The return rate shows what share of the goods delivered was sent back. As simple as the idea is, it is calculated in very different ways: by units, by value of goods or by orders, and over different periods. Two rates can therefore only be compared if the same formula sits behind them.
Calculating the return rate: the formulas
Unit rate = units returned ÷ units delivered × 100
Value rate = net value of returns ÷ net value of goods delivered × 100
Order rate = orders with at least one return ÷ orders delivered × 100
The unit rate is widely used and suits comparing individual items. The value rate shows how much revenue comes back; it is higher than the unit rate when it is mainly expensive items that are returned. The order rate counts each order with a return only once, whether one or three items come back.
Example: unit and value rate
A seller delivers two items in March. By the end of April, returns on these deliveries come back. All values are assumptions.
| Item | Delivered | Returned | Unit rate |
|---|---|---|---|
| Item A, EUR 30.00 net | 120 units | 20 units | 16.7% |
| Item B, EUR 80.00 net | 80 units | 30 units | 37.5% |
| Total | 200 units | 50 units | 25.0% |
By value of goods it looks different: goods worth EUR 10,000 net were delivered (120 × EUR 30 + 80 × EUR 80), and EUR 3,000 came back (20 × EUR 30 + 30 × EUR 80). The value rate is therefore 30%, even though the unit rate shows 25%. And the overall rate hides the fact that item B is returned more than twice as often as item A.
The period: by order or by return receipt
Returns arrive with a delay. There are therefore two views for the rate:
- By order or delivery month: All returns are attributed to the month in which the goods were sold. This shows the actual rate of a sales period, but is not yet complete for the last few weeks because returns are still outstanding.
- By month of receipt: What comes back in a month is counted, divided by the deliveries of the same month. This is quickly available, but mixes in returns from earlier sales and fluctuates strongly when revenue changes from month to month.
For assessing items, the view by order month is usually more meaningful; for cash-flow planning, the view by receipt.
What to watch when comparing
- Cancellations before dispatch are not returns and belong neither in the numerator nor in the denominator.
- Partial returns count in the unit and value rate only with the items sent back, in the order rate as a whole order.
- Exchanges are a return from the warehouse's point of view, but economically often not a lost sale. Decide whether you count them.
- Channels report returns at different levels, for instance per order, per line item or per order unit. Before comparing marketplaces, align the counting method first.
Return rate and costs
The rate does not yet say what returns cost. The same 20% can be harmless or expensive, depending on shipping costs, the condition of the goods that came back and fees that are not refunded. How returns enter the profit calculation is shown by the monthly example under calculating the contribution margin; why a good gross margin can still leave little over is explained under margin. Approaches to reducing returns are collected in the article reducing OTTO returns.
Return rate alongside margin and costs
The profitkonsole shows return rates per product group, sets them against margin for brands, names return reasons where the channel supplies them, and analyses results by order date or by booking day.
Contribution margin, not revenue
Every sales channel in one dashboard: marketplace data and your own costs brought together, per item and per channel.