How does your company handle customer returns? Do you charge customers a restocking fee or merely accept the return at no charge? Perhaps you’ve been led to believe that charging a restocking fee will damage your customer relationships or that it will negatively impact future business. Maybe your concern lies with how your competitors will react to your company charging restocking fees when they don’t. Regardless of why, your company must charge a restocking fee. In fact, there are simply no excuses for not charging customers for returning product. This is especially true for those instances were the customer is merely returning product due to pricing or a mistake in ordering. Granted, defective product is one thing but functional product is another. So why should your company charge a restocking fee? To answer this question, consider the following points below.
Restocking fees lower customer costs
When thinking of restocking fees, think of the service your company is providing. For instance, if you were to refuse to accept the return, your customer would be left holding inventory they couldn’t or wouldn’t use. This would immediately increase their inventory carrying costs and would only add to their financing costs of inventory. Agreeing to take back product is akin to lowering your customer’s inventory carrying costs. It’s a service your company is offering and one that a number of your competitors likely don’t. As such, it’s not unreasonable that your customer share in the burden of these carrying costs. After all, they are still coming out ahead, even after paying the restocking fee.
Restocking fees maintain pricing
Your company’s inventory carrying costs directly impact your product’s profitability. High carrying costs reduce your product’s gross profit on each and every sales transaction. Not charging a restocking fee increases your company’s carrying costs because you’re essentially purchasing more when you accept a customer return. Eventually your company will either have to absorb these costs or adjust your product’s price. Charging customers a restocking fee on returns helps to maintain your product’s pricing by reducing the impact of these aforementioned inventory carrying costs. After all, what customer wants to see prices rise?
Restocking fees manage expectations & reduce opportunity costs
Simply put, charging customers a restocking fee helps to manage their expectations on future transactions. It’s not feasible for customers to assume they can purchase and return product at will. Customers must come to respect the company’s inventory carrying costs. There is also an opportunity cost that’s often ignored. The company incurred holding costs before it finally made the sale. Once the customer returns the product, the company will once again incur additional holding costs, costs that would have been avoided if the company had sold the product to another customer.
Don’t ignore the effects of your carrying costs on your product’s profitability. These costs have a direct impact on your company’s bottom line and on your company’s ability to remain competitive. Your restocking fees are meant to reduce your carrying costs and alleviate the burden of carrying inventory your customers can’t use.