The Product Return Rate is a key performance indicator (KPI) used to measure the percentage of products customers return to a business after purchase.
It is a critical metric for assessing customer satisfaction, product quality, and the effectiveness of the sales process.1
How Is the Product Return Rate Calculated?
Formula
The product return rate is expressed as a percentage and calculated by dividing the number of returned products by the total number of products sold and multiplying the result by 100.
The formula for product return rate is:
Product Return Rate = (number of Returned Products / Number of Products Sold) x 100
Example
If a company sells 1,000 products in a month and receives 50 returned products during the same period, the Product Return Rate would be:
Importance
- Customer Satisfaction: A high return rate might mean customers are unhappy with the product. This could be due to poor quality, the product not meeting their expectations or other issues.
- Product Quality: Tracking return rates helps find defects or problems in the manufacturing process.
- Cost Management: Handling returns can be expensive due to restocking, shipping, and processing. Knowing your return rate helps you manage these costs better.
- Inventory Management: High return rates can affect the amount of stock needed and may require adjustments in inventory management.
- Sales Performance: Looking at return rates can reveal how well your marketing and sales strategies are working.2
Factors Influencing Product Return Rate:
- Product Quality: Defective or low-quality products are more likely to be returned.
- Customer Expectations: Misalignment between the product description and the actual product can lead to returns.
- Shipping and Handling: Damaged products due to poor packaging or handling often result in returns.
- Customer Service: Poor post-purchase support can increase return rates.
- Return Policies: Lenient return policies might encourage more returns, whereas strict policies might deter them.3
Related Terms
References:
1. Das, D., & Dutta, P. (2022). Product return management through promotional offers: The role of consumers’ loss aversion. International Journal of Production Economics, 251, 108520. https://www.sciencedirect.com/science/article/abs/pii/S092552732200113X
2. Enisa. (2022, April 17). The return metrics you need to know beyond return rate. Loop Returns. https://www.loopreturns.com/blog/the-return-metrics-you-need-to-know-beyond-return-rate/
3. Brace, R., & Meyer, M. (2022, December 6). How to calculate your e-commerce store’s product return rate. BeProfit. https://beprofit.co/a/blog/how-to-calculate-your-e-commerce-stores-product-return-rate
