The Real Cost of Returns: The Ultimate 8-Point Tear Down

Returns are a poison that kills online businesses. 

Secretly undoing countless hours, days, weeks, months, and years in a matter of moments. 

The cost of a return doesn’t stop with the cost of the product, it goes much much further, so let’s break it down: 

  1. Return Rate: First, the basics… The return rate is the percentage of products sold that are returned by customers. For instance, if an online retailer has a return rate of 25%, it means that for every 100 items sold, 25 are returned. This is a significant number, considering the average return rate for eCommerce in the US hovers around this benchmark.

  1. Cost of Returns: Each return incurs several costs:
  • Shipping Costs: The brand often covers the cost of return shipping, which can vary greatly depending on the size, weight, and shipping distance of the item.
  • Processing Costs: Processing a return includes receiving the item, inspecting it, restocking it, and handling administrative tasks. This requires labor, which adds to the cost.
  • Refurbishing or Disposal Costs: Returned products might need to be refurbished, repackaged, or, in some cases, disposed of if they can't be resold, adding further costs.

  1. Lost Revenue: When a product is returned, the sale is essentially reversed. The brand must refund the purchase price, losing out on that revenue. Margins are heavily impacted, and if a product can't be resold, the brand experiences a total loss. 

  1. Impact on Inventory and Cash Flow: High return rates can lead to unpredictable inventory levels and strain cash flow. A retailer might end up with excess stock of returned items while still needing to purchase new inventory.

  1. Environmental Cost: Returns have a substantial environmental impact. They contribute to carbon emissions through transportation, packaging waste, and further add to landfill waste if the products are not resold.

  1. Customer Service Strain: Handling returns requires significant customer service resources, from managing return requests to addressing customer queries and complaints.

  1. Impact on Pricing and Margins: To mitigate the costs associated with high return rates, retailers might increase prices or reduce margins, impacting competitiveness and profitability.

  1. Data from 2022: ​​Returns cost store retailers approximately $816 billion in 2022, nearly double that of 2021. It is evident how that returns are negatively impacting the financial health of businesses everywhere.

In summary, returns have a compounding negative effect on an online retailer's business, affecting everything from direct costs to customer experience, environmental impact, and overall profitability. 

That's why reducing return rates is a critical focus for eCommerce businesses.

ReKeepIt sees this problem as our opportunity to positively impact the eCommerce landscape. Brands implementing ReKeepIt are part of a movement moving towards a Return Rate Zero