Tl;dr – A restocking fee is the amount you deduct from a customer's refund to cover what a return actually costs you. Get it wrong and you'll lose sales along with customer trust plus you'll end up handing shoppers a reason to call their bank and file a chargeback.

Things have started to become really bizarre for retailers during Super Bowl season.  

There is a small tradition around it now that has nothing to do with touchdowns, nachos, or star-studded half-times. And the weirdest part is it involves a TV... more specifically, buying a really nice and big TV, watching the Super Bowl on it, and then returning it.

Retailers named this move wardrobing because borrowing-stuff-from-the-store-for-free-and-pretending-it-was-a-purchase syndrome was probably too obvious. And due to this, retailers see a climb of 11% - 36% increase in TV return rates after the Super Bowl in March.

But retailers aren't the only ones noticing this. A marketing professor saw this pattern in his study and called out to the sellers. His advice was blunt:  

"...tighten their return policies because a liberal return policy is costing them thousands of dollars. Selling TVs during that time of the year isn't the same as selling a pair of pants."

Of course, the obvious fix would be to stop accepting returns altogether. Good luck with that. 76% of shoppers say free returns decide where they shop, which means a "no returns" sign is basically a "please shop elsewhere" sign in a face mask.

Which raises a more interesting question: what if retailers didn't have to simply eat the cost of every return?

That's exactly what a restocking fee is supposed to settle. Since returns aren't really free for you (there's shipping cost, repackaging cost, labor for inspection, etc.) and the risk of getting a lowered price on the 2^nd sale is always there, the restocking fees help you bear some of that cost.

But should you slap this fee on every return and risk scaring off the honest shopper who simply wants a safety net? Or should you just eat the cost, sprinkle it with a little salt, and call it the price of doing business?

In this guide we'll discuss all that. We'll cover the restocking fee meaning, the math behind a fee that's competitive, what brands like Amazon and Best Buy charge, and the mistakes that turn a fair fee into a chargeback.

So, what is a restocking fee?

It is the amount a merchant keeps from a customer's refund when a returned product needs to be inspected, repackaged, or sold at a discount before anyone else will buy it. That's the restocking fee meaning in one breath.  

You can think of it like a library asking for a security deposit. You can borrow the book and bring it back, but the library still needs a little protection against the possibility that it comes back with a coffee stain, a missing page, or with illustrations by your kids.

How to calculate it?

Most retailers charge it as a percentage of the price, though some prefer a flat dollar amount.

But in any industry, restocking fee percentages get decided with all the scientific rigor of picking a restaurant - someone glances at a competitor's return policy, sees 15%, copies it and calls it a day.

But there's a better approach (which will also save you a lot of pain later). It's to add up what a return really costs you and charge something close to that number. Here's the formula for it:

Restocking fee = return shipping you absorb + inspection labor + repackaging + expected resale markdown

Let's understand the formula better with a table:

An important thing: Flat percentage can misfire. Let's take 15% for example, on a $499 iPad, that's somewhere aroudn $74, which is probably far more than the return actually costs you. On a $40 blender, it's $6, which may not even cover the shipping label. So, what's the best way to go around with it?

Best Buy's got the answer

The consumer electronics retailer spent over a decade figuring this out in public. Back in late 2010, the retailer announced it would stop charging restocking fees on nearly all its products.  

So what is it charging today?  

It depends on what you bought, and that's exactly the point. Its official policy charges nothing if the product is unopened, and nothing in eight states. For everything else:

• It charges a flat $45 like on cell phones, cellular tablets, mobile hotspots, and cellular wearables (prepaid phones excluded).

• A 15% fee on items like drones, digital cameras, camera lenses, camcorders, electric bikes, projectors, and premium scooters.

Did you notice the logic? The fee only kicks in for categories that lose real value once the box is opened.  

Fun fact: Google reads your restocking fee too. When you add it to Google Merchant Center, you can specify your restocking fee, and Google may surface your return terms across Shopping ads, listings, and Gmail. It also expects those terms to match across your site. So a shopper could see “15% restocking fee” before they even visit your store.

Suddenly, that little fee isn't so little, is it?

That being said, here's when to charge a restocking fee (and when to let it go)

This goes without saying, your customers are not a fan of being charged for something that they don't like. And some of them go to extreme lengths to show it, like this redditor:

"... I returned it with the tags still attached and now I’m being charged a restocking fee. Does Amazon just not expect people to try items on, doesn’t mean I used it. What should I do dispute it with my bank?"

As you can probably tell, a restocking fee can easily feel like charging customers for the audacity of changing their mind. And nobody enjoys being fined for having second thoughts.

And the numbers get interesting. Customers who had to pay for their own return went on a serious shopping diet, cutting their spending at that retailer by 75% to 100% over the next two years.  

Give them free returns, and spending swung the other way, climbing by 158% to 457% of what they spent before. So, charging restocking only when it's absolutely essential is always the best practice. We've got those scenarios zeroed in below:

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Now let's understand how to set a restocking fee  

You don't want to start a war with your customers, but you also don't want to burn your precious margins. Here's how to avoid doing both while setting your restocking fees:

1. Decide whose fault the return is: If the item arrived damaged, defective, or wrong, the fee is zero. Change-of-mind returns however, are fair game.  

2. Run the recovery math by category: For instance, your drones and your phone cases shouldn't share the same fee.

3. Exempt unopened returns: It's the easiest goodwill you'll ever buy.

4. Choose flat or percentage: Flat fees suit products where handling costs barely change with price. Percentages suit products where the markdown is the big cost.

5. Disclose it everywhere: Put it on the product page, the checkout, the order confirmation, and the return portal.    

To understand it all better here's how the big brands take care of their restocking fees:

Mistakes that turn a fair restocking fee into a chargeback

Nobody wants to wake up with a chargeback, especially for something that's avoidable. So, here's how to avoid just that:

• Charging a fee on something that looks like a defect: Does the word Antennagate bring back any memory? In 2010, Apple dropped its 10% restocking fee on returned iPhone 4s after reception complaints piled up. By then, a lawsuit had already argued that buyers were unable to return the phone without incurring a substantial restocking fee. If customers believe the product is faulty, your fee becomes much bigger problem.

• Hiding the fee: In California, the Attorney General warns that if a store doesn't clearly display a limited return policy, customers can return items with proof of purchase for a full refund within 30 days. Card networks aren't forgiving either. Visa's Credit Not Processed dispute category exists for situations like this. If a customer expected a full refund but never received it, they may be able to dispute the charge with their card issuer.

• Copy-pasting your US policy into Europe: EU shoppers get 14 days to cancel online orders for any reason. Sellers can only deduct for diminished value caused by handling beyond what's needed to check the product.

• Skipping the paper trail: In case it escalates, photos, condition notes, and serial numbers are what win disputes.  

Alternatives to restocking fees

Adding a restocking fee to your operations shouldn't be a commandment carved into stone. Here are a few alternatives you can run with:

1. Push exchanges and store credit: A study found that businesses wanting fewer returns should relax other parts of their policy, like exchange or scope leniency. An easy exchange keeps the revenue in your store instead of sending it back to a credit card. A research found that people spend refunded money more easily, and on more luxurious, unplanned items.  

2. Use tiered return windows: Give a full refund for the first couple of weeks, then a slightly smaller one later. Early returns are easier to resell, and shoppers feel less punished than they would by a flat fee.

3. Charge return shipping instead: Shoppers understand what a shipping label costs. "Restocking" sounds abstract.    

4. Take the "what if it breaks?" fear off the table. Plenty of change-of-mind returns are really nervous buyers who worry the product won't last. A protection plan at checkout gives them a safety net that isn't your returns desk. Sennheiser saw this firsthand, driving warranty attach rates past 29% while cutting returns by 26%.

SureBright is built just to offer the last part. We help you reduce the returns that trigger restocking fees in the first place by offering seamless warranty integrations right into the checkout and post-purchase journey.  

Book a demo with us and see how protection plans turn "it broke" into a claim instead of a refund.