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Understanding Return Rate
When you’re operating your ecommerce store, seeing how many returns you get during a specific timeframe is important. Why?
An ecommerce return rate is a key metric that offers insight into how your business is doing and how customers receive and value your products.
Tydo defines your return rate as the percentage of orders returned to you over a specific period.
If you’re seeing a large volume of returns in any period, it could spell trouble for different areas of the business, such as your growth rate, and impact cash flow. High return rates usually indicate friction somewhere in the buyer’s journey. Ask these questions:
- Have you changed manufacturers and seen product quality drop?
- Is the shipping team not packing orders well enough, resulting in damaged deliveries?
- Is your size guide inaccurate, leaving customers unhappy with fit?
For retailers and ecommerce businesses alike, tracking return rate helps you manage your inventory more effectively. Other benefits of tracking this metric include the following:
- Improved customer satisfaction
- Increased profitability and conversion rates
- Highlights changes in retention rates
- Boosted revenue through optimized ecommerce sales
- Improved return experience for both the store and the customer
How to calculate Return Rate
Return rate = (the number of orders with a return / total orders) x 100
Data sources: Shopify
Example
Suppose you run an apparel store on Shopify.
In June, there were 10,000 online orders placed on your site, but out of those 10,000 orders, 950 were returned.
Using the formula, you can calculate your return rate for June as (950/10,000) x100 = 9.5%
Takeaway
Return Rate is like choosing a wine for your dinner party. You might try different variations at the wine store, but you’ll send back options until you find one that suits your spread.
It’s expected for businesses to have a return rate. With consumers used to online shopping on platforms like Amazon, product returns are now a key part of the shopping experience (especially after the COVID-19 pandemic).
Randy McHugh, retention marketing expert, says that depending on the category, a general benchmark for brands is a 25% to 30% customer return rate. But for every return, there are shipping costs a brand needs to cover.
As much as returns are viewed as a cost center for brands, there’s an opportunity to redefine them into a profit center and save money. Jonathan Poma, founder and CEO of Loop, says that returns don’t have to equate to refunds. Instead, you can look for ways to improve the customer experience and keep them shopping. Consider offering store credit or exchanges rather than a straight refund.
Another aspect online retailers need to consider is return fraud, which causes some of the biggest losses for online retailers and those with brick-and-mortar stores.
Small businesses that have many returns will see a direct impact on their bottom line, Poma says. And for larger brands, the costs can balloon to tens of thousands of dollars monthly.
Alex Greifeld, an ecommerce marketing expert, says an average ecommerce return rate gives you insight into various aspects of the business, namely, does the product quality match the marketing?
Other questions to ask include:
- What does profitability look like taking returns into account?
- Are certain products resonating more with customers, or are items not moving as quickly as you’d like?
- Is the website optimized for positive shopping experiences and convenient checkout?
Ready to level up your learning?
Read more about Return Rate
What factors impact Return Rate?
Product quality vs. pricing – If the marketing copy doesn’t match the product quality and respective pricing, expect returns.
Product descriptions and imagery – Images and descriptions make an impression on the customer and their shopping experience. It’s important to highlight descriptions as accurately as possible and use return data to finesse product description pages (PDP) to reduce returns in the future.
Customer Experience and expectations – Focusing on customer loyalty and their shopping journey, from initial purchase to delivery, leads to more revenue and makes it more likely they’ll continue to be customers. Optimize your website so that ordering is simple and accessible.
Shipping and packaging – Use tools, such as Wonderment, to inform your ecommerce customers about the shipping and delivery process post-purchase. Doing so will improve the customer experience, boost repeat purchase rates, and increase lifetime value.
How to decrease your Return Rate
Improve your product descriptions
Looking to reduce your return rate of online purchases? The first place to start is education. Product description pages (PDPs) are essential in providing as much data as possible to shoppers so that they can make an informed choice.
What should you include in your product descriptions? Features such as:
- Product reviews
- Photos and user-generated content
- Information on your ecommerce return policy
- Accurate sizing guide and range of models – even augmented reality offers shoppers a chance to ‘try on’ before making a purchase
Incorporate user-generated content (UGC)
Reviews, unboxings, and social proof from other shoppers help make your customer more confident during their buying journey, which helps reduce return rates. User-generated content (UGC) is extremely helpful here. Seeing how users interact with your products empowers shoppers. Because this UGC content differs from paid ads or paid creators (as unpaid customers traditionally create it), it helps your brand appear more trustworthy. Customers can see how the product would work in ‘real life.’
Use clear communication via SMS and email
Use post-purchase email flows and SMS to stay connected to customers. One of the best things ecommerce businesses can do is communicate clearly with customers. Doing so also keeps brands top-of-mind when customers consider their next purchase.
Educating customers on your return process and procedures — such as offering free return shipping – reduces friction, too. In post-purchase email flows and shipping updates, include copy that highlights return information, so there’s no confusion.
Encourage exchanges over returns
Here’s an idea: instead of directing the customer straight to a refund, Jonathan Poma of Loop recommends offering an exchange or store credit. Why?
It saves time and resources for everyone involved. Going through a return process, online or in-store, is often a hassle for customers. The faster online shoppers can get an exchange or credit on their returned items, the faster they’ll take the next step (repurchasing), thanks to a better experience.
Offer excellent customer support
Make it easy for customers to get the help they need at every step in the buying journey.
Offering live chat is a helpful tool in saving time for both you and your customer. Plus, it gives your business a chance to answer any questions before a customer places an order on your online store. If they need to make an online return, connecting with live chat provides an opportunity to resolve the issue even more quickly
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