How to Calculate Your Return Rate

No retailer is excited about returns. But when it comes to ecommerce, two-way shipping and packaging hit particularly hard. With that in mind, this blog will explore how to calculate your return rate. 

It will also highlight: 

• Product information to help your shoppers minimize their returns
• Methods to improve your customer satisfaction via returns
• Ways to obtain returns faster

Calculating your return rate

A return rate compares the number of units returned against the number of units sold. 

To calculate your return rate, divide the number of units returned by the number of units sold, multiplying the product by 100 to find your percentage. 

(Units Returned ÷ Units Sold) x 100 = Return-Rate-Percentage%

For example, if you sold 100 widgets, and 10 widgets were returned, you would divide 10 by 100, which equals  0.1.  Multiple 0.1 by 100, (moving the decimal two places to the right), and you have 10%. 

(10 ÷ 100) x 100 = 10%

While calculating your return rate is about finding the percentage of units returned, retailers can’t overlook the financial impact of returns. 

According to the National Retail Federation, consumers returned an estimated $428 billion in merchandise to retailers in 2020, accounting for about 10.6 percent of total U.S. retail sales. 

During that time, online returns more than doubled year over year, and were a major driver of the overall growth of returns. Ecommerce accounted for $565 billion, or 14 percent of total U.S. retail sales in 2020, but approximately $102 billion—18%— of merchandise purchased online was returned.

Minimizing returns, maximizing revenue

Retailers want to minimize their return rates because returns cut into revenue. The challenge is in mitigating the need for returns while offering a customer-friendly return policy. 

Fit tech—online tools that provide customers with more information about a product—seems like it would be the solution, but it comes with a caveat. Our data shows low-tech options like photos, size charts, and customer reviews may be more useful in preventing returns than high-tech solutions like predictive algorithms and augmented reality fitting rooms.

According to our consumer research, 88% of shoppers have relied on customer reviews to inform a purchase, while 87% have used photos and product descriptions or size charts. 

By contrast, only 40% of shoppers have used predictive sizing recommendations based on other brands, and 32% have used AR to visualize an item on themselves.

Shoppers are more confident in the traditional low-tech tools. Eighty-three percent of shoppers thought that customer reviews helped prevent the need for returns, while only 64% found size recommendations based on other brands helpful in heading off returns. 

Of those who have used AR and similar visualization tools, 58% believe it has prevented them from having to make a return.

Customers value other customers’ opinions about products, which presents a unique opportunity: 

‍By continuing to engage customers after the initial purchase to solicit product reviews, retailers can build on their relationships with existing customers and acquire information that will lower return rates with future customers.

In addition to lowering return rates, retailers can recover more revenue by speeding up the return process. 

Every day that a returned item remains out of inventory — whether with the customer, in the mailstream, or awaiting processing at the warehouse — decreases the likelihood that the product can be resold at full price. If a retailer has a 30-day return policy, there could be as much as a six-week period between when an item arrives at the customer’s home and when it is returned to the retailer’s warehouse. 

Maximizing revenue while welcoming returns is a challenge, but not impossible, as demonstrated by return policy examples from Saks Fifth Avenue and Dolls Kill. 

Saks Fifth Avenue offers free shipping on returns initiated within 14 days of the ship date, and deducts $9.95 from a customer’s refund to cover shipping on returns initiated after the 14-day window. Dolls Kill, on the other hand, offers free shipping on returns that are refunded in the form of store credit. Customers who want a Dolls Kill refund back to the form of original payment must cover the cost of return shipping.

Recognizing the opportunity in returns

Returns create another opportunity to communicate with customers. Think of that engagement as a chance to earn the customer’s loyalty. 

When you set up your return process—or audit it for improvements—make sure that the timeline for returns is clearly defined, (i.e. 14 days, 30 days, 45 days, etc.). Explain the process for returning an item, whether by mail or in store, and printing return labels. If a customer needs a Return Merchandise Authorization to receive a refund, detail each step for requesting the RMA. 

Shoppers expect to see a complete return policy—returns windows, shipping costs, RMAs, and refund policies—on a retailer’s website, but addressing it via email keeps the lines of communication open. 

With email, a retailer can create beautiful, branded content to let the customer know what to expect—yet another surprise and delight moment in the retail relationship. It’s also a good time to solicit review feedback on the item, while it’s still fresh in the customer’s mind.

Finally, once a returned item has been received or the refund has been issued, send one final email to alert the customer that the transaction is closed. 

In addition to conveying information about the refund, invite the customer to make another transaction with a “limited-time offer” (e.g., free shipping, discounts, etc.). 

Retailers should never look at returns as the end of a customer relationship: 

‍When handled correctly, they’re actually the start of a new chapter. Every retailer dreams of lowering their return rate, but don’t get stuck on that one number. 

With customer-focused strategies and messaging, even returns are an opportunity to create value.

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