How to Calculate (and Reduce) Your Ecommerce Return Rate
Kelli Trapnell
·July 10, 2023
Calculating your return rate is the first step in strengthening your return policy, reducing your returns and improving your customer experience.
Learn more about how customer experience influences your business’s success in the Future of Shopper Experience
Returned items can be very costly for an ecommerce business, so retailers must be aware of how many returns are being initiated. By understanding just how many customers are engaging with your return process, you can identify if your ecommerce return rate is too high—and take action.
In this blog, we’ll cover:
- What is a return rate
- How to calculate your return rate
- Why an ecommerce return rate is so important to your online store
- How to use this information to reduce customer returns and improve customer loyalty
Let’s start by breaking down what a return rate actually is.
What is a return rate?
A return rate refers to the proportion of your total product sales that result in returned items. This figure can refer to online returns, in-store returns or both. Every ecommerce business will experience some amount of returns and that is not a problem in itself. Customers accept that there is a risk when ordering from an online store and are often happy to take the gamble, especially if the store offers free returns and easy return shipping.
However, the overall cost of returns to your business can cause issues if your return rate is too high. One way to tell if your product return rate needs reducing is to compare it against the average ecommerce return rate in your industry or country. For instance, the National Retail Federation (NRF) reports that the average return rate in 2022 for all retail was 16.5%. Online shopping often results in a higher number of returns, due to customers not seeing the product in person first; Invesp found that the average ecommerce return rate was as high as 30%.
How to calculate your return rate
To calculate your ecommerce store’s product return rate, look at a particular time period and divide the number of returned items by the total number of sales made during that time. Multiply this number by 100 and you will get your ecommerce return rate percentage.
For example: if you sold 10,000 items in a six month period and you also processed 4,000 returned items in that time, you would do this calculation: (4,000 / 10,000) x 100 = 40%.
40% would be considered a high return rate, as it is significantly greater than Invesp’s 30% average figure (and much greater than NRF’s average of 16.5%).
Why return rates are so important
In this situation, an online retailer would want to take significant steps to improve its return process and reduce customer returns, to ensure that customer satisfaction – and the bottom line – remain strong.
When an ecommerce business is experiencing a high volume of returns, this suggests that more customers are unhappy with their purchases than usual. This could be for many reasons: items may not be as high-quality as expected; product descriptions might be inaccurate; items may have arrived damaged; or the customer may simply have changed their mind.
While some of these problems can’t be fixed, others can be resolved by the ecommerce store — and it’s worth doing. A poor returns experience can turn a customer away from a business for good, which contributes to your churn rate. If this happens multiple times, you may see a decrease in overall retail sales, in customer retention and in customer lifetime value. This can have a big impact on your overall revenue and profit.
Regularly checking your return rate is a great way to see if your actions are having the desired effect. If you update your product pages with better descriptions and the return rate goes down, you can be confident that you are addressing a real problem.
How to reduce your return rate
As we’ve mentioned earlier, there are many reasons why online shoppers may want to return items and some are out of the merchant’s control. However, there are several easy steps to improve both the pre- and post-purchase experience so that your return rate goes down.
Make sure that all product pages are updated with accurate product information, so that consumers aren’t shocked or disappointed when they receive their online purchases. While it is good to make the returns process easy and affordable, consider if your free return shipping is increasing the chance of return fraud; some bad apples might be trying to take advantage of your generosity. By requiring more detailed proof of error, or offering store credit instead of refunds, you can reduce the number of fraudulent return claims.
Consider a returns management solution
If you are a Shopify merchant, make sure to take advantage of valuable integrations like Loop, which can help you with your return management. Other businesses may also want to consider partnering directly with a returns management solution like Loop, to make it easier to offer an elevated returns process.
With these solutions, merchants can automate the ability to exchange an item, rather than return it, so that there is no need to deal with the hassle of refunds. This kind of streamlined experience can increase the likelihood of repeat customers. Loop also offers a returns workflow that prompts feedback, which makes it easier for merchants to track why certain items might be returned more frequently — and adjust their inventory and restocking accordingly.
Most importantly, merchants should keep in mind that their return rate will never be 0, but it can still be competitively low. A return rate is a great reflection of customer satisfaction; the lower it is, the happier your customers are. With a few simple steps and the help of a great partner, ecommerce stores can keep their return rate below average.
Ready to convert more returns into exchanges? Check out a demo of Loop today.
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