Understanding Restocking Fees
Charging Customers for Returning Product
Every business knows that inventory costs money. However, most assume these costs to be relegated to the price of the product on the shelf. What they often ignore are the extra costs pertaining to storage, the daily cost of money, and the incidence of damage and obsolescence. There are other costs, but the main point is that the longer inventory is held, the more expensive it becomes.
When a customer request to return product, StylusShop is incurring additional costs to hold and store product. In fact, we have an added cost of receiving and inspecting the returned product for defects or damage. In addition, there’s the risk of taking product back without any guarantee of future sales. It is for this reason that restocking fees are such a vital aspect of small business inventory management. However, the question remains, why should small businesses stand their ground and charge their customers a restocking fee for returned product?
The above video and outline show a simple three step process to determining restocking fees with business-to-business (B2B) customers.
1. Understand That Customers Themselves Charge Restocking Fees
First and foremost, it’s a guarantee that most, if not all of your customers, will themselves charge their own clientele a restocking fee. Not only is it common, but its essential in controlling our company’s inventory cost of ownership. We don’t allow our customers to impose their will and get away with simply returning product for no reason. Unless there are defects that warrant the return, customers should pay some form of restocking fee.
2. Your Company is Alleviating our Customer’s Inventory Cost
When we accept returns, we are in essence reducing our customer’s inventory cost of ownership. In a sense, we are providing a service. So, if we’re providing a service, and are reducing the customers cost of inventory, doesn’t it make sense that we share in these costs? Of course it does! Our customers know that being able to return product will help reduce their inventory. Because of this, they depend upon our flexibility in allowing them to return unwanted product. However, being flexible doesn’t imply being a pushover.
3. Standard Restocking Fees Control Prices & Costs
In most cases, StylusShop’s charge an immediate up-front restocking fee of anywhere from 10% to 25% of the product. Restocking fees help to control our company’s inventory costs and ultimately, help to reduce your overall costs of running a business. In fact, they not only control costs, but help to keep our product’s pricing in line. To control and reduce costs means to control the prices our company charges on products and services.
Higher inventory costs affect our company’s ability to service customers in a competitive and cost-efficient manner. Therefore, charging restocking fees is the impetus StylusShop needs to continue to provide products at a competitive price.