The average cost of processing a return in ecommerce can be surprisingly high. For most online retailers, the cost to handle a return typically ranges from 20% to 65% of the item’s original value. In some cases, especially with free return policies or complex reverse logistics, this cost can reach up to 66% of the product’s price.
What makes returns so expensive?
Several factors contribute to the high cost of ecommerce returns:
- Shipping fees: Sending the item back to the warehouse or fulfillment center is a direct cost, especially if the retailer pays for return shipping.
- Restocking and inspection: Returned items need to be checked for damage, repackaged, and restocked, which requires labor and time.
- Product depreciation: Not all returned items can be resold as new. Only about 48% of returned products are resold at full price, which means retailers often lose value on these goods.
- Lost sales and customer loyalty: Returns can lead to lost revenue, especially if the customer does not make another purchase or if the return process damages brand reputation.
- Operational overhead: Managing returns often requires additional warehouse space, staff, and sometimes dedicated departments or third-party logistics partners.
Why do return costs vary?
The cost can change based on:
- Product type: Clothing and shoes, for example, tend to have higher return rates and processing costs due to sizing and fit issues.
- Return policy: Offering free returns or very flexible policies increases costs for the retailer.
- Condition of returned items: If products come back damaged or opened, they may not be resellable, increasing the loss.
Example
If an item sells for $100, the cost to process a return could be anywhere from $20 to $65, depending on the factors above. For some businesses, especially those with generous return policies, the cost could be even higher.
Summary table
| Cost Component | Description |
|---|---|
|
Shipping |
Cost to send item back to warehouse |
|
Restocking/inspection |
Labor to check, repackage, and restock |
|
Product depreciation |
Loss if tem can’t be resold as new |
|
Lost sales |
Revenue lost if item is not replaced/exchanged |
|
Operational overhead |
Extra staff, space, or third-party services |
In short, processing returns in ecommerce is much more than just taking an item back. The combined costs can take a significant portion of the original sale price, making effective return management crucial for profitability.