How to Calculate Your e-Commerce Store's Product Return Rate
Updated April 28, 2023.
High e-commerce return rates can be a serious issue for your store's bottom line. Currently, statistics suggest the cost of returns each year amounts to around $101 billion in lost cash for businesses.
While returns are problematic for any store, they can be particularly damaging for e-commerce store owners. Apart from having a dissatisfied customer, you miss out on a sale and lose cash on two-way shipping expenses and packaging costs.
Understanding Product Return Rate in e-Commerce
Product return rate looks at the frequency at which customers return items to your online store. According to studies, a quarter of all consumers return between 5% and 15% of all the items they buy online. If your return rate is higher than this, it could be a sign you need to make some significant changes to your quality management processes.
Product Return Rate Calculation: The Formula
The formula for calculating product return rate is relatively straightforward. Simply divide the number of products returned by the number of products sold, then multiply by 100.
Return Rate = Products Returned / Products Sold x 100
Imagine your online clothing store sells 15,000 products within a year, but 5,000 of those products are returned by customers.
The formula for calculating your product return rate would be:
5000 / 15,000 x 100 = 33%.
If your company sold 10,000 products but had 100 of those items returned, the formula would be: 10,000 / 100 x 100 = 10%.
What Is Considered a Good e-Commerce Product Return Rate?
A "good" e-commerce product return rate can be difficult to define because the average refund rate for e-commerce stores typically depends on the industry. For instance, apparel retailers generally experience an average return rate of around 12.12%, while home improvement and houseware brands can experience an average return rate of up to 11.5%.
After industry, a business's return policy also holds great sway over the return rate. A generous return policy with free returns may have a higher return rate because customers are less likely to accept a product they’re not 100% happy with.
Other factors that can contribute to higher return rates include:
- Price: Organizations selling high-price items may receive more returns because customers have higher expectations.
- Seasonality: A quarter of holiday shoppers buy items online intending to return them at a later date. Holiday returns are particularly common because gift recipients aren’t always happy with the item they receive.
- Poor product pages: Companies who provide little product information on their online platforms are more likely to see higher returns because customers may have made an uninformed decision when buying the item.
The versatility of product return rates means it’s important for retailers to look at their metrics in the context of customer behavior. Organizations generally achieve the best return rates when they reduce the need for returns with high-quality products, and deliver customer-friendly purchasing policies.
Best Practices to Optimize e-Commerce Returns
There are a few ways companies can improve customer experiences and mitigate returns. Some of the best strategies to reduce return rates include:
- Implement the right return policy: A well-crafted return policy can help to reduce product returns and boost sales, while reducing cart abandonment. Make sure your customers know what to expect when returning an item.
- Make product information accurate and accessible: Ensure your product descriptions provide plenty of clear information for your customers to make confident decisions. Include high-quality photos, interesting product details, and relevant sizing charts.
- Keep customers informed about returns: Leverage automatic emails and notifications to inform your customers about the returns process. Around 92% of customers say they will buy from a company again if the returns process is simple.
- Elevate the value of customer reviews: Use customer reviews to highlight the values and benefits of a product in advance of a purchase. Most customers will check reviews to determine what they can expect from a product before buying.
- Promote exchanges over returns: Give customers a hassle-free way to exchange their products for something else on your store. This will also help to reduce the amount of money you lose from a potential return.
» Discover 5 strategies to reduce your e-commerce return rates
Reduce Your Return Rates
Now that you know how to calculate product return rates, it might be time to think about the other metrics and strategies you can use to improve the success of your online store. Tools like BeProfit can give you a behind-the-scenes insight into the factors that influence your company’s profitability.