Return rate

How the return rate is worked out

The sum is the number of returns in a period, divided by the number sent out in the same period, multiplied by one hundred. Three choices decide what the answer means.

The first is the unit: items, orders or sales value. Items is the usual choice and the one the warehouse can act on. Value is the one finance cares about, because it separates a returned coat from a returned pair of socks.

The second is the period. A return arriving today belongs to a sale made weeks ago, so dividing this month's returns by this month's sales is only safe when sales are flat. In a month where sales doubled, that sum makes the return rate look as though it halved.

The third is what counts. Customer rejections, items damaged in transit, your own picking errors and unsold goods coming back from a retailer are four different problems. Count them all, but tag them, or the figure averages away the only part you can fix.

There is a returns cost calculator on this site for putting a price on what comes back.

There is no good number

In clothing, where customers deliberately order two sizes and send one back, a rate that would be an emergency for an industrial supplier is simply how the category works. In spare parts or food, almost nothing should come back at all. There is no cross-industry figure worth comparing yourself with.

Compare instead against your own previous year, and then by product group. The site average is a blend; the information is in the two or three lines that sit far above it, and those are usually a sizing problem, a photograph problem or a packaging problem rather than a returns problem.

In practice

Of the 20,000 items shipped in the month, 1,600 came back: 1,600 divided by 20,000 is 0.08, so the return rate was eight per cent.

Now look at what arrived. Of those 1,600 items, 1,180 went straight back into sellable stock, 300 needed repacking or minor rework before they could be sold again, and 120 could not be sold at all. So eight per cent came back, but only six per cent of what was shipped returned to full value. If your reporting shows one of these figures and your stock planning assumes the other, the gap turns into dead stock. The numbers here are an illustration.

What moves the figure

• What the customer saw before buying. Sizing guidance, dimensions, photographs of the actual item. More returns are decided on the product page than anywhere in the warehouse.
• Picking errors. A wrong item is a return you created. This is the part of the rate picking accuracy controls directly.
• Transit damage and packaging. Items that arrive dented come back. Box choice and void fill are a returns lever, not only a cost line.
• Delivery speed. A parcel that arrives after the occasion it was bought for comes back, whatever the product is.
• Policy. Free returns raise the rate and often raise repeat purchases with it. Charging for returns lowers the rate and does something else to the customer, which this figure will not show you.
• How fast you process them. Slow returns handling does not change the rate, but it decides how much of the returned stock is still worth selling when it reaches the shelf.