up to 75%. 

Information and imagery gaps

Customers rely on images and descriptions of products to make purchasing decisions, and inaccurate representations can cause buyer frustration. The DHL 2025 E-Commerce Trends Report states that 39% of shoppers return items because they were different from the image on the website. When a beach blue shirt arrives looking navy blue, or materials appear different in person than on the product page, customers are likely to send it back.

Missed delivery promises

Speed and reliability are the primary drivers of customer satisfaction in the post-purchase journey. If an item arrives late, the customer may no longer need or want it. As reported by Capital One Shopping, late delivery is associated with a 1.1% increase in returns for every day it is delayed. 

For retailers, ensuring that the fulfillment network can reliably meet the dates promised at checkout helps to prevent avoidable returns and maintain customer loyalty.

Learn how to create a Prime-like delivery promise experience. 

Vague checkout timelines

As the Consumer Outlook: Guide to 2026 report shows, anything slower than “next day” delivery would not motivate consumers to purchase new items, and there is minimal difference in purchase influence among next-day, 30-minute, and same-day delivery options. 

As consumers demand frictionless, personalized, and instant shopping experiences, making precise shipment commitments is key to improving the order-to-delivery journey and reducing avoidable returns after checkout. Leveraging a platform like Shipium can enhance delivery date optimization, enabling retailers to deliver on the reliable, lightning-fast promises that modern shoppers require before clicking “buy.”

Carrier handling damage

Mishandling during transit and inefficiencies at last-mile delivery points can lead to damaged goods that customers will likely return to the store. These transit failures can point to a breakdown in coordination at critical handoff points or to the carriers’ partners being unreliable. Operators can reduce these issues by auditing carrier performance, identifying damage patterns, and choosing logistics partners with stronger regional reliability.

Using a platform like Shipium to monitor shipping analytics offers enhanced operational control, helping operators hold logistics partners accountable with real-time data and optimize their carrier mix to favor regions with the highest delivery success rates.

Ecommerce returns best practices for cost control

Ecommerce returns management requires the ability to identify and resolve data gaps across the carrier network and warehouse workflows. Gathering these operational inputs in one place allows retailers to mitigate financial loss and protect net margins across the supply chain.

Follow these five ecommerce returns best practices:

1. Automate refunds for low-value items

Retailers can save money by using automated rules to skip returns on low-value items. When shipping costs more than the item is worth, the system can automatically trigger a “returnless refund,” allowing the customer to keep the product while receiving their money back. This strategy helps you:

• Preserve warehouse capacity for high-margin inventory
• Eliminate unnecessary shipping costs
• Improve customer loyalty through immediate resolution

2. Optimize reverse logistics with carrier selection

Avoid margin drain from static routing by implementing a dynamic, multi-carrier shipping solution that prioritizes the lowest-cost service levels for the return labels. For example, Shipium Rating Engine calculates extra fees, such as fuel or residential charges, showing you the real cost before the label is even printed. With that information, you can ensure you’re always choosing the cheapest fulfillment strategy.

3. Test return plans with simulations

Test how new return centers or rules affect shipping costs and speed before spending money. By finding the best locations for returns and preventing delays, you can get items back into inventory and ready to sell faster.

Shipium Simulation, for instance, uses artificial intelligence and machine learning to generate predictive scenarios, enabling retailers to improve reverse logistics.

4. Leverage advanced cartonization

Optimizing cartonization helps reduce return costs by selecting the best box size for every order, preventing product damage during delivery. Because logistics companies charge based on box size, using the right packaging also ensures that, if a customer sends an item back in the original box, the return shipping label is as low as possible. 

5. Use dynamic labels for inbound visibility

Replace pre-printed return labels with digital ones created only when a customer requests a return. This approach allows the system to select the most affordable carrier using up-to-date shipping rates and fees.

Digital formats, such as QR codes, improve the customer experience and provide the warehouse with early data on incoming shipments, helping operators schedule the right number of staff to handle the daily workload.

Optimize your order management process with Shipium

The most effective way to optimize your ecommerce returns management is to prevent them from happening in the first place. Shipium’s platform, with AI-driven automation, helps you pick the best routes and carriers for every order. This way, retailers can meet promised delivery targets and create better customer experiences, reducing the likelihood of returns.

With Shipium, high-volume retailers can:

• Provide a precise delivery promise at checkout, rather than broad ranges, to build customer trust and improve conversion by up to 4%
• Use real-time performance data and peak-season modeling to meet delivery dates with an accuracy of up to 99.1%
• Apply routing automation to select the lowest-cost carriers that still fulfill delivery commitments, reducing spend by up to 12%

Book a demo to see how Shipium can help retailers optimize fulfillment.