The return rate is crucial in determining whether your online store is profitable or not. That's why there is hardly a more important metric. It indicates how many items are returned in relation to sales. Here you can find out what types of calculations there are for the return rate, how good your rate is in comparison, and how you can improve it to your advantage.
Here's what you can expect to find in this blog article:
Return rate in online retail: definition and significance
Three ways to calculate the return rate
Tracking the return rate
Impact of the return rate on sales
The average return rate in online retail
Factors influencing the return rate
Evaluation of the return rate
The most common reasons for returns in online retail
Important factors for reducing the return rate
Conclusion: It is essential to pay attention to the return rate in online retail and take advantage of opportunities
A return is an ordered item that the customer sends back. The return rate compares the number of returns to the number of sales. In online shops, the return rate is often significantly higher than in brick-and-mortar stores because more customers send items back. It is therefore important to keep an eye on this key figure, reduce it, and handle returns as efficiently as possible so that items can be reused.
There are three different ways to calculate the return rate in online retail:
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Each of these return rates allows you to find out more precisely how many goods are being returned and whether the disadvantage for you is more organizational or financial in nature. This also allows you to find the right lever to reduce the return rate more quickly.
As a general rule, you should record every return, including the items it contains, upon arrival. Special programs such as returns management software or returns portals can help with this. If your company does not handle returns itself, you will receive the relevant values from your service provider.
In 2020 alone, an estimated 315 million packages were returned.¹ The extent of the resulting decline in sales depends heavily on the type of items sold and the industry. However, the impact of the return rate on sales and profits in online retail is significant.
It can be even more important for sales to inform customers transparently and visibly about the online shop's return policy. A lack of information in this regard is a common reason why customers do not place an order in the first place. More than half of all customers in Europe always check the return policy before making a purchase.²
If there are no return policies, or if customers perceive them as unfair, this has a greater impact on sales than returns themselves.
Optimizing the returns process and efficient returns management are important success factors for an online store. As an online retailer, you should note that a high returns rate is not only detrimental to sales. More importantly, it reduces margins and profits and can be one of the decisive factors in making an online store uncompetitive.
The return rate in online retail depends on various factors, such as the industry or product category, but also on the demographics of the target group. Germans are European champions when it comes to returns: 65 percent of customers return products they are dissatisfied with. The European average is 52 percent, with the French bringing up the rear at 43 percent.
This means that returns are common: around 16.3% of all packages are returned, affecting roughly one in eight items.⁴
In addition, the EHI retailer survey revealed further significant differences in terms of the item-related return rate in Germany:
One important factor is that the return rate varies significantly depending on the industry. Returns are most common in the fashion industry, for example, where the return rate is around 46 percent.⁵ In addition to country and industry, another factor is important when evaluating the return rate in online retail: the price of the items sold. Returns are less common for very inexpensive items.
In addition, there are effects that are beyond the control of online retailers. For example, the return rate fell significantly during the coronavirus pandemic.⁶ There are many reasons for this: on the one hand, there were more purchases that were aimed at clear necessities and not just desires.
On the other hand, even customers who were generally reluctant to return items tried online shopping for the first time in some cases. This is also evident from the fact that large and well-known online shops saw significant growth without an increase in the return rate. At the same time, however, smaller companies struggled with "impulse purchases" where customers never intended to actually keep the product.⁷
The return rate is therefore not a key figure that can be easily compared across companies and industries. Instead, it makes sense to compare it with other KPIs. Above all, your own contribution margins determine whether a return rate is problematic or not. The costs for goods, packaging, shipping, marketing, and overhead for the online store must leave enough contribution margin for it to make a profit. A comparison with the beta return rate for individual products helps to determine which of them are profitable.
To know how to prevent returns, it is important to understand why customers return the goods they have ordered. The reasons most frequently cited by customers are:
Customers return goods much less frequently because they can get the product at a better price, only wanted to look at the product, or found it too complicated to use.
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The reasons for returns already indicate which factors are suitable for reducing the return rate in online retail:
The AI Shopping Assistant helps customers choose the right product and can thus contribute to reducing the return rate
(Source: Own representation)
You can find more information on reducing return rates through personalized advice in our blog article Avoiding returns: The role of personalization in e-commerce consulting.
Knowing your return rate enables you to make your online shop more profitable. It helps you identify problematic products or improve product presentation so that returns become less frequent. That's why few metrics are as important for online retail as the return rate.
Sources: ¹ Statista, ² Sendcloud (E-Commerce Delivery Compass), ³ Pressebox, ⁴ BEVH, ⁵ Sendcloud, ⁶ Die Wirtschaftszeitung, ⁷ Logistik-heute, ⁸ Statista
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