eCommerce merchants rely on accurate and timely analysis to generate leads, factor expenses, and measure performance. Your Key Performance Indicators (KPIs) are the metrics you use to evaluate these statistics, set benchmarks, and take corrective measures when called for.
One of the most significant KPIs you should be tracking is your eCommerce return rate.
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What is an eCommerce Return Rate?
- eCommerce Return Rate
An eCommerce return rate refers to the measure of transactions that are returned by online buyers, as a share of overall purchases.
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In a general sense, your eCommerce return rate measures the frequency with which your online customers return goods. This is an important KPI, because return rates for eCommerce have a significant impact on revenue and customer retention rates.
Having an above-average return rate suggests that there may be issues that require your attention. It could point to problems with the quality of your merchandise, or with the fulfillment or delivery of orders. It could also mean that you’re not communicating with buyers as effectively as you should.
By tracking your eCommerce return rate, you can pinpoint problems and address them before they spiral out of control.
How to Calculate Your eCommerce Return Rate
Figuring out your generalized eCommerce return rate is simple. All you to do is follow this formula to calculate product return rates:
If you fulfill 10,000 orders in one year, but 2,000 of them were returned, you would have an eCommerce return rate of 20%.
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We should note that your generalized eCommerce return rate is still a somewhat vague indicator. For example, if you sell a variety of products, then looking at overall return rate may not reveal problems that could be detected with closer analysis. That’s why, in many cases, it’s helpful to examine return rates based on a variety of variables.
Also, setting a goal to maintain a 0% return rate is not a realistic expectation. You should strive to keep returns at their lowest possible rate for your industry, but recognize that some returns will be unavoidable.
What’s a “good” eCommerce return rate?
An objectively “good” return rate would rest somewhere between 0% and a percentage of returns considered average for businesses in your vertical. This figure fluctuates based on your business type and the industry you operate within.
Average return rates for eCommerce rest at around 20%. However, they can balloon to 30% or more around the holidays.
Return rates also vary by product and vertical. According to Shippo, the average return rates break down into the following categories:
Of course, it’s understandable why some products would see a higher eCommerce return rate than others. Apparel companies, for example, see a high retail return rate because it's improbable that a customer will always find the perfect fit without trying on merchandise. Health and beauty verticals are similar, as it's difficult to gauge a product’s efficacy without sampling it first.
What that fails to explain, however, is why eCommerce merchants, in general, are more susceptible to returns. To answer this question, we need to look at why buyers request returns in the first place.
Why Do Buyers Return Merchandise?
Every eCommerce merchant in business today will experience their fair share of returns. It’s just a part of doing business. That said, gaining a better understanding of why consumers return products will help you lower your overall return rate.
These are the four of the most common motivations for consumer returns in the eCommerce space:
- The buyer didn’t like the item, or it didn’t fit their needs.
- The product didn’t match the description provided.
- The product was no longer needed or arrived too late.
- The item was a gift that the returnee didn’t need.
Return fraud is the act of returning merchandise to a retailer for a refund, in violation of the merchant’s stated returns policy. This is a major problem for online retailers. Because the merchant and buyer never interact directly, it can be a lot easier to conduct fraud attacks without being noticed.
Common return fraud practices include:
- Using a fake receipt to claim invalid refunds.
- Returning stolen merchandise for cash.
- “Wardrobing,” or using and then returning an item.
- Price tag switching
You CAN’T Prevent All eCommerce Returns
Your customer’s online shopping experience determines every facet of your business’s success. Happy customers still request returns from time to time. What they don’t do, however, is request chargebacks.
If customers aren’t satisfied with your products and services, they will try to get their money back…one way or another. In addition, unhappy customers often share their negative experiences online, which will hurt your business’s reputation.
Your brand is everything in eCommerce, and how you make a sale is as important to your bottom line as what you sell.
A low eCommerce return rate reflects positively on your business and implies that you provide your customers with a top-notch customer experience. It can also help you build and maintain a solid customer base and assign lifetime value to your brand. However, it’s crucial that you consider steps to reduce returns in the context of chargebacks, and look for ways to improve processes, rather than just stop returns from happening.
5 Steps to Reduce Your eCommerce Return Rate Without Causing Chargebacks
There are many different strategies and practices you can adopt to improve your eCommerce return rate. These five steps are a fantastic place to start:
Step #1 | Improve Your Listings
How you sell your items has as much influence over your return rate as your return policy itself. Why? Simply put: customers need to know exactly what they’re buying.
If the goal is to prevent returns altogether, there is no faster way to reduce that number than to focus on how you list and promote your products. Examples of information that can significantly improve your listings include:
Step #2 | Refine Your Return Policy
Any details that could complicate a customer’s return process should be clearly and vividly communicated to the buyer. Be up-front about those details; never try to sneak them into the fine print.
Failure to divulge pertinent return details in advance of purchase could lead to a higher retail return rate, as buyers will be less trusting. Even worse, this practice could cause buyers to skip the return process and file a chargeback instead. That’s why you should:
Did You Know?
Free Returns can Encourage Sales
54% of buyers say that free returns or exchanges are a leading factor in determining whether they buy from a brand or not. If buyers are promised they can return goods for free later, they’ll be more likely to trust the merchant and complete a sale (even if they ultimately keep the item).
Step #3 | Target Order Accuracy
Businesses are managed and operated by humans. No one is above making the occasional mistake. Therefore, merchant error is still a concern for most businesses, especially eCommerce and retail.
To limit errors that could be affecting your bottom line, you should:
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Step #4 | Prioritize Customer Service
This might seem like a no-brainer. That said, it’s overlooked on a surprisingly frequent basis.
Providing excellent customer service isn’t just about showing a friendly face or providing an affable support system online. It’s about thinking ahead and providing customers with options and support before they ask for it. This means:
Step #5 | Protect Your Business From Return Fraud
Return fraud is a severe problem that gets worse every year. According to the National Retail Federation, retailers lose $5.90 to return fraud for every $100 in returned merchandise. It costs US retailers more than $27 billion a year.
Preventing return fraud is critical to your success as a merchant. A few strategies to get it right out of the gate include:
Have Questions About Return Rates?
eCommerce is constantly evolving. The methods you use to keep your eCommerce return rate low—without seeing a spike in chargebacks—need to evolve, too.
If you want to work with someone to help build the ideal refund rate and chargeback reduction strategy possible, Chargebacks911 can help. Chargebacks911 offers the most comprehensive chargeback management services and products available today. No other provider can deliver our level of transparent, end-to-end chargeback management, going beyond prevention to revenue recovery and future growth.