Updated: Sep 5
Product Return Rate is a key performance indicator for consumer-facing eCommerce brands and a critical metric for brand success. If too many products are being returned, it means that consumers aren’t buying what they expect to buy. At the same time, several large online retailers offer easy, no questions asked returns. This makes it doubly hard for a growing brand to survive when the product return rate is high. But, how much is too much PRR? What is the norm and what is an exception? In this article, we explore some of these questions and discuss ways to reduce returns.
Calculating The Product Return Rate
The PRR can simply be calculated by dividing the number of returned orders by the total number of orders placed in a given time period.
(Total returns/Total Orders) x 100 = PRR%
A higher PRR indicates falling revenues and slower growth for your brand.
The Importance Of Controlling PRR
Product returns can spell trouble for your eCommerce brand in the following ways:
Primarily, a returned order is lost revenue that was previously earned but is now to be refunded to the buyer, thus affecting cash flows.
The time between the purchase and the return where the product was owned by the buyer prevented it from being sold to another customer, leading to lost sales and, thus, opportunity cost.
When a product is returned, you have to bear the cost of shipping twice over. The initial cost of shipping which was originally borne by the buyer has to be refunded and you also have to ship it back to your warehouse.
4 Ways To Reduce Product Return Rate
Now that you understand how a high Product Return Rate can hamper your brand, here is how you can keep it under control.
1. Quality Control
One of the best ways to ensure that your brand has a low PRR is to establish strict quality control protocols. Make it a standard protocol to check every item in the inventory before it goes on sale on your platform, and even while it is received at your warehouse. One of the biggest reasons for product returns is defective items. However, the problem can be eliminated by simply ensuring that a quality check is being conducted regularly.
A defective item will not only immediately be returned by the buyer, but would also dilute the brand image, preventing or hampering future sales. Therefore, when you remove defects from the equation when you go online with your products, the odds of a customer returning a product will reduce dramatically.
2. Detailed Product Descriptions And Images
A common reason why buyers return products is miscommunication and a lack of proper understanding of the product. Oftentimes this is the result of incomplete or improper product descriptions. Since consumers cannot experience a product before buying it, the description becomes a major deciding factor for finalizing a purchase.
In addition to descriptions, product specifications are critical. For eg, in case of apparel or footwear, buyers will need to see a size guide to accurately pick the one that might best suit them.
Product imagery is another source of information that significantly influences the buying decisions of customers. When the image of a product is inaccurate or confusing, customers might purchase the product with different expectations and get prompted to return it when those expectations are unfulfilled. Therefore, you must click and post accurate images of the product before putting them up for sale online.
3. Sturdy Packaging
The packaging is key to the safe passage of products to the doorstep of customers. When the packaging for a product is improper or inadequate, the likelihood of a product getting damaged increases significantly. External forces such as weather, dust, shocks, and harsh movement can all affect a product during its transit.
The liability and responsibility for delivering the product safely to the customer are eventually on your shoulders, even with SLAs in place with shipping companies. A damaged product is almost certainly returned by a customer. Therefore, proper packaging that ensures that a product is delivered safely can help reduce the PRR.
4. Promoting Exchanges Instead Of Refunds
If you are confident that none of the above reasons are why your products are being returned, it may simply come down to nudging a customer to ask for a replacement instead of returning the product. When a customer is unhappy or dissatisfied with a product, instead of accepting a return straightaway, brands can offer them an opportunity to get the product exchange for a similar or related item. This works exceptionally well in cases of apparel and footwear where sizing issues are quite common.
Although the original item will still be shipped back, the sale would not be lost. While shipping costs would increase on exchanges, some revenues would still be recovered, as against returns where no revenues are recovered at all.
5. Setting The Right Expectation
Often, consumers make purchases in-the-moment and don’t always pay attention to shipping times unless they are explicitly specified. On the other hand, when ordering for a very specific reason, people may be sensitive to delays. If you have products that are custom-made or shipped from another country, clearly calling out the expected delivery timeline will avoid both complaints and returns in the future.
Another way to communicate with your customers and answer their questions in advance is to include a live chat functionality. This gives them the opportunity to ask questions before making the purchase, and thus reduces the chances of them seeking a return later.
Metrics are the key component of eCommerce, helping brands understand their performance, projected growth, and opportunities. Therefore, understanding and managing a metric like Product Return Rate becomes especially important since it directly impacts your revenues. Check out what other important metrics you should keep an eye on here.