The Return Rate in a new perspective
How to calculate a reliable return rate?
The year-end sales peak in online commerce will likely result in another reverse logistics peak in January. Typically that is the time I am called by journalists to talk about the high return rates in online commerce. I have learned to be careful and not give any numbers. Not that I know them anyway.
However, I would like to give my view on the “return rate” phenomenon. I think it is time to put this statistic into a new perspective.
There is not just one return rate
Typically, the return rate is calculated as the number of returned orders or products as a percentage of the number that have been sold.
I wonder if all percentages are calculated in the same way and can actually be compared. Let’s agree that the classic return rate should be calculated as the number of returned products as a % of the number of shipped products.
In online commerce, returns are considered a big problem and a high return rate is not a good score. Return rates vary between 1%-60% depending on the product category. The funny thing is that a high return rate can still be quite acceptable.
Differentiate between 3 return rates
In fact, 3 different return rates should be calculated in online retail:
Return Refund Rate:
This is the percentage of returned and refunded products as a percentage of all shipped products These are the returns that are a problem as these returns are refunded and result in zero sales.
Partial Return Rate:
This is the percentage of partially returned orders as a percentage of all shipped orders. These returns are less problematic as not all shipped products have been returned. There still is a sale on the order.
Return Exchange Rate:
This is the percentage of returned and exchanged products as a percentage of all shipped products. These returns are also less problematic as the returned products have been exchanged for another product. There still is a sale. Perhaps even higher than the original sale as the exchanged product might be more expensive.
Calculating these percentages will help you to better evaluate your return rate. Of course, it requires accurate administration. Returns management software can offer a helping hand.