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How do I calculate return rate and what does it tell a retailer?
Return rate is the number of items (or orders) returned divided by the number of items (or orders) sold in the same period, multiplied by 100. It shows how much sold revenue is reversed and how much handling cost your returns create.
Measure by units and also by value, since expensive items may return differently from cheap ones.
It matters because returns carry hidden cost: shipping both ways, handling, restocking, and stock that cannot be resold at full price.
Commonly misread:
- Dividing returns by sales in the same month, when returns arrive weeks after the sale. Use a cohort of orders instead.
- Reporting one blended figure, hiding products, sizes or suppliers with high returns.
- Ignoring the return reason, which is where the fix usually lies.
Segment by product, channel and reason code to find what to change.
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