In order to reduce your return rate, you need to understand how return rates are calculated and what return metrics are essential for your Shopify store to track.
Understanding why and how your customers return items will help you reduce returns and keep your customers happy.
Important eCommerce Return Metrics
There are a few ways to track your returns – by looking at your overall return rate or by breaking it down further to see what percentage of those returns are refunded and what percentage are exchanged.
Return Rate
Your return rate is how many products were returned relative to the total number of products sold.
The average return rate for eCommerce has doubled in the last few years, bringing it up to 20.8%, and many eCommerce merchants are left scratching their heads about how to cope with this new situation.
View your return rate as a high-level metric, and then dig into the specific types of returns and the reasons for returns. Looking at your returns this way lets you evaluate the efficiency of your returns process and return policy.
How to Calculate Your Return Rate
To calculate your return rate, divide the number of returned products by the number of total products sold, then multiply by 100 to get the percentage.
For example, if you sold 15,000 products this year and 5000 of those products were returned, your return rate would be: 5000 / 15,000 x 100 = 33%
Return Rates by Category
Some industries are more susceptible to high return rates than others.
For example, an apparel company may have high return rates because customers can’t try the clothes on before ordering.
Analyzing your category’s product return rates will help you compare your business with your competitors.
How to Reduce Your Return Rate
Improve Product Descriptions
Customers can’t touch or feel online products, so your product descriptions matter. Make sure your customers know exactly what they’re ordering.
Make sure each product page includes:
- Relevant and accurate title
- Details of what makes the product unique
- List of product specifications and features
- High-quality product images and videos
- User-generated content such as reviews and images
The more information your customers have before they place their order, the less likely they are to return products.
Make Returns Easy
Customers like things to be easy. When your customers feel they can rely on your returns process, they’ll be more likely to buy from you again. 92% of customers say they will buy again if the returns process is easy.
Provide customers with a self-service online return portal where they can easily return products without dealing with back-and-forth emails or waiting for someone to get back to them.
Create a return process that is hassle-free for your customers and cost-effective for your business. Having a good system in place for handling eCommerce returns gives you a competitive advantage, increases profitability, and reduces your return rate.
Refund Rate
Your refund rate is the percentage of refunds out of your total number of returns.
Returns and refunds are often mixed up when discussing returns management, but it’s important to understand that they represent very different things.
Just because a customer has returned a product doesn’t mean they got a refund. In many cases, customer issues can be easily resolved by exchanging their product for a different size or offering them store credit.
If customers do insist on a refund, this could indicate a much deeper issue. A defective product or a product that fails to meet their expectations could cost you a customer. That’s why it’s important to track your product refund rate as a measure of customer retention.
How to Calculate Your Refund Rate
To calculate your refund rate, divide the number of refunded products by the number of total returned items, and then multiply by 100 to get the percentage.
For example, if you had 5000 products returned last year, and 1000 of them were refunds, your product refund rate would be: 1000 / 5000 x 100 = 20%
How to Reduce Your Refund Rate
Encourage Alternatives to Refunds
Focus on offering alternative solutions to customers who ask for a refund.
Refund alternatives you can offer include:
- Product exchanges
- Store credit
- Gift cards
By encouraging exchanges over refunds, you can reduce your refund rate, increase customer loyalty, and retain revenue that would have been lost through refunds.
Exchange Rate
Your exchange rate is the percentage of returned products that were exchanged for something else.
More than half of Shopify returns are due to customers ordering the wrong size or style. Providing customers with the option of exchanging their product for a more suitable one leaves them with a positive customer experience and increases the chance that they’ll buy from your store again.
A hassle-free exchange process keeps your customers happy by giving them what they need and want. Prioritizing exchanges over other types of returns can save your eCommerce store a lot of time and money.
Tracking your exchange rate can help you understand how well you’re managing to convert refunds to exchanges.
How to Calculate Your Exchange Rate
To calculate your exchange rate, divide the number of exchanged products by the total number of products returned.
For example, if you had 5000 products returned last year and 3000 of them were exchanged, your exchange rate would be: 3000 / 5000 x 100 = 60%
How to Improve Your Exchange Rate
Incentivize Exchanges
Give your customers clear incentives to choose an exchange over a refund.
Incentivize customers to request an exchange instead of a refund by offering coupons, discounts, or free shipping exclusively for exchanges.
Make Exchanges Easy
Having an easy product exchange process encourages customers to simply swap out their purchased items for something else instead of asking for their money back.
Many of us have purchased clothing only to discover that it is the wrong size, color, or style, and wonder if it is even worth returning. Providing a convenient exchange process turns refunds into revenue and increases customer loyalty.
Use Return Metrics to Optimize Your Returns
It’s important to take a long-term outlook of your returns, to figure out how to optimize your process.
Track and analyze your returns metrics to understand your customers’ return patterns, determine what your customers need and want, and optimize your process to increase customer loyalty and retention.
Take a proactive approach to returns management by making the end-to-end customer experience a positive one for your customers as well as profitable for your business.
