The link between returns management and customer satisfaction
No doubt, returns are the necessary evil in retail. It keeps customers happy and helps commerce businesses nurture trust-based relationships.
An easy return process also means increased customer satisfaction. A customer might love a brand and simply not love a certain product. If the return experience is favorable, they will most likely continue to buy from the same retailer.
However, a single bad encounter can negatively impact customer loyalty.
In fact, 33% of Americans say they’ll consider switching to another brand after just one bad customer service encounter.
Considering the above and the fact that retail returns jumped to an average of 16.6% in 2021 versus 10.6% the previous year, according to a survey by the National Retail Federation and Appriss Retail (source), things aren’t looking so bright in 2022 either.
So what is the return rate for your omnichannel or eCommerce business? Keep reading to find out!
How to calculate return rates and costs?
Whether you like math or not, calculating the costs and rates of your returns, refunds, exchanges, etc., is a must in order to properly assess your returns management needs and improve the returns process in the long run.
Since we’re here to make things easier for you, below are some useful formulas to help you calculate your return, exchange, and refund rates, and return fraud costs.
Calculating your return rate:
Calculating the return rate for your business is no rocket science. All you need to measure is the number of items approved for return within a certain period versus the total number sold in the exact same timeframe.
Assuming you sold 10,000 units in a month and had 1,000 of them returned, your return rate would look something like this:
1,000 / 10,000 x 100 = 10%
Keep in mind that the return rate is not the most reliable metric if you want to improve your products and services since it cannot answer questions like why your customers keep returning your items.
Calculating your exchange rate:
One of the best scenarios for retailers when it comes to returns is turning refund intro exchanges. In terms of costs and revenue, rather than having to resell a returned item and reimburse your customer the price, it’s better to let them have an exchange product and resell the one that’s being returned.
You can calculate the exchange rate by dividing the number of exchanges by the total number of returns. Continuing with the example above, for 1,000 returned units and 400 exchanges, the exchange rate would be:
400 / 1,000 x 100 = 40%
What matters the most is to collect sufficient return reasons and figure out ways to transform your refunds into exchanges. Alternatively, you could also offer online store credit instead of reimbursing the sum to the original payment method— this can save you time and increase the number of future sales.
Calculating your refund rate:
Last but surely not least, what is the refund rate?
The return rate refers to the total number of refunds versus the total number of returns.
For 1,000 returned units, 400 exchanges, and 500 refunds, the refund rate would be:
500 / 1,000 x 100 = 50%
As mentioned previously, by issuing online store credit coupons instead of reimbursing the sum to the customer’s bank account, you can save precious resources drive more future sales. In this specific example, let’s assume that out of the approved returns, the remaining 10% are compensated through online store credit.