Returns vs Exchanges: How to Choose the Right Option for Every Order

“Smart merchants don’t just process returns — they guide customers toward the best outcome for everyone.”

Whether you’re running a fashion brand or a multi-category e-commerce store, one thing’s for sure: returns and exchanges are part of the game. But here’s the kicker — how you handle them can seriously affect your bottom line.

In this article, we’ll explore the difference between returns and exchanges, when to offer each, and how a smart policy (with a little help from Backsy) can turn refund losses into retained revenue.

What’s the Difference Between Returns and Exchanges?

Let’s get the basics straight first:

• Return = refund. The customer sends the product back and gets their money back.
• Exchange = swap. The customer sends the product back and gets a different item instead (like a new size, color, or even an entirely different product).

While they both involve sending items back, the outcomes are very different. Returns often mean lost revenue, while exchanges keep the money circulating in your store.

Image suggestion: Side-by-side visual:
Left – “Return” icon with a dollar sign going out
Right – “Exchange” icon with two arrows swapping T-shirts

When to Offer Returns (a.k.a. Refunds)

Returns are necessary — no store can avoid them completely. But they should be strategic.

Offer a return when:

• The item is defective or damaged.
  Customers are entitled to a refund if the product is broken or doesn’t work as advertised.
• The product is out of stock.
  If the customer ordered a size M and it’s not available for exchange, a refund is the only option.
• The customer insists on canceling.
  Sometimes, they simply change their mind — and no amount of persuasion will keep the sale.

While returns are a cost of doing business, the key is to make the process clear and frictionless. A complicated or hidden return policy leads to negative reviews and lost future business.

When to Encourage Exchanges

Exchanges are gold. You’re not only solving a customer’s problem, but you’re also keeping their money in the ecosystem. Win-win!

Encourage exchanges when:

• The customer likes the product but ordered the wrong size or color.
  This is super common in fashion, shoes, and accessories.
• They want a different variation of the same item.
  Let’s say someone bought the wrong phone case model — they don’t hate your brand, just need the right fit.
• They just need a little nudge.
  If the process is smooth and maybe even incentivized (free shipping, faster processing), customers are more likely to exchange rather than return.

Image suggestion: Happy customer holding a new exchanged product with a caption:
“Got the right size! Thanks for the quick swap, team 💛”

Let Customers Choose — But Guide Them Smartly

This is where things get clever.

Many stores make the mistake of hiding options or forcing refunds. But when you give customers the power to choose — exchange or return — and design the flow smartly, most will pick exchange if it’s easy.

How?

• Use a self-service return/exchange portal (like Backsy)
  Customers can select their reason and choose between “Refund” or “Exchange” — no long emails needed.
• Offer free return shipping for exchanges only.
  This subtle nudge often tips the scale toward exchanges.
• Add a small incentive.
  Offer 110% store credit for exchanges, instead of just a 100% refund. That extra 10%? It works like magic.
• Pre-fill exchange options.
  If a customer says “wrong size,” show them what’s available right away.

Pro tip: With Backsy, you can customize your flows to prioritize exchanges and offer flexible refund options — all while making the process easy for your team to manage.

Why Not Just Offer Refunds and Move On?

You could. But you’d be missing a huge opportunity.

Returns often mean:

• Lost revenue
• Higher logistics costs
• Risk of negative customer experience

Exchanges, meanwhile:

• Retain the sale
• Build brand loyalty
• Show that you care about solving the customer’s issue, not just processing their payment

Here’s a real-life example:
A Backsy user who sells activewear noticed that 70% of returns were due to size issues. By tweaking their policy to highlight free exchanges and pre-select the right sizes in the return portal, their exchange rate jumped by 38% in just one month. That’s money saved and customer satisfaction gained.

Final Thoughts: Combine Both for a Smarter Policy

You don’t need to choose one over the other. The smartest brands offer both returns and exchanges — but they design the experience to gently encourage exchanges first.

Think of it like this:

Situation	Offer
Product is defective or unavailable	Refund
Customer wants a different size/model	Exchange
Customer unsure	Let them choose — and guide toward exchange with incentives

With Backsy, you can set up these flows, tailor return rules based on product, customer history, or region, and create a smooth journey that turns headaches into happy customers.

Image suggestion: Flowchart showing:
“Problem → Choose: Exchange or Refund → Incentives → Outcome: Satisfied Customer”

TL;DR – A Quick Summary

• Refund = full return of money
• Exchange = different product, same customer money stays in your store
• Encourage exchanges when possible (they’re better for business!)
• Use tools like Backsy to automate and customize the process
• Offer store credit with bonuses to make exchanges more attractive
• A flexible return/exchange policy = fewer support tickets + happier customers + higher retention

Your store deserves smarter returns. Let Backsy help you get there.

Ready to upgrade your return experience?
Try Backsy for free → backsy.io