Key Performance Indicators (KPIs) are the metrics used to measure the performance of a business. Similarly, ecommerce metrics are the KPIs that can help online businesses evaluate their performance, set benchmarks, and take corrective measures to steer the business in the right direction.

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In this ecommerce metric refresher, you will learn what is return rate, how to calculate return rate, why should businesses calculate return rate, benefits of reducing return rate, and the strategies to reduce return rate.

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What is return rate?

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Return rate is an ecommerce metric that refers to the frequency that customers return their online orders. Ecommerce return rate is an important metric as it highly impacts customer satisfaction and revenue.

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The following illustration shows the return rate formula:

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Let's see how to calculate return rate with an example,

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You received and fulfiled 1000 orders in the year 2020, 200 of them were returned.

Therefore, your ecommerce return rate = (200 / 1000) X 100 = 20%

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Note: Achieving a 0% return rate is not a realistic expectation, but you should strive to maintain your return rate as low as possible. Moreover, return rates differ based on industry. According to research, the clothing and apparel industry sees some of the highest return rates in ecommerce, while beauty and home furnishings have some of the lowest.

However, the average return rate in ecommerce industry is 18.1%. If your online business falls within that range, lowering your return rate can give you a competitive advantage. But, if your return rate is higher, you must take action-oriented steps to reduce and handle returns.

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Why should businesses calculate return rate?

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There are many reasons for businesses to calculate ecommerce return rate, such as:

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• Measure customer satisfaction
• Identify the reasons that drive returns
• Determine order accuracy
• Take corrective measures
• Minimise ecommerce returns

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What are the reasons for the high ecommerce return rate?

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There are many reasons why customers make online returns, such as:

• Damaged product: When the delivered product is damaged, before or during the shipping process
• Inaccurate description: When the delivered product doesn’t match the displayed description, either in style or colour
• Incorrect product: When the delivered product is not what the customer ordered
• Incorrect size: When the delivered product doesn't fit the customer
• Malfunctioning product: When the delivered product doesn’t work properly
• Delayed delivery: When the product arrives too late that the customer doesn't need it anymore
• Change of mind: When the customers simply change their minds about the delivered products or don't like the product
• Returns fraud: When customers purchase a product with an intention to return it

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Benefits of lowering the return rate

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1. No lost sales or unhappy customers

When your return rates are low, your customers are happy with their orders. They don’t feel the need to initiate a return. In extreme cases, when your customers receive a damaged or incorrect order, they can turn to your competitors and never come back to you. Thus, if you decrease your return rate, you can enhance customer experience and retain your revenue.

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2. No additional costs associated with returns

Ecommerce returns not only means that you have to let go of the revenue gained from that sale but you have to bear additional costs. These costs include cost of return shipping, the cost of conducting quality checks, the refurbishment cost, repackaging and restocking of the product cost. If you reduce your return rate, you don’t have to incur these additional costs—leaving more untouched revenue for you.

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3. Better brand image and customer loyalty

Today’s online shopping experience encourages consumers to share their purchases and opinions on social media. If your customers are not satisfied with your product or fulfilment service, they not only make a return—they also post about their negative experience. Such incidents can quickly apply negative connotations to your brand. Moreover, a poor shopping experience can discourage a buyer from becoming a repeat customer. With a low return rate, you can ensure a positive customer experience, build a creditable brand identity and improve customer lifetime value (CLTV).

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How to reduce return rate?

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There are various strategies to decrease your return rate, but it is essentially done in one of the three ways:

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1. Making improvements in your website design and returns policy
2. Ensuring incredible order accuracy
3. Protecting your ecommerce business from returns fraud

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Strategies to reduce return rate

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1. Implement a liberal return policy

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80% of customers read your returns policy before placing an order and 72% of customers say a hassle-free return experience makes them more likely to shop from an ecommerce brand again. Customers expect at least 30 days to return an online order but only 5% of customers return their orders after 30 days. Thus, being lenient with return time limits (e.g., a 60-day or 30-day policy), you can actually decrease returns by creating less urgency around returns for the customer.

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Here's what you need to do:

• Clearly and concisely highlight your returns policy, i.e. display it on your home page, footer or link it on your product page
• Determine a timeframe for making returns, preferably increase the return time window
• Build customer trust by ensuring easy returns and multiple refund options like store credits, the original mode of payment and more
• Clearly display which products can be returned (e.g., all apparel except undergarments), in which condition (e.g., tags intact), with which required documents (e.g., invoice), and if there are any exceptions

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2. Focus on improving the product display

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The best way to provide clarity to customers about their purchase is to have multiple high-resolution photos of the product. These photos allow customers to zoom in and examine the various details of a product which sets the right expectations and reduce the chance of making a misinformed purchase decision.

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Here's what you need to do:

• Take and display high-quality images of your products
• Curate images from all the angles of the product

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3. Write detailed product descriptions

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90% of customers state product content such as descriptions—as extremely or very important when deciding to make a purchase. If a customer doesn't understand your product completely, you can set them up for potential disappointment. Thus, product descriptions help customers decide whether or not your product is right for them.

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Here's what you can do:

• Draft a detailed description including how the customers will feel or what they will experience when they will use your product
• Highlight the significant features and benefits of your product in bullet points
• Include specifics like dimensions of the product, materials used, and more

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4. Create dynamic sizing charts

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Sometimes customers may under or overestimate their size and purchase the wrong size of a product. To prevent such returns, create detailed sizing guides. You can also offer tips on how to take measurements so that customers can make an accurate decision.

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Here's what you need to do:

• Provide a helpful size chart keeping all the aspects of your product in mind

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5. Start including product videos

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If your customers are sending back products because they don’t meet the expectations that were set in the product images and description, you can consider including product videos.

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Here's what you can do:

• Include a short video giving a 360-degree view of the product
• Allow your customers to view products or product colours in natural light or with a background that denotes where the product would be used

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6. Offer live support

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Even after providing images, descriptions, and videos, your customers may have some confusion about the product. You can enable your customers to ask you questions about products in real time. This will not only help boost conversion rates but also prevent customers from ordering items that don’t meet their requirements. For instance, accessories and jewellery brands can offer live support to resolve any quality concerns of the customers.

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Here's what you can do:

• Provide real-time customer service
• Allow email enquiries about the product
• Offer live chat support via chatbots

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7. Enhance the value of customer reviews

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A study states that reviews that give a detailed account of the product’s quality and usage contribute to higher sales and lower returns. By encouraging customer reviews and feedback, you can learn about quality issues and what information you should provide in product description.

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Here's what you need to do:

• Include a review section on your product page
• Add check boxes for options to ensure reviews aren't time-consuming
• Offer incentives to customers to write a review such as discounts or redeemable points

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8. Provide delivery estimates and order tracking

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Sometimes customers order a product for a special occasion or a specific event. If the order arrives after the event, the customers might not need it anymore and return it. To prevent such returns, you can provide the estimated date of delivery to your customers. Moreover, you must consider giving real-time order tracking and order updates to your customers to instil trust that their orders will arrive on time. In case of a delay, notify your customers instantly to ensure prompt communication.

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Here's what you can do:

• Showcase estimated date of delivery based on the pin code of the customer
• Provide real-time order tracking and proactive order updates via text and email

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9. Ensure order accuracy

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23% of customers claim that the ecommerce brand sent them an incorrect order as the reason for their return. Thus, improving your order accuracy is a good place to start for reducing your returns.

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Here's what you can do:

• Use warehouse optimisation by performing ABC analysis—grouping products based on historical purchase data and patterns, i.e. group A- most frequently purchased products, group B- less frequently purchased products, and group C- rarely purchased products
• Optimise the picking and packing process to improve picking accuracy by eliminating any possible confusion for the picker
• Incorporate smart automation in the order fulfilment process, such as barcode scanners, conveyor belts, robots, and more
• Build incentive programs to reward pickers with maximum accuracy
• Perform a quality check at the time of order processing to ensure that the items shipped to the customers are correct and in the right condition
• Place the correct shipping labels so that the shipping provider can deliver the package accurately to your customers

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10. Prioritise your packaging

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There are times when orders are damaged during shipping due to the use of inappropriate packaging material. To reduce the risk of delivering a damaged product to your customer, it's best to avoid common packaging mistakes and use high-quality packaging materials that can protect your orders in transit.

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Here's what you need to do:

• Use secure dunnage, i.e. bubble wrap, packaging peanuts, and more to pack fragile products such as glassware
• Use top-quality packaging materials

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11. Send a post-purchase email

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The post-purchase experience defines if a customer will repurchase from you or not. Apart from asking for product feedback, you can engage with your customers by sharing product tips and "how-to" guides. This kind of communication can help you resolve any issues or pain points the customers face while using your product rather than returning it.

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Here's what you can do:

• Send emails asking for feedback if your customers are loving your product or not
• Give product information such as easy-to-understand tips and guides can drive customer satisfaction

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12. Promote exchanges during returns

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57% of customers replace the item they returned, and only 16% of customers will switch to a different brand to find the same product. To keep customers coming back to you even after returns, you can make the exchange process easier and recapture your revenue.

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Here's what you can do:

• Encourage customers to buy another product when they're returning an order by giving colour, size, and style recommendations
• Give your customers the option to get their refund in their store wallet so that they can purchase something else in the future
• Offer immediate refunds for wallets unlike source account that take 5-7 business days

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13. Find out why customers are returning your products

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To reduce ecommerce returns, it's essential to know the root cause of returns from the customers. There are changes that the post-purchase email is not answered by a customer for any reason. By implementing a mandatory survey and feedback on the return form, you can gain insight into the exact reasons that drive returns for particular products.

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Here's what you can do:

• On return forms, ask for specific reasons for return and an additional feedback
• Provide tick boxes that will help flag issues such as if it looks different in the images or it seems larger or smaller than expected

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14. Combat returns fraud

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30% of customers deliberately make online orders because they know they can easily return them for a full refund. Such return frauds can result in a loss of inventory and profits. You can invest in a fraud-protection software that helps you detect fraudulent behaviour.

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Here's what you can do:

• Implement a quality check at the customer's doorstep
• Send OTP (one-time password) to the customer to ensure delivery of high-value orders
• Identify fraudulent customers and blacklist them
• When you’re selling on marketplaces and the returned products don't pass the quality check, raise a claim

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Bottom line

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If your ecommerce or D2C brand doesn’t already have an effective strategy for dealing with ecommerce returns, it’s time to take action. By calculating the return rate and applying it, you can determine how prone to returns your online business is. You can either incorporate these strategies into your website design, returns policy, and fulfilment operations or delegate the fulfilment process to an experienced expert that can help you make returns your competitive advantage, not a problem statement. With this insight, you can focus on specific ways to reduce returns while providing a delightful shopping experience to your customers.