Ecommerce stores face intense competition. And hence, it’s critical for them to keep their customers happy and satisfied.
At the same time, stores also want to ensure customers keep coming back to their sites for more.
And at times, finding the balance between keeping customers happy and benefits for your business can get tricky.
One such dilemma is when customers want to initiate refunds, exchanges, or returns — what should you give them in return? Shopify store credits or refund of their money?
In this blog, we deep dive into this topic. You will learn why giving store credits is more beneficial to eCommerce businesses and how you can apply this strategy to your Shopify store.
Order refund vs. store credit
Before we get into the details of the pros and cons of refunds and store credits, let’s first quickly go through what are store credits and refunds. Here is a short definition of both:
What is store credit?
Store credit is offered to customers by retailers when customers return or exchange a product. Store credit may also be given as an incentive when customers take favorable actions such as signing up on the eCommerce site, as gifts on their birthday, when they share feedback, etc.
Shopify store credit, in short, is credit balance or points that can be used by customers for future purchases. Store credits allow customers to make purchases without the need for cash or card payments, giving more flexibility.
Looking for an efficient store credits app for your Shopify store? Install Flits app.
What is an order refund?
In eCommerce, refund refers to the process of reimbursing a customer for the purchase price of a product or service they bought but returned. Customers may return products and services for many reasons. For example, if they are dissatisfied with the purchase, the products are damaged, or they change their mind, etc.
The reasons eCommerce stores give refunds are: for customer satisfaction, to maintain brand reputation, to build customer trust, among other reasons. Most eCommerce stores have policies and procedures for refunds and returns.
Now that we know what are store credits and refunds, let’s understand the reasons customers may want to request refunds.
When do customers request a refund?
Customers may want to return products and ask for an order refund for many different reasons. Here are some of them:
- Damaged products: One of the most common reasons for refund requests is when customers receive damaged, defected, or broken products.
- Wrong product or variant: When there are mistakes in order fulfillment, such as wrong product size, color, quantity, etc., customers request refunds.
- Unmet expectations: At times, customers’ expectations do not align with the products they receive, and hence, they initiate a refund request.
- Late or no delivery: Delays in delivery or non-delivery lead to refund requests.
- Billing errors: Billing discrepancies, such as overcharging or incorrect billing can lead to refund requests.
- Unsatisfactory customer support: Poor customer service may leave customers unhappy and hence they may initiate refunds.
- Inventory issues: At times, the eCommerce store may make mistakes and take orders for products that are no longer available. At such times they initiate a refund.
- Change of mind: Sometimes customers change their minds after placing an order and may want to cancel the order and request a refund.
- Security breaches: In cases of security breaches or unauthorized transactions, customers may request order refunds to resolve fraudulent charges.
- Unmet Promises: Failed promises or guarantees can damage a brand’s reputation and lead to refund requests.
- Subscription Cancellations: For subscription-based services, customers may request refunds if they encounter difficulties canceling their subscriptions or are charged after cancellation.
How do refunds and store credits impact Shopify stores?
Now we know what are store credits and refunds, and when customers initiate refunds. But both these features impact eCommerce stores and their revenue in many different ways.
Refunds means eCommerce stores have to return the money they earned. This has a direct and immediate effect on revenue — it decreases. But there are many other ways order refunds affect revenue, positively and negatively.
In contrast, store credits generate opportunities for future sales. In this section, we take a comparative look at how store credits and refunds impact or benefit Shopify stores.
Revenue and sales
- Refund: When an eCommerce brand gives a refund of money, it results in immediate revenue dip. Even though it may be short term, it can adversely affect brands, especially small businesses running tight budgets.
- Store credit: Store credits may or may not affect short-term revenue. For example, if customers make immediate purchases using store credits, it can help increase short-term sales. And even if customers do not make immediate purchases, with store credits future sales are more likely as customers would not let store credits go to waste and use them at some point. Store credits are considered as a Shopify store best practice to ensure long-term revenue.
- Refund: When stores offer refunds, customers may be lost forever. Customers may take the refund and not come back to your store. This affects your customer retention rate. The only way refunds might help with customer retention is because customers may appreciate a prompt and professional refund experience.
- Store credit: When stores give Shopify store credits, it creates opportunities for them to return in future. Customers would want to use the store credits to make purchases at a later date and hence, come back to your store. And customer retention is key if you want to grow your Shopify business. Consider this: customer retention can increase your revenue by around 29% and your profitability to 95%. And hence, giving store credits is more profitable for your business.
Trust and reputation
- Refund: When stores handle refunds well, it builds trust with customers, which leads to a better reputation of the brand. However, many customers are not satisfied with refund procedures as the refund may take a few days to process. This leaves them unhappy and it may adversely affect the brand reputation.
- Store credit: Store credits can have a positive effect on factors such as trust and reputation. Customers know that you have given them store credits which they can use at a later date to make purchases. Their money is safe and intact in their customer account page in the form of credit. This builds trust and improves your brand reputation. The easier, clearer, and faster you make the store credit process, the better the customers’ experience.
Customer lifetime value
- Refund: With refunds, you cannot increase the customer lifetime value (CLV). That’s because customers might not come back to buy more.
- Store credit: When you give Shopify store credits to customers, they do not have to do much or get into any hassle. They are rest assured that they can use their store credits to make purchases whenever they want and that their store credits are safe. Many customers might keep collecting store credits so that they can make more expensive purchases at a later point in future. All these factors help improve customer lifetime value.
- Refund: The chances of re-engaging customers after refunds are less. You may not have opportunities to send messages or emails to them. You might not even get a response to feedback on the products they returned. Hence, you might not be able to use any
- Store credit: Once you give store credits, you can engage customers by asking for their feedback, try to understand why they returned a product, and if you can extract information to improve the product based on customers’ feedback. No wonder giving store credits is considered as a best practice for Shopify stores.
Customer behavior data
- Refund: Giving refunds to customers may not help generate any meaningful data. While you could collect data about how many customers initiated refunds and for how much amount, you won’t be able to collect other useful data.
- Store credit: Analyzing store credit data can help brands collect insights into customer behavior. Businesses can use the data to craft marketing campaigns. For example, how many customers track store credits regularly, how many use store credits often, how many prefer to collect and in what ways, etc. All this data can help you create personalized marketing campaigns to generate more engagement and sales.
- Refund: Once you refund money to your customers, they may not come back to your site. They might forget about your brand. These one-time purchases might affect your brand loyalty score. For customers who shop often from your site, store credit would make more sense than a refund. Moreover, it could take a few days for the refund to reach the customer’s bank account.
- Store credit: When you go the extra mile to satisfy your customers by giving them store credits and allowing them to use them at a later date, it builds strong brand loyalty. Loyal customers not only make repeat purchases but also recommend your store to friends and family. Consider this: statistics show that 65% of revenue comes from your existing customers. And that’s why it’s so important to build brand loyalty, which is why you must offer store credits instead of refund.
- Refund: A refund is a quick transaction between an eCommerce store and a customer. Once it’s done, customers may never come back to your store. And hence, it’s not a sustainable solution for the long term. And that is why, Shopify stores that prioritize a long-term approach to their business strategies, prefer to stay away from offering refunds.
- Store credits: Store credits, on the other hand, can support your long-term business sustainability plans. By prioritizing customer satisfaction through store credits, you can lay the foundation for long-term sustainability, as the satisfied customers will keep coming back to your store.
Shopify store credit best practices
Now that we have no doubts that store credits are much better than giving refunds, let’s see how we can maximize store credits by following some best practices. Make note of these store credits tips:
- Use an intuitive Shopify store credits app for your eCommerce store
- Make store credit a part of the Shopify customer page so customers know where to track their credit points
- Allow customers to track their store credits easily
- Create communications, alerts, and reminders to keep customers engaged with store credits
- Offer more incentives if customers use store credits, for example, discounts or free shipping, etc.
- Display clear explanation about store credits
- Display store credits available on checkout page
- Make it easy for customers to earn more store credits
- Make it easy for customers to use store credits
How to make the most using Shopify store credits
As you read, offering refunds can eat into your profits. Moreover, you could lose customers, your customer retention rate could go down, and your future sales opportunities might die. And that’s why expert eCommerce strategists recommend using store credits instead of order refunds.
With Shopify Flits store credits, you can maximize ROI — retain customers, boost engagement, increase sales, improve CLV, etc. Put an end to uncertainties, enhance your returns process, and increase sales with the help of store credits.