Amazon regularly experiments with new tools and features to enhance the shopping experience on its webstore. For example, the Climate Pledge Friendly program allows Sellers to list a product’s sustainability certifications that help customers quickly and easily identify eco-friendly products. Another example is Amazon’s “Frequently Returned Item” badge, a feature that has sparked both concern and opportunity for Sellers. By highlighting products with higher return rates than similar products in the category, Amazon aims to improve customer satisfaction and lower the cost of e-commerce operations by reducing ecommerce return rates. But what does this badge mean for Sellers, and what do they need to know to navigate its implications effectively?

The Purpose and Mechanics of the Badge

Amazon’s Frequently Returned Item badge is a transparent signal for customers, suggesting they carefully review product details and previous customer feedback before purchasing. It is applied at the ASIN level so as not to impact product variants such as colors or sizes. It is triggered when a product’s return rate exceeds a predefined threshold relative to similar items within its category.
The return rate is calculated by comparing the number of units shipped to the number of customer-initiated returns over the trailing 3 months. Categories with inherently low return rates, such as groceries, are susceptible to changes in return rates, while categories like apparel, where returns are more common, have higher allowances. This system ensures that products are judged fairly within the context of their market norms, and suggested return rates are updated “periodically” to reflect new market conditions.

The Impact of the Badge

The display of this badge on a product listing could profoundly impact sales and, thus, revenue. Sellers tell stories in the Amazon Forums about conversion rates dropping as cautious buyers opt for alternatives without warning. Lower sales lead to even further declining sales as lower search rankings further deprioritize items associated with negative customer experiences. Sometimes, Sellers are adversely affected through no fault of the product or the listing.

For example, e-commerce return rates can fluctuate due to seasonal trends, particularly during the peak holiday season. High volumes of gift purchases typically lead to increased returns in the following months. Still, Amazon’s suggested returns rates are not adequately adjusted to compensate for the changes in buyer behavior.

Beyond immediate sales, the badge can erode customer trust in the Seller’s brand. A frequently returned product may signal poor quality and/or misleading or inaccurate product descriptions so that buyers would be more wary of that item. Over time, this perception can damage the Seller’s reputation, making it harder to build lasting customer relationships. It’s worse if the business has a small product catalog and worse yet if the small SKU catalog is closely related. Some retailers have reported going from selling well one day to nearly out of business the next, highlighting the need for Sellers to regularly and actively monitor return rates at the ASIN level.

Amazon’s Voice of the Customer dashboard offers valuable insights. It includes 3-month (short-term) and 12-month (long-term) return rate data, category-specific thresholds, and the Top Negative Customer Experience (NCX) reason. This report allows sellers to identify problematic products early and take corrective action.

When a product does “earn” the badge, it’s not permanent. Amazon continuously tracks return rates, and the badge is automatically removed once the rate falls below the threshold. Some Sellers have reported that sustained improvement alone (without staying beneath the exact target return rate) prompted the removal of the badge.

Strategies for Reducing Return Rates

Retailers cannot rely on hope, as in the last example. Crafting the perfect ecommerce returns program and following the key steps below can help them avoid the naughty list and prevent the dreaded Frequently Returned Item badge:

1. Enhance Product Descriptions: Clear, correct, and detailed product information is crucial. Misleading or incomplete descriptions are among the top reasons for returns. High-quality and high-resolution images from multiple angles help set realistic expectations. Sellers should ensure their listings include precise dimensions, accurate features, color representations, and specifications. Providing thorough size charts and usage instructions can also reduce the likelihood of returns.
   
   
2. Improve Quality Control: Product quality plays a significant role in customer satisfaction. Sellers should work closely with suppliers to implement rigorous quality assurance protocols to minimize manufacturing defects. Investing in durable packaging can help prevent issues like damage during shipping. Fixing common product problems or complaints at the source can also lead to lower return rates.
   
   
3. Foster Customer Communication: Engaging with customers proactively can prevent many potential returns. This includes responding promptly to questions, offering detailed instructions about product use and care, and addressing any limitations upfront.
   
   
4. Strengthen Customer Support: Excellent customer service can result in opportunities to prevent returns. By encouraging customers to seek assistance before initiating a return and addressing their concerns quickly and effectively, Sellers can preserve the sale and minimize the impact on the return rate.
   
   

Turning Challenges into Opportunities

The Frequently Returned Item badge is not merely a penalty; it’s also a valuable feedback mechanism. Sellers who view it as an opportunity to improve their product design can emerge stronger and more competitive. By addressing the underlying issues that lead to high return rates, Sellers can enhance customer satisfaction, reduce operational costs, and build a reputation for quality and reliability. Of course, that’s a forward-looking and optimistic statement…when a Seller is in the thick of it, and sales are tanking, it’s hard to look at things optimistically.

Summary

Amazon’s introduction of the Frequently Returned Item badge reflects its ongoing commitment to its customers. Sellers who understand and take a proactive approach to return rate management will be able to navigate the rules and prevent the Negative Customer Experiences Amazon is looking to avoid.
By prioritizing product quality, transparency, and customer engagement, Sellers can avoid the badge and strengthen their position in the hyper-competitive marketplace. As reverse logistics costs are reduced, margins will also improve. The improvement journey may require effort and investment, but the rewards (or, more accurately, the lack of penalties) make it worthwhile.

Written By:

Jeremy Stewart

Jeremy Stewart leads customer success at Cahoot, helping merchants achieve high-performance logistics through smart technology and process optimization. With a background in both ecommerce operations and client services, Jeremy ensures that every merchant using Cahoot gets measurable results—whether they’re scaling from one warehouse to many or managing complex returns.

Ecommerce returns are painful for Sellers no matter which way you slice it. They drain attention and resources and directly impact the bottom line regardless if returns fraud is involved, or not. Many estimate that 20 – 30% of ecommerce orders are returned for one reason or another.

Online Returns are Really Expensive

For each returned item, Amazon Third Party Sellers have already absorbed the product cost and the cost of preparing and shipping the inventory from their 3PL provider to multiple FBA fulfillment centers. Then, after an order is received, there are referral fees, fulfillment fees, and storage fees. What’s left after all the other sunk costs is the profit margin. If a customer initiates a free (or significantly subsidized) return, the Seller is expected to eat the costs of the return shipping, product inspection, and subsequent inventory management, which hurts the profit margin or may even turn the sale into a loss.

It’s no wonder many Sellers just offer to let customers keep low-cost items rather than return them because, at a certain point, it doesn’t make sense to process the return and resell it. Without careful cost management, Sellers can easily lose money on these transactions. To help Sellers recoup some value from returns and to get an even larger share of the Third-Party Sellers’ wallet, Amazon has now opened up the FBA Grade and Resell program to all Sellers that use FBA in the US.

Amazon FBA Grade and Resell Program

In the US and Europe, nearly 368MM items were either resold on Amazon in Used Condition or otherwise liquidated or donated last year. However, the FBA Grade and Resell program that enabled this success story was only available to a few Brands. Amazon has now made the program available to all Sellers that use FBA in the US, enabling all Sellers to recover value from inventory that would otherwise be removed or discarded by automatically inspecting, grading, and relisting eligible returned products as “Used” on Amazon’s marketplace. The program is particularly beneficial for items that can no longer be sold in New Condition but retain significant market value.

Not all products are eligible for FBA Grade and Resell. Specific categories are excluded, including but not limited to consumables, dangerous goods (hazmat) and recalled products, gift cards, heavy/bulky SKUs, and products with an average sale price that exceeds $75 (the complete list can be found here). Additionally, items must be returned to ecommerce fulfillment centers that support the program, and Sellers can exclude specific ASINs from the program for any reason.

How the FBA Grade and Resell Program Works

Sellers first enroll in the Grade and Sell program through the Automated Unfulfillable Settings in Seller Central. Once enrolled, eligible customer returns that are unsellable as New are processed through different evaluation paths based on the product type. These paths include non-technical, technical, and specialty grading.

Amazon’s grading process is described as thorough and tailored to each product category. It may include checking for catalog accuracy, inspecting for packaging defects, damage, or cosmetic blemishes, validating functionality, checking accessories, and even memory wiping and factory resetting certain electronics such as laptops and cameras.

After evaluation, items are assigned one of four conditions: Used-Like New, Used-Very Good, Used-Good, or Used-Acceptable. Items that don’t meet these standards are graded as Unsellable. For items graded as Used, Amazon creates a new listing under the parent ASIN in the “New and Used” offers section, with the Seller remaining as Seller of record. They are eligible to become the Used Featured Offer (the default buy box for Used items) if the Seller’s offer meets the pricing and performance criteria and is managed the same way New items are managed, including advertising and pricing. The grading process can take several weeks and longer during peak seasons, so plan accordingly.

Sellers manage the pricing discount that applies to all Used SKUs in the program as a percentage of the New Condition offer price. For example, a Seller might set offers for Used-Like New SKUs as “85%” of the New SKU offer price, which is applied automatically when units are relisted. Sellers should actively manage their pricing strategy to ensure their Used items remain competitive while providing a worthwhile return.

Building a Sustainable Business Model

Building a sustainable business model is crucial for long-term success in the Amazon reselling business. A sustainable business model balances profitability, customer satisfaction, and environmental responsibility. Here are some tips to help you create a sustainable business model:

• Focus on High-Demand, Low-Impact Products: Prioritize selling products that are in high demand and have a low environmental impact. This approach not only ensures steady sales but also minimizes your ecological footprint.
• Eco-Friendly Packaging: Use eco-friendly packaging materials, such as recycled or biodegradable options. This not only appeals to environmentally conscious customers but also reduces waste.
• Recycling Programs: Implement a recycling program for returned or damaged products. This can help reduce waste and potentially recover some value from unsellable items.
• Utilize FBA Services: Consider using Amazon’s Fulfillment by Amazon (FBA) service. FBA can help reduce carbon emissions by optimizing shipping and logistics, and it also improves customer satisfaction with faster delivery times.
• Optimize Business Operations: Continuously monitor and optimize your business operations to reduce waste and improve efficiency. This can include streamlining your supply chain, reducing energy consumption, and minimizing unnecessary expenses.

By incorporating these practices, you can build a sustainable business model that not only benefits the environment but also enhances your brand’s reputation and profitability.

Managing and Monitoring Used Inventory

Sellers have several tools available to help manage Used (graded) inventory. The most important is the Grade and Resell Report, which provides real-time updates on inventory status, including how many units are graded and ready for resale.

Sellers will appreciate that customer feedback and reviews for graded items roll up to the parent ASIN and do not materially affect Account Health Metrics, ensuring that Seller’s reputation is not negatively compromised due to poorly graded units.

Marketing and Promoting Your Products

Marketing and promotion of your products boosts visibility, attracting customers and driving sales. Here are some effective strategies to boost your product visibility and sales:

• Amazon Advertising: Utilize Amazon’s advertising options, such as Sponsored Products and Sponsored Brands, to increase visibility and drive sales. These tools can help your products stand out in a crowded marketplace.
• Optimize Product Listings: Ensure your product listings are optimized with high-quality images, detailed descriptions, and relevant keywords. This improves your chances of appearing in search results and attracting potential buyers.
• Social Media Promotion: Leverage social media platforms like Facebook and Instagram to promote your products and engage with customers. Social media can be a powerful tool for building brand awareness and driving traffic to your listings.
• Discounts and Promotions: Consider offering discounts or promotions to attract customers and drive sales. Limited-time offers and special deals can create a sense of urgency and encourage purchases.
• Continuous Optimization: Continuously monitor and optimize your marketing strategy to improve results. Analyze your advertising performance, adjust your campaigns, and experiment with different promotional tactics to find what works best.

By implementing these marketing strategies, you can effectively promote your products, attract more customers, and increase your sales on Amazon.

FBA Grade and Resell Program Fees

Based on the item’s size and weight, sellers are charged a flat processing fee (from $1.50 – $4.10). However, items deemed completely unsellable remain in the Seller’s unfulfillable inventory and are not relisted nor processing fees charged. Sellers receive payouts for sold Used units just as they would for their New items, minus applicable fees. Amazon recommends enrolling SKUs with an average selling price above $15 to ensure profitability. Still, this guidance is highly subjective, and each Seller must monitor their eligible SKUs and adjust as necessary.

Benefits of the FBA Grade and Resell Program

There are several benefits of the FBA Grade and Resell program:

• Boost revenue: Recover value from inventory that would otherwise be a loss instead of removing/disposing returned items or selling them at a steep discount through liquidation channels by selling Used units to customers willing to accept them at a discount.
• Ease of Use: Sellers can automate submitting unfulfillable inventory into the Grade and Resell program, reducing the time and effort required to manage returned stock. Set it and forget it.
• Cost Efficiency: Sellers only pay a processing fee when an item is successfully relisted and can avoid paying to return or dispose of unsellable inventory.
• Faster time to market for Used: Units delivered directly to FBA fulfillment centers that support Grade and Resell compared to removing inventory, grading and prepping it externally, and then either Seller-fulfilling Used SKUs, or reinbounding to FBA
• Support sustainability: Reduce waste going to the landfill

Pitfalls of FBA Grade and Resell Program

• Imperfect humans resulting in poorly graded units: FBA employees may need to be more familiar with a product and what constitutes success criteria for passing inspection beyond the vague definitions provided in the condition guidelines. The subjective nature of the grading rubric would make it too easy to overestimate the grade as Like New when it’s actually in Acceptable condition, leading to customer complaints and poor reviews and/or brand image. And vice versa, under-grading an item limits the net recovery value from the resold item, leading to potential losses rather than gains.
• It’s expensive: For example, if a $30 home goods item is resold at 75% of the new price, ($22.50) after the Grade and Resell Processing fee ($1.80), Fulfillment fee ($6.75), and Referral fee ($3.38), the net recovered value is only $10.57, or 35.23% of the original offer price for the new condition listing. That’s less than the cost of the Fulfillment and Referral fees for the original sale of the new item. Besides the additional fees for Grade and Resell, Used items typically take longer to sell. They may require more active management of listings, including leveraging pricing and marketing tools to shrink the time to sale and, thus, avoid accumulating storage fees.
• Stranded inventory: If a Seller’s listing for a Used item is deleted, priced incorrectly, or otherwise not associated with an active offer, the product could become stranded, causing delays in selling and accumulation of storage fees.

Conclusion

Without truly transformative new returns models such as Cahoot’s Peer-to-Peer Returns, FBA Grade and Resell represents an attractive opportunity for Amazon Sellers to maximize the value of their returned inventory. By turning potential losses into sellable inventory, the program can help improve revenue and overall profitability, plus reduce waste.

However, like any tool, its effectiveness depends on how well it’s used. Sellers should carefully consider their pricing strategy, monitor the performance of their Grade and Resell listings, and be prepared to manage this inventory alongside their New Condition counterparts actively. For many FBA Sellers, it may be a valuable addition to their arsenal of tools for managing inventory and maximizing returns recovery. But for others, while this presents an opportunity to sell their Used returns (that may have otherwise gone to landfill), they need to be keenly aware of how much can be extracted from the resale after all the FBA fees, promotional costs, and landed costs are applied.

Frequently Asked Questions

What is FBA Grade and Resell?

FBA Grade and Resell is a new service for FBA sellers allowing the sale of returned items.

Is FBA Grade and Resell Available for All Products?

Not all products are eligible for for FBA Grade and Resell. You can learn more about which items are eligible from Amazon’s KB article.

How Does the Grading Process Work?

Amazon will inspect the returned items and assign a condition grade based on the product quality.

Written By:

Jeremy Stewart

Jeremy Stewart leads customer success at Cahoot, helping merchants achieve high-performance logistics through smart technology and process optimization. With a background in both ecommerce operations and client services, Jeremy ensures that every merchant using Cahoot gets measurable results—whether they’re scaling from one warehouse to many or managing complex returns.

As a business owner you already know that returns are a pain, especially on Amazon.

First of all, they cost you. Not only do you have to refund the original purchase price, but the returned inventory might be damaged and unsellable or even the wrong product altogether, leading to a complete loss.

This would be the case in any retail business. But if you sell through Amazon FBA, you’ll encounter unique challenges. Amazon FBA return fees can add to the financial burden with returns processing fees, restocking fees, and other hidden costs.

If you choose the setting to have your returns go back to FBA to grade and resell, you run a risk: the FBA staff might make a mistake and end up sending another customer a damaged or used product. This could lead to a negative review and/or seller feedback that tanks your business’s reputation. (Have you heard about the small business that got wrecked because someone received a dirty used diaper?)

But if you have all returns sent back to you instead of trusting FBA, you have a major time loss on your hands: you and your staff now have to take the time to assess each item yourselves and either resell as new, resell as used, or dispose of it in some other way. Time is money in your business.

Plus, if you’re outside the US, you have to either set up a US-based return address for your US customers, provide a pre-paid international shipping label, or simply refund the item without requiring a return, all of which are expensive and potentially a hassle. (Failing to do one of the three makes the buyer eligible for an A-to-Z claim, which harms your order defect rate.)

Last but not least: if an item gets returned a lot compared to other items in its category, Amazon might add the frequently returned item warning to the listing, which could easily scare off buyers from purchasing the product, reducing your sales.

Amazon’s customer-centric mindset has led it to require third-party sellers to be very generous with their return policies all the time…and extra generous during the holiday peak season. While returns are usually allowed within 30 days, orders placed between November 1 and December 31 are usually eligible for return until the end of January.

Understanding FBA Customer Returns

Navigating the world of Amazon FBA customer returns can feel like a maze, but understanding the process is crucial for managing your inventory and minimizing losses. When a customer decides to return an item, Amazon promptly sends you an email notification, and the cost of the order is deducted from your seller account balance. The customer then ships the item back to an Amazon fulfillment center, where it undergoes a thorough inspection to determine its condition. This step is vital as it decides whether the item can be resold, needs refurbishment, or is unsellable. By grasping this process, you can better manage your FBA inventory and make informed decisions about handling returns.

How to Analyze Your FBA Returns

First, you’ll need to understand why returns are happening. The best way to do that is to go straight to the buyers themselves. Buyers have to choose a reason when they request to return something, and they have a space to leave a comment with more details as well. Notice any patterns in the return reasons, and read the comments to try to understand where buyers are coming from.

It may seem daunting to read through all returns for every item, especially if your catalog is large. So, prioritize. Your process might look something like this:

• Identify the SKU that has the highest return rate, while also having enough sales to be worth your focus. For example, look at your ten top-selling parent ASINs, then choose the SKU among those that have the most returns in the last 90 days.
• Next, look at the top two or three return reasons customers choose for this item.
• Read through a substantial sample of the return comments for each of those reasons.
• Repeat with another high-selling and frequently returned SKU.

SellerPulse by eComEngine is a software tool that provides these details fast. It includes a robust FBA returns report with easy-to-read graphs showing which items are most often returned in which condition or for which reason, plus a word cloud of common themes in the comments. All the individual remarks are imported too, so you can notice a theme and dig in to get more details about the buyers’ experiences.

The report also shows returns over time, item disposition (the condition the item was returned in), and more, to save time and improve returns analysis.

Identifying Reasons for FBA Returns

Understanding why customers return products is key to improving your offerings and reducing return rates. Amazon provides a comprehensive list of 72 official reasons for customer returns, which can be broadly categorized into three groups: customer-related, seller-related, and Amazon-related.

Customer-related reasons might include issues like the product not meeting expectations or a change of mind. Seller-related reasons often involve inaccuracies in the product listing or quality issues. Amazon-related reasons could be due to shipping errors or fulfillment center mishandling. By analyzing these reasons, you can identify patterns and take corrective actions, such as improving product descriptions, enhancing quality control, or addressing fulfillment issues, to minimize future returns.

Of course, one benefit of doing this research is that it allows you to collect evidence of any fraudulent returns to make your case to Amazon.

But there are plenty of non-fraudulent returns and plenty of ways to reduce those going forward. Over time, you can improve your product, listing, packaging, or service to prevent the issues you’re seeing in the reasons and comments.

For example, if many buyers are saying that a certain item arrived damaged, you may need to improve the packaging it comes in for extra durability, rather than relying on FBA to pack it with the proper amount of cushion.

Or, if many buyers are complaining that the size, color, or other features of the item are not what they expected, you may need to update the listing to be more accurate to the real product.

Minimizing Losses from FBA Returns

Reducing losses from FBA returns requires a proactive and strategic approach. Here are some effective strategies to help you minimize these losses:

• Improve product quality: Ensure your products meet high-quality standards and customer expectations to reduce returns due to defects or damage.
• Optimize product listings: Make sure your product listings are accurate and comprehensive to prevent returns caused by misleading or incorrect information.
• Use removal orders: Utilize removal orders to inspect returned items and assess their condition. This can help you decide whether to resell, refurbish, or dispose of the items, thereby minimizing losses.
• Leverage Amazon’s return policies: Familiarize yourself with Amazon’s return policies and use options like the “Returnless Refund” to handle returns more efficiently and reduce costs.

By implementing these strategies, you can better manage FBA returns and protect your bottom line.

Conclusion

Effectively managing FBA customer returns is a critical component of success on Amazon. By understanding the return process, identifying the reasons behind returns, and taking steps to minimize losses, you can enhance your overall performance and profitability. Following the strategies outlined in this article will help you reduce returns, improve customer satisfaction, and stay competitive in the Amazon marketplace. Start analyzing your FBA returns today to set yourself up for a successful year ahead.

Frequently Asked Questions

What are the most common reasons for FBA returns?

The most common reasons listed for FBA returns are inaccurate product descriptions, damage in transit, poor product quality, and buyer’s remorse, most commonly deriving from some unmet expectation about the product.

What is the FBA policy for reimbursing unsellable items?

For items deemed unsellable, Amazon assesses responsibility for the damage. If it is determined to be Amazon’s responsibility, they will reimburse you. If the damage is attributed to the customer or falls under specific categories—such as customer-damaged items, recalled products, defective items, or violations of Amazon policies—Amazon does not accept responsibility and will not reimburse you. These items remain in your inventory as unsellable, and you may choose to have them returned to you or disposed of. Additionally, if a customer is refunded but does not return the item to an Amazon fulfillment center within 60 days, Amazon typically charges the customer and reimburses you.

How do I contest returns I believe are fraudulent?

If you believe a return is fraudulent, you should contact Amazon customer service to report a suspicious return immediately. You can also file an “Abusive Buyer Report” through Seller Central with any evidence of fraud you have compiled. Additionally, Amazon policies can be used to dispute returns you believe are fraudulent, including requesting an item inspection.