In my 30-plus years of being an accountant I have learned many business lessons from people who were much smarter than me.
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who → learn → me
Jerry taught me about product returns.
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Jerry → teach → returns
Jerry – who sadly passed away a decade ago – sold carpets wholesale from a nondescript little building in south Jersey.
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who → pass → Jersey
He employed about 50 people and counted many local and national carpet retailers as his customers.
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He → employ → customers
When I reviewed Jerry’s books, I noticed a large reserve for “returns”.
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I → review → returns
“They’re a part of every business,” he told me.
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he → ’re → me
A “reserve” is something businesses create for potential future costs.
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businesses → create → costs
Others reserve for inventory that grows old and will need to be disposed of.
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that → reserve → inventory
And plenty of businesses – like Jerry’s – reserve for the potential costs that will be incurred if a customer returns their product.
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customer → reserve → product
Plenty of small business owners like Jerry go to great lengths to make
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Plenty → go → lengths
Some big companies, such as Amazon, do the same.
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companies → do → same
“There’s a cost to do this,” Jerry said.
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Jerry → ’ → this
“So I make sure to build a reserve for that cost.”
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I → make → cost
And yet, it seems that many businesses still haven’t learned this lesson.
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businesses → seem → lesson
According to the Wall Street Journal, many Americans are complaining that it’s getting harder to return things.
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it → accord → things
They’re seeing “surprise fees, shorter return windows and more questions about their reasons for sending products back”.
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They → see → products
Some, according to the report, are “getting warnings that they won’t get a refund on their next return”.
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they → accord → return
Jerry would be shaking his head at this.
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Jerry → shake → this
To him, it wouldn’t make sense.
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it → make → sense
And it doesn’t make sense to me either.
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it → make → me
Yes, there are a few bad actors that will take advantage of the practice.
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that → be → practice
And yes, accepting returns adds costs for a business.
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accepting → accept → business
But, like credit card fees, health insurance and overtime, this is a cost that can easily be recouped.
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that → recoup → fees
All you need to do is capture those costs over a year or so, build a history, estimate what the next year’s cost will be and then factor those costs into your overhead.
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cost → need → overhead
Your overhead is then factored into your pricing.
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overhead → factor → pricing
In Jerry’s case, he reserved one half of 1% on each of his sales as a returns allowance based on his history of returns.
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he → reserve → returns
He built up this reserve throughout the year, then charged returned products against it.
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He → build → it
A .5% reserve meant that instead of charging $1,000 for a roll of carpet, he charged $1,005.
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he → mean → 1,005
His customers didn’t notice the $5 difference.
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customers → notice → difference
But for a business, those costs add up and, by doing this, those costs are covered.
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costs → add → this
You’d think that, after thousands of years of business practice and the knowledge of some of the finest institutions, pundits, academics and experts, our business leaders today would understand this concept.
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leaders → think → concept
So why don’t retailers realize this?
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retailers → realize → this
It’s a mystery to me.
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It → ’ → me
They must see that creating obstacles and charging their customers for returns only creates animosity, ruins their loyalty and results in unfavorable press coverage.
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creating → see → coverage
It’s shocking to me how businesses continue to make the same mistakes over and over again, despite the lessons of history.
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businesses → ’ → history
You can keep your customers happy, build loyalty and grow your business by not nickel-and-diming them.
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You → keep → them
Jerry Crawford, a small business owner with a high school education who profitably sold carpets for decades, understood this.
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who → sell → this
The Aporia
