6 Ecommerce Return KPIs You Need to Track for Peak Profitability

Introduction

E-commerce returns are like shopping boomerangs. Many online items find their way back to sellers despite efforts to optimize customers’ shopping experiences. In 2023 alone, U.S. shoppers returned goods worth almost $248 billion. Similarly, the global reverse logistics market size is expected to hit $954 billion by 2029. 

These numbers underscore a defining aspect of online shopping: returns are inevitable. 

While product returns are often seen as a drawback for brands, they can open doors for them to increase repeat purchases and increase customer lifetime value when managed properly. What truly sets a brand apart is its ability to provide a seamless return experience that aligns with customer expectations and offer a strong customer experience overall. 

Return Key Performance Indicators (KPIs) work like a guidance system in this process. Not only do they improve brand loyalty and encourage repeat purchases, but they also set the stage for acquiring new customers, lowering customer acquisition cost (CAC). 

This guide will offer you an in-depth understanding of the importance of e-commerce KPIs and the top 6 key return KPIs you should monitor to refine your strategy. 

Why Tracking eCommerce Return KPIs Is Crucial?

E-commerce KPIs act as a compass, guiding businesses toward informed decisions and continuous improvement. By keeping track of the right returns management KPIs, e-commerce businesses can benefit from multiple aspects. Let’s check them out:

Introduction

E-commerce returns are like shopping boomerangs. Many online items find their way back to sellers despite efforts to optimize customers’ shopping experiences. In 2023 alone, U.S. shoppers returned goods worth almost $248 billion. Similarly, the global reverse logistics market size is expected to hit $954 billion by 2029. 

These numbers underscore a defining aspect of online shopping: returns are inevitable. 

While product returns are often seen as a drawback for brands, they can open doors for them to increase repeat purchases and increase customer lifetime value when managed properly. What truly sets a brand apart is its ability to provide a seamless return experience that aligns with customer expectations and offer a strong customer experience overall. 

Return Key Performance Indicators (KPIs) work like a guidance system in this process. Not only do they improve brand loyalty and encourage repeat purchases, but they also set the stage for acquiring new customers, lowering customer acquisition cost (CAC). 

This guide will offer you an in-depth understanding of the importance of e-commerce KPIs and the top 6 key return KPIs you should monitor to refine your strategy. 

Why Tracking eCommerce Return KPIs Is Crucial?

E-commerce KPIs act as a compass, guiding businesses toward informed decisions and continuous improvement. By keeping track of the right returns management KPIs, e-commerce businesses can benefit from multiple aspects. Let’s check them out:

6 Key eCommerce Return KPIs & Their Business Impact

Here are the top 6 return key performance indicators (KPIs) you must monitor periodically: 

KPI #1: Return Rate (%)

The return rate indicates the percentage of products returned compared to the total products ordered within a specific period. Let’s say an e-commerce store sells 1000 items in a month, 50 of which are returned. In that case, the company’s return rate is 5%. 

Formula: Return rate = Number of Returned Items Total Items  Sold ✕ 100 

Why It Matters: 

• A high return rate indicates product quality issues, poor packaging, misleading product descriptions, a lower customer retention rate, and erosion in customer satisfaction. All these can negatively impact the repeat purchase rate. 

• A spike in return rates may also signal return fraud and abuse, like wardrobing. 

• Monitoring return rates across categories and SKUs helps pinpoint areas of improvement and revamp the return strategy.

• Higher return rates shrink total revenue and negatively impact customer lifetime value. 

How to Improve:

• Add high-quality images to help shoppers better understand the products. On the other hand, it’ll also attract more website traffic. 

• Provide detailed product descriptions to reduce returns. Ensure the product descriptions are clear, accurate, and comprehensive. 

• Enhance product descriptions with 3D images, 360-degree views, and AR previews to visualize the products better. 

• Incorporate shoppable videos and customer reviews for real-world references of the products. Example: Sephora and Birchbox. 

• Configure shipping policies and focus on identifying trends in return patterns to address common return reasons. 

KPI #2: Refund Rate (%)

The refund rate is the percentage of the returned orders that resulted in refunds. For example, if you had 200 total returns, out of which 150 were refunded, your refund rate would be 75%. 

Formula: Refund Rate = Number of Refunded Returns  Total Returns ✕ 100 

Why It Matters:

• Higher refund rates mean deep product quality concerns, a decline in total revenue, and lower profitability. 

• Increases in the refund rate strain cash flow, complicate the payment process, and cause liquidity issues.

• Refund-heavy returns can also erode customer lifetime value and lead to a decline in customer retention.  

How to Improve:

• Offer a one-click exchange option to avoid refunds. 

• Provide gift cards or store credits instead of cash. Encourage product exchanges with discounts to retain revenue. 

• Opt for a partial return option (like Amazon does) for returned items that show a sign of damage from the customer’s end. 

KPI #3: Return Processing Time (TAT)

Return Processing Time (TAT) is the average timeframe taken to process an entire return lifecycle—from the moment a customer initiates a return to the refund or exchange. Different ecommerce businesses have different return processing times. For example, Kapiva (a holistic Ayurvedic brand) takes around 2–5 business days to process refunds after the return request is processed. Likewise, BeYours (a men’s clothing brand) takes 3–7 days to process refunds and exchanges. 

Formula: Average Return Processing Time = (Return Completed Date - Return Initiated Date)Total Returns

Why It Matters:

• A long processing time indicates poor business performance, increases the number of WISMR (Where-Is-My-Refund) calls, and negatively impacts the supply chain and customer experience in your e-commerce store.

• Delayed processing leads to negative customer reviews, a decline in customer retention rate, and slow inventory management. 

How to Improve:

• Offer a self-serve returns portal to shoppers for streamlined request initiation. 

• Implement AI-powered systems for product quality and image inspection and return approval. 

• Partner with a carrier partner specialized in reverse logistics. 

KPI #4: Cost Per Return ($)

Cost Per Return (CPR) or Return Spend shows the total cost associated with processing a return. The key cost factors considered for the total cost are shipping fees, handling costs, restocking costs, refund processing fees, etc. 

Formula: Cost Per Return = Total Returns CostsTotal Returns Processed

Why It Matters:

• Higher operational costs eat into profits and increase the operational budget. 

• High CPR hinders business growth, operational efficiency, and scalability when it’s not balanced against average order value and pricing strategies. 

How to Improve:

• Incur delivery charges in specific cases. Take the example of H&M. While all its in-store returns are free, it charges a flat fee of $3.99 if a customer returns an online purchase via mail. 

• Use multi-warehouse return routing to unlock significant cost savings. 

• Go for automated return workflows for your e-commerce store to cut down on manual labor costs related to return handling. On the other hand, it also improves the repeat purchase rate by enhancing the overall customer experience. 

KPI #5: Exchange Rate (%)

The exchange rate shows how many returns have been converted to exchanges instead of refunds. Say an online business sees 1000 returns a month, and 500 of them are exchanges. So, its exchange rate will be 50%. 

Formula: Exchange Rate = Exchanged OrdersTotal Returns ✕ 100 

Why It Matters: 

• Lower exchange rates indicate fading loyalty and contribute to lost customers over time. 

• A higher exchange rate helps retain revenue, accelerates conversion rates, and even increases average order value through product upgrades, bundles, and the likelihood of repeat purchases. 

• A higher exchange rate also indicates solid return and marketing strategies. 

How to Improve:

• Offer a self-serve portal for easy exchanges and promote the “exchange-first” option. 

• Incentivize customers to choose exchanges over returns. This not only retains revenue but also creates positive impressions among them that attract new customers and encourage repeat business. 

• Immediately suggest personalized alternative products for exchanges. 

• Perform real-time inventory tracking to ensure exchange items are available and fulfill customer demands. 

KPI #6: Non-Returnable Claims (%)

Non-returnable claims refer to the number of return requests that have been denied. It can happen for a variety of reasons, like return policy violations and fraudulent return attempts. 

Formula: Non-Returnable Claims = Denied Requests  Total Return Requests ✕ 100 

Why It Matters:

• This KPI helps identify the number of fraudulent returns, attract more customers, and track the behavior of repeat customers, ensuring that they adhere to the return policies. 

• It reduces operational costs by lowering unnecessary processing and return shipping. 

• This metric improves operational efficiency by encouraging customers to maintain policy and guidelines. 

How to Improve:

• Create a well-defined return policy, mentioning eligibility, time windows, and other conditions. 

• Block serial returners and wardrobers. 

• Implement an AI-powered fraud detection system to pinpoint fraudulent returns. 

How ClickPost Helps Online Stores Improve eCommerce Returns KPIs?

ClickPost is a multi-carrier shipping software that offers a suite of features to improve ecommerce businesses’ logistics operations and boost customer satisfaction scores. Its returns management solution (named ReturnsPro) has been specially designed to ease reverse logistics.