Online Extra: Take That Back!

As e-merchants know only too well, online shoppers love to return goods. That's why many outfits are turning to reverse logistics specialists

Selling over the Web is hard enough for small businesses, but then comes the second hurdle: dealing with returned merchandise.

The fact is, Web shoppers send back a lot of what they buy. Why they do so isn't always clear. A product may not look the way it did on a Web page. Or perhaps it is because customers are worried that an item may be in short supply and order the same thing from two sites. Whatever the reason, returns on Web sales run as high as 40%, vs. an average 8% for catalogs and even less for traditional stores.

To deal with this avalanche of returns, many small companies that sell online are now outsourcing the headache to "reverse logistics" specialists -- outfits that will handle every aspect of a return from opening the package to liquidating unsellable merchandise.

Is it worth your while to contract with such a specialist? To decide, you first need to know if your returns are costing you money. Many small firms can have a reverse-logistics problem without realizing it. Kevin Noonan, analyst with The Yankee Group, recommends business owners do a "returns diagnostic." Here are some key things to look for when evaluating your outfit's returns process -- and its potential for improvement.

Stacked packages. This is probably the most obvious. If you've got boxes bouncing back to your warehouse and piling up, you've got a problem.

Mystery returns. When the boxes come back, can you say why? Mystery returns are the most expensive because you've got no way to prevent the problem from happening again. Collecting and analyzing returns data can prevent future bounce-backs.

Unknown costs. If you don't know exactly how much money returned products are costing you, it's likely more than you think. Too many companies fail to track the cost of processing returned goods.

Long returns. The longer it takes to finish dealing with a return, the more time your employees are tied up on a failed transaction rather than fulfilling a new one.

Slow refunds. A sure sign your returns process needs a tune-up is a drawn-out refund process. If it takes a month or longer for you to issue a refund, you have probably lost that customer for good. A swift refund process will help to salvage the relationship.

Poor payout. If you're forced to unload returned goods for 20% or 30% of their original value, that's too steep a price. Some new ways of liquidating merchandise, such as through online auctions, can bring as much as 80 cents on the dollar.

By Ellen Neuborne in New York

Before it's here, it's on the Bloomberg Terminal.