Returns rate
When a return happens, this is what dents your profit the most. Why? Because your entire CAC (advertising fees) is lost, and your payment processing fee is also lost.
To start with, check how many orders you made 2 months ago and see what percentage were returned. Going back 2 months gives your customers time to send their returns back, so the number is complete.
- Pick a normal monthAt least 2 months ago, and not a big sale month, as sales often bring more returns.
- Count the ordersThe total number of orders you received that month.
- Count the returnsHow many of those orders were sent back.
- Divide returns by ordersThen multiply by 100 to get your returns rate.
Example
If you can, repeat this for 3 months and take the average. It smooths out any unusual months.
Restocking fee
There is likely a cost associated with restocking. You will likely need to pay for the returns shipping, unless it is built in to the original shipping fee. The restocking fee is usually how much shipping costs for the return, and you can also build in a returns handling fee.
This would be based on the hourly rate of your staff handling returns and how many returns they can handle per hour. This would usually be 1 parcel every 5 minutes at 70% capacity, e.g. 42 minutes of work time, 8.4 parcels, approx £12 per hour: an approximate handling fee of £1.50.
Example: returns handling fee
Returns & restocking fee calculation
Remember, you only work out your lost CAC (ad cost) based on the percentage of orders returned. E.g. if your max CAC is £50 and your returns rate is 4%, your returns cost is £2 (£50 × 4%), plus any shipping subsidy and restocking fee, both also calculated at just 4%, e.g. (£1.50 × 4%) = 6p on each product sold.
Example: returns cost per product sold