E-commerce return rates are one of the vital metrics of the e-commerce market. Determining your e-commerce return rate can help you find the loopholes in your business and increase company revenue.
In this article, we’ll discuss the e-commerce return rate in-depth and what are the common reasons that increase the return rate. Let’s delve into it.
What is E-commerce Return Rate?
An e-commerce return rate is a metric used to determine the frequency of customers who return products online. It is one of the most critical KPIs that helps business owners find the gaps in their business and work on successful return management strategies.
Any e-commerce business must prioritize its e-commerce return rates data. Companies must try to keep their return rates as low as possible. It highly impacts two significant aspects of e-commerce business –
- Customer satisfaction
How is E-commerce Return Rate Calculated?
The formula for calculating the e-commerce return rate is as follows:-
Return Rate= (Units returned/ Total sales) X 100
For example, a customer orders 1000 t-shirts, out of which 200 t-shirts were returned. Therefore, the return rate of an e-commerce company is:
RR= (200/1000) X 100= 20%
Therefore, the return rate would be 20%.
What Is the Average Return Rate for E-commerce?
The average e-commerce returns rate is 20%. Some industries possess even higher return rates due to the products displayed by each sector. For example, apparel companies have high return rates as customers can only try the clothes after buying.
Here is a quick overview of the different return rates of different industries:
|Sports & Outdoors
E-commerce Returns: The Main Causes of Spiraling E-commerce Return Rates
Let’s now look at the reasons why the return rates of an e-commerce business go high:
According to a report published by Mckinsey, up to 70% of the returns are caused due to poor fit or style. One of the most common reasons for product return is the improper size of the product. Since customers don’t get to try any product before buying, it becomes complicated for them to make the final decision to purchase. This is why most of the products are returned due to improper fit.
Faults and imperfections
Online shoppers often face some issues with the quality of products. The description of a product on an online website does not do justice to the actual quality of the product. Even if the product delivers the same quality as mentioned, there are still some imperfections.
Product descriptions, images, camera angles, lighting, etc., often exaggerate product expectations. Sometimes the reality of a product looks completely different from the pictures displayed on the marketplace site, which makes it one of the top reasons for high return rates.
Shoppers sometimes change their minds after placing an order. Consumers face buyer’s remorse or find the product an eyesore once they wear it.
In this scenario, it becomes difficult for entrepreneurs to know the exact reason for the return. However, a proper return management system can rectify this problem. You can also impose specific terms and conditions to lower the return rates.
Purchase arrived late
The fast delivery time is one of the critical features that e-commerce companies offer to increase customer satisfaction. Customers don’t want to wait for their order for too long. They are even ready to pay extra or purchase a subscription for features like same-day delivery.
If the items are delivered too late, it makes them furious, which leads to returning the product because they don’t need it anymore.
Wrong item is shipped
Sometimes, customers get what they didn’t order. It’s quite common in online businesses as details may get mixed up. The error could be in the shipping, packaging, wrong invoices, or anything else. In this case, customers raise return requests.
Permissive return policies
Retailers have started to give a flexible and permissive return policy that uplifts their business and increases brand loyalty. But it is also used as one of the advantages by customers where they feel the right to return products due to its flexibility. This freedom is one of the reasons for an increased return rate.
A method in which customers buy different variants of products to try different sizes and styles to try them before making a final purchase decision. This trend has increased, especially after COVID-19, where customers freely return multiple products after trying on different sizes. Customers now feel more confident returning online purchases after trying.
This is not just for apparel but for other household items too. Customers order certain products for special occasions and then return them afterward. This practice increases the return rates, which can be stressful for any business owner.
How Return Rates Affect Customer Experience
High return rates indicate poor-quality products. It disrupts positive customer experience and acts as a hindrance to building a loyal customer base. Having high return rates can also make a huge impact on a company’s revenue.
Business owners can turn this disadvantage in their favor by identifying every loophole and transforming it into an advantage. It can further increase customer experience and satisfaction. They will post positive reviews about the return policy, further attracting more customers.
The Environmental Price Tag of E-commerce Returns
The e-commerce business is becoming one of the biggest waste materials producers. A lot of items are used from packing to delivering. It is estimated that about 5 billion pounds of waste are produced yearly from returns alone. This clearly shows how dangerous returns can be, as it generates an abundance of waste.
Reverse logistics is a method by which the product is collected and aggregated at the end of its life. It is further reused, recycled, and returned to commerce. Reverse logistics helps online businesses generate less waste and increase profit margins.
Cost of returns for online retailers
In 2020, the total number of products returned to retailers was worth $428 billion, 10% of the total sales. According to the National Retail Federation (NRF), the cost of return stands at $101 billion.
Best Practices to Handle Product Returns
1. Turn returns into exchanges
One of the best and most effective ways is to change return offers to exchange offers. Instead of getting back the product and refunding money, give them exchange options. Moreover, you can also offer some store credits to encourage them to interact with your business further. This would increase your sales and skyrocket your customer retention rate.
2. Provide a clear e-commerce return policy
Whatever is your return policy, make sure you state every requirement at the beginning. Never hide anything in your return policy from customers, and maintain transparency.
You can use a simple, short, and to-the-point return policy. This makes it easy for the customers to comprehend the long process of return [policy] involved in it. You should put only the necessary information in your return policy description so that it immediately clicks on the customer’s mind.
3. Craft accurate and detailed product descriptions
Since customers cannot evaluate the product in real-time, they have to depend upon the product description. Along with the return policy, mention every tiny detail about the product. Everything should be mentioned in the description, from size to the material, so customers can picture every detail of the product before buying.
4. Automate the returns process
Managing the returns process can be a cumbersome process. It is difficult for most product owners to have details of every returned item. However, entrepreneurs can opt for automatic tools to complete the process. Use some tools to automate the returns process to make everything streamlined. It would also give you a clear picture of your entire order.
5. Keep customers informed about return status
Always keep your customers in the loop with your return orders. Details such as the date and time of the registered complaint, the returned item, its shipping and delivery details, and so on should be transparent between you and the customers. They become impatient when they don’t clearly understand their returns. Keep them updated with all the necessary details for them to know.
6. Make use of analytics and feedback
As per Statista, 86% of online shopping consumers look for a manageable and comprehensible return policy. 81% of consumers would like to switch their retailers if they had a bad return experience. Focus on customer feedback to maintain the balance between a low return rate and customer satisfaction.
Customers leave both positive and negative feedback on your platform. Analyze each feedback carefully and try to fill the gaps in your business. Rectify the issues that went wrong and promote when your product stood out. This attracts other customers to buy from your storefront.