The True Cost of an E-commerce Return
When a customer returns a product, most brands think of it as "they sent it back, so we got the product back." In reality, a return triggers a cascade of costs that frequently exceed the net profit on the original sale.
Return Cost Components
- Return postage (inbound): If you provide a prepaid returns label, this is your cost — typically £2.50–£4.50 for standard UK parcels via Royal Mail or DPD.
- Receiving & inspection labour: Someone must receive, open, inspect, and process each return. At £12/hour, 8 minutes per return = £1.60 per return.
- Restocking cost: If the item is in sellable condition, it must be repackaged and re-entered into stock — typically 5–15 minutes of labour.
- Markdown cost: Items that cannot be resold as new (opened electronics, worn apparel, damaged packaging) must be sold at a discount or written off. Average markdown on returned goods: 15–30% of product value.
- Customer service cost: Time spent responding to return requests, processing refunds, handling disputes. Typically 5–10 minutes per return, plus any goodwill gestures.
- Original outbound shipping cost: The shipping cost on the original order is not recovered when the customer returns. This is a sunk cost that should be attributed to returns.
WORKED EXAMPLE — Apparel Return Cost
Product: Dress, original sale price £58.00 | COGS: £21.00 | Original outbound shipping: £4.50
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Return postage (label provided): £3.20
Inspection & repack labour (12 mins at £12/hr): £2.40
Markdown (item resold at 20% discount): £11.60 lost revenue
Customer service (8 mins at £14/hr): £1.87
Original outbound shipping sunk: £4.50
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Total return cost: £23.57
Original gross profit on this sale: £58.00 − £21.00 − £4.50 = £32.50
After return: £32.50 − £23.57 = £8.93 net — vs the £32.50 assumed profit before return
That's a 72% reduction in expected gross profit from a single return.
Return Rate Benchmarks by Category
Return rates vary enormously by product category. Understanding where your rate sits versus category norms helps you assess whether returns are a systemic category problem or a fixable product/content issue.
| Category | Average Return Rate | Key Return Driver |
|---|---|---|
| Apparel & Footwear | 25–40% | Size fit, colour accuracy |
| Consumer Electronics | 8–15% | Compatibility, feature mismatch |
| Health & Beauty | 5–10% | Scent/texture not as expected |
| Home & Garden | 10–18% | Colour/size not matching room |
| Toys & Games | 8–15% | Age appropriateness, quality |
| Sports & Outdoor | 10–20% | Fit, performance not as expected |
| Books & Media | 3–7% | Condition not as described |
| Jewellery & Accessories | 12–22% | Appearance different from photos |
Track Return Rates per SKU, Not Just in Aggregate
An 18% overall return rate might mask a single product with a 45% return rate inflating the average. Identify your highest-return-rate SKUs and investigate root causes before they become a campaign budget drain.
Returns as a Hidden Margin Killer
Returns erode margin in three distinct ways:
1. Direct Return Handling Cost
The fully-loaded cost per return, as calculated above. At a 20% return rate and £8 per return, this is £1.60 in return costs per unit shipped — even before you account for any other cost.
2. Revenue Leakage
Returned items reduce your net revenue. If Google Ads reports £50,000 of conversions but 18% are returned, your actual net revenue is £41,000. Your real ROAS from those campaigns is 18% lower than reported.
3. Inventory Disruption
Returned stock must be inspected, potentially repackaged, and re-entered to inventory. During transit and processing, it is unavailable for sale. For fast-moving seasonal products, this can mean the item misses its sales window entirely and is marked down.
High Return Rates Compound with Ad Spend
If you're running Google Shopping campaigns on a product with a 30% return rate, you're paying for clicks and conversions that result in no net revenue one-third of the time. Your effective CPA for retained customers is 43% higher than Google reports — and your effective ROAS is 30% lower. This is why setting your ROAS target correctly, accounting for returns, is critical.
How Returns Affect Your ROAS Calculations
Google Ads reports conversion value at the point of purchase. It does not automatically deduct returns. This means your reported ROAS overstates the true revenue generated by your campaigns — sometimes significantly.
TRUE ROAS WITH RETURNS FACTORED IN
Google Ads reported: £18,500 revenue | £4,200 spend | ROAS: 4.4×
Product category return rate: 22%
Net revenue after returns: £18,500 × (1 − 0.22) = £14,430
True net ROAS = £14,430 ÷ £4,200 = 3.44×
The reported 4.4× ROAS appears to exceed the target. The true 3.44× may be at or below break-even — depending on the margin structure.
Including Returns in Your Minimum ROAS Formula
RETURNS-ADJUSTED MINIMUM ROAS
Step 1: Calculate return cost per unit shipped = Return Rate × Fully-Loaded Cost per Return
Example: 18% × £7.50 = £1.35 return cost per unit shipped
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Step 2: Add to your variable cost stack alongside COGS, shipping, and payment processing
Step 3: Recalculate minimum viable ROAS based on total costs including returns allowance
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Including returns in your cost stack will typically increase your minimum viable ROAS by 5–20% depending on your category return rate.
Strategies to Reduce Return Rates
Reducing your return rate is a direct margin improvement — every prevented return saves the fully-loaded handling cost and preserves the original sale's profitability.
Better Product Photography
Returns driven by "not as pictured" are entirely preventable. Invest in true-colour photography, multiple angles, and lifestyle shots that accurately represent scale, texture, and colour. Video demonstrations for products where motion and material matter (apparel, furniture, electronics).
Accurate Size Guides
For apparel, footwear, and any sized product: detailed size guides with measurements in both cm and inches, model measurements and size worn, and customer fit reviews. Virtual try-on tools or augmented reality previews for high-AOV items. A 5-point improvement in return rate through better sizing information is achievable and worth significant investment.
Honest Product Descriptions
Overselling leads to returns. "Premium feel" that turns out to be standard plastic, "compact" that turns out to be large, scent descriptions that don't match the product — all drive returns. Customers who are given accurate expectations return less.
Quality Control
Manufacturing defects drive returns that are entirely preventable. Pre-shipment inspections (typically £200–£400 per factory visit) can catch quality issues before goods leave the factory. The cost of a single defective production run recalled from customers typically exceeds years of QC costs.
Post-Purchase Communication
Proactive email sequences with usage instructions, care guides, or assembly help reduce "this isn't what I expected" returns significantly. A simple "how to get the most from your [product]" email sent 24 hours after delivery can reduce returns by 3–5 points.
GROW Platform Tracking Accuracy Setting
GROW Platform includes a Tracking Accuracy setting that lets you correct for the gap between Google's reported conversion values and your actual net revenue after returns and tracking gaps.
This adjustment works at the account or campaign level and modifies the effective ROAS target your campaigns are optimised towards. If your true return rate means your effective revenue is 15% lower than reported, setting tracking accuracy to 85% ensures GROW's bid calculations reflect this reality.
How to Set Tracking Accuracy for Returns
Calculate your net revenue retention rate: (1 − Return Rate) × (1 − Conversion Tracking Gap). For a brand with a 20% return rate and 5% tracking gap: 0.80 × 0.95 = 0.76. Set tracking accuracy to 76% and GROW Platform will target bids based on 76% of reported conversion value — reflecting your true net revenue.
Frequently Asked Questions
What is the true cost of an e-commerce return?
The fully-loaded cost includes: inbound return postage, receiving and inspection labour, restocking or markdown cost, customer service time, and the original outbound shipping cost that is not recovered. For most categories, this totals £5–£15 per return.
What are average return rates by e-commerce category?
Apparel & footwear: 25–40%. Electronics: 8–15%. Health & beauty: 5–10%. Home & garden: 10–18%. Toys & games: 8–15%. Your specific rate depends on product quality, photography accuracy, sizing information, and customer expectations.
How do returns affect my ROAS calculation?
Returns reduce your net revenue. If Google Ads reports £10,000 of conversions but 15% are returned, your actual net revenue is £8,500. Your real ROAS is 15% lower than reported. Running ROAS targets based on gross reported revenue without accounting for returns leads to systematic overspending.
How should I include return costs in my ROAS target?
Calculate your fully-loaded return cost per unit (all return handling costs) then multiply by your return rate. Add this as a per-unit variable cost alongside COGS and shipping when calculating your minimum viable ROAS. Including returns typically increases your minimum viable ROAS by 5–20%.
What is GROW Platform's tracking accuracy setting and how does it relate to returns?
GROW Platform's tracking accuracy adjustment accounts for the gap between reported conversions and actual net revenue after returns and tracking gaps. Setting it correctly (e.g., 80% for a 20% return rate) ensures bid calculations reflect real profitability rather than Google's reported conversion value, which includes orders that will later be returned.
Next Steps
Pull your return rate by product for the past 90 days. Identify the 5 SKUs with the highest return rates and the 5 with the highest absolute return volumes (these may differ). For the high-rate SKUs, review the most common return reasons and address the most actionable ones first — typically photography, sizing information, or product descriptions. Then recalculate your ROAS targets with a returns allowance included.
Account for Returns in Your GROW Platform Targets
GROW Platform's COGS+ cost stack includes a returns allowance field, and the Tracking Accuracy setting lets you correct for the revenue gap returns create between Google's reported conversions and your actual net revenue. Your Google Shopping bids are set based on what you actually keep — not what Google thinks you earned. Create an account →
