Return Rate

Quick Definition

The percentage of orders returned by customers, measuring product satisfaction and description accuracy.

What is Return Rate?

Return rate is the percentage of orders that customers send back. It measures product satisfaction, description accuracy, and fulfillment quality. High returns eat into margins and create operational costs.

Return rates vary dramatically by category. Apparel averages 20-30% due to fit issues. Electronics might be 5-10%. Home goods fall somewhere between.

Why Return Rate Matters

Returns are expensive. Beyond refunding the purchase, you pay return shipping, inspection, restocking, and potential inventory write-offs. A product with 30% returns and 40% margin might actually lose money.

Returns also signal product-market fit issues. High returns might indicate misleading product descriptions, quality problems, or incorrect sizing information.

Reducing Return Rate

Improve product descriptions and photos. Add size guides and fit tools. Show customer reviews highlighting fit. Implement quality control. Analyze return reasons to identify patterns. Consider charging for returns on serial returners.

Formula

Return Rate = Number of Returns ÷ Number of Orders × 100

Can also calculate by revenue: Revenue Returned ÷ Total Revenue × 100

Example

Monthly return analysis:

• Orders shipped: 2,000
• Orders returned: 180

Return Rate = 180 ÷ 2,000 × 100 = 9%

A 9% return rate is average for apparel ecommerce. If higher, investigate sizing issues, product quality, or misleading descriptions.

Related Terms

[Gross Profit Margin]

The percentage of revenue remaining after subtracting the direct costs of producing goods or services sold.

[COGS (Cost of Goods Sold)]

The direct costs of producing and delivering your product or service, subtracted from revenue to calculate gross profit.

[Inventory Turnover]

How many times a company sells and replaces its inventory over a period, measuring inventory efficiency.