1) A Short Introduction to eCommerce Returns KPIs
How often do you think about growing your business but can’t identify where to start precisely? As an entrepreneur, there are handly times when you can rely on vague assumptions or street news to build a business model.
Instead, you need data. KPIs are data that measure a business's quantifiable aspects or activities. The central characteristic of a KPI is to create an impact and a chance of improvement in a business’s operations and logistics process.
A central area in eCommerce that gravely impacts a business's bottom line is eCommerce returns. Here we have curated a list of primary and secondary eCommerce returns KPI that you should ideally monitor.
2) The Most Important eCommerce Returns KPIs
Now, we delve deeper into the most crucial eCommerce returns KPIs you should monitor.
2.1) Return Rate
The return rate is the percentage of returned orders from your total sales in a given period. In absolute terms, it can indicate the frequency with which customers return orders. Therefore, the return rate primarily reflects the effectiveness of your returns policy.
It is important not to fixate solely on the return rate since it increases the possibility of creating anti-customer-centric policies to lower returns.
For example, if you have a quarterly return rate of 20%, you may feel you are incurring a loss with your returns center.
You may then think about shortening your returns window to reduce your return rate but at the cost of losing customer trust. Therefore, pairing the return rate KPI with refund and exchange rates is essential to critically evaluate customer interactions with returns.
2.2) Refund rate
The refund rate is calculated as the total number of orders refunded divided by the total number of returned orders in a given timeframe. The refund rate is a critical reflection of your product quality, return policy, and marketing success.
Not every customer demands a refund when they return a product, but when they do, it clearly shows their dissatisfaction. By analyzing your refund rate, you can identify the problem areas in your manufacturing or product acquisition and work towards rectifying them.
2.3) Exchange rate
The ultimate goal of a return policy is to encourage exchanges instead of refunds to keep your revenue in balance. The exchange rate signifies the proportion of exchanged orders over the total returned orders.
Most exchanges are frequently requested when the customer receives a wrong order, isn’t satisfied with it, or a product is damaged en route. Therefore, this KPI helps you recognize the performance of your warehouse operations and shipping carriers.
It also gives you an indication of the accuracy of product descriptions such as your size chart that can prompt an order return.
2.4) Conversion Rate
Did you know that almost 66% of your e-store visitors will read your return policy before making a purchase? Though the conversion rate is the outcome of your sales and marketing efforts, your return policy also contributes significantly.
Therefore, every time a customer makes a purchase, it indicates that your return policy is doing the job well. In other words, it reduces any threat or anxiety a customer may have before committing to a purchase.
2.5) Cost per Return
As a financial KPI, cost per return signifies the cumulative amount spent on the reverse logistics process. This may include shipping charges, restocking costs, labor handling charges, recycling or reselling charges, and refunds. Cost per return can be an insightful KPI, especially since it helps you keep track of finances.
It is also crucial to be mindful since a higher cost-per-return index may tempt you to transfer the shipping cost entirely to customers. This may, in turn, them away from your brand.
However, when utilized properly, this KPI can enable your team to brainstorm innovative ways to cut costs, like enabling store credits or loyalty returns programs.
2.6) Most Returned SKUs
This KPI is the best way to reorganize your inventory, tweak production, or remove products failing to impress customers. While identifying the most frequently returned products, you also clearly see your manufacturing standards, material quality, or market demand.
Keeping track of this KPI will also encourage you to solidify your quality check process.
2.7) Timely PickUp
A significant factor in delivering a quality return experience is timely pick-up service by your designated courier. Primarily, you can monitor this KPI with the tracking information you get from your courier companies. However, a better way of tracking this would be to use automated software.
2.8) Return by Reason
This KPI should ideally be a priority when analyzing the returns process. Customers can return a product for x number of reasons owing to changing preferences.
Typically, reasons for returns include damaged products, wrong products (size, color, appearance, weight), malfunctioning/defective products, delayed delivery, change in customer’s mindset, and return fraud.
Therefore, monitoring the recurrence of a particular factor can be the key to solving returns inefficiencies and product deficiencies.
2.9) Time per Return
If you wish to analyze a metric that gauges your operational efficiency, then time per return is your suitable KPI. The formula for calculating it may be a tad bit tenuous.
It is estimated by multiplying the approximate time a customer support representative spends by the total number of representatives. Then divide the result by the number of returned orders.
The goal for monitoring this KPI is to reduce the time spent processing return requests via email or on-call manually. As well as the time spent creating return labels and including them in packages. This is especially true for growing D2C brands and can indicate a dire need for a returns automation platform.
3) Secondary eCommerce Metrics that Help with Returns KPIs:
It is crucial to remember that returns are a customer retention activity, not a cost-reducing center. The following KPIs exert a covert influence on how your return policy uplifts your brand value.
3.1) Customer Retention Rate and Churn Rate
In simple terms, the customer retention KPI measures the percentage of customers who remain frequent shoppers over a time period. One way to estimate this KPI is to subtract the number of new customers from the total customer count.
Customer retention is a crucial KPI since it is a tell-tale sign of your service quality. The more customers you retain, the less the cost of acquiring new ones and maintaining an excellent revenue balance.
Opposed to customer retention is the customer churn rate, or the percentage of customers you lose over a period.
3.2) Repeat Purchase Rate
This KPI signifies the number of times a customer makes a repurchase. You can calculate it by dividing the number of repeat customers by the total customer in a month and multiplying it by 100 to get the percentage value.
While many factors may influence the RP rate, one of them undoubtedly is the quality of your returns process and return policy. Only a satisfied customer will continue to engage with your brand and become a loyal shopper.
3.3) Customer Lifetime Value
The customer lifetime value (LTV) reflects the brand’s growth in terms of its customer base and overall revenue.
The LTV metric is cumulative of the revenue generated by each customer during the entire engagement period with a brand. One way to calculate the LTV metric is to multiply the average order value of a customer by their total number of purchases.
Now, you may wonder how this KPI ties in with eCommerce returns. According to a study by Business Wire, the returns management of a brand is a crucial factor for almost 95% of customers to repeat purchases. As customers continue shopping with a brand, the KPI records the brand's product-market compatibility, customer loyalty, and recurring revenue.
3.4) Average Order Value
As the name suggests, AOV estimates a customer's average spending on the store’s products. This eCommerce KPI is determined by dividing the total revenue by the total orders in a given period.
Analyzing the average order value gives you an accurate estimation of earnings from each customer. Alternatively, it gives you a precise estimate of how much you get in return for your spending on customer acquisition.
You can also delineate the average order value KPI for eCommerce returns by investigating how much a customer spends before and after returns. The note of importance here is that your LTV value should be more than your AOV; only then can you clearly say that you are generating profits.
3.5) Net Promoter Score
Like the other eCommerce returns KPI, the NPS metric is influenced by product quality, marketing, returns management, etc. NPS records how well you are performing to satisfy customers.
Typically, the NPS metric is determined by the percentage of promoters minus the percentage of detractors. Promoters are customers who are likely to rate customer experience between nine and ten, while detractors are those who rate below a six.
An excellent returns experience and return policy are instrumental in retaining customers. They can be a tool to generate customer interest and word-of-mouth publicity. This is especially true since repeat customers often refer new customers to a brand.
4) Five Goals of eCommerce Returns KPIs
There are multiple KPI metrics you can pick and choose to analyze. However, you can select your KPIs based on the following goals:
Retention: Customer retention rate and LTV KPI will help you understand your current hold over customer loyalty.
Customer Satisfaction: Monitoring KPIs like repeat purchase rate indicates your performance in satisfying customers.
Order accuracy: Analyzing KPIs like most returned SKUs or return by reason, you distinguish between customers who seek genuine returns vs. those who don’t.
Sales: Tracks the returned, refunded or exchanged products so you can build a strategy to feature products that sell well or remove those that don’t.
Finance: Metrics like time spent on return or return cost are excellent ways to keep track of the expenditure involved in returns.
5) How to use eCommerce Returns Data to Improve Business and Customer Experience
All the returns data and KPIs mentioned above have two goals. One is to assist the brand in making decisions about operational efficiency and customer experience. The second is to find ways to unlock revenue growth. This is why the KPIs you study lend their wisdom in optimizing product descriptions, reverse logistics, customer preferences, and financial models.
The return KPIs will help you identify product description discrepancies and strengthen reverse logistics with timely pickup and quality checks. Moreover, KPIs like repeat purchase rate and cost per return can direct you towards bringing more innovative resolutions like warranties and loyalty programs.
6) How to Improve your eCommerce Return Rate and other KPIs
The returns KPIs can only give adequate information. But, the way to translate them into actionable business strategies and workflows is to use the right tools.
6.1) ClickPost’s Returns Management Dashboard
ClickPost’s returns management automates returns processing by configuring your return policy. It recommends couriers best suited for pick-up by adhering to fixed rules and your carrier preferences.
Moreover, handles exchanges and COD remittances and tracks return orders in real time. Its NPR (non-pickup report) management portal reduces pick-up failures. You can reduce customer churn rate and increase repeat purchases with an automated and streamlined approach. ClickPost also generates extensive reports on all eCommerce KPIs.
6.2) ClickPost’s Returns Plus
For Shopify merchants, ClickPost’s Returns Plus is the ideal solution to understand all the critical metrics mentioned above. With a self-serve branded returns portal, customers can send return requests while you automatically or manually process them.
It also offers live tracking and returns management from a single dashboard and enables you to set rules for automated workflows. The app also generates custom analytical reports.
eCommerce KPIs are the building blocks of all business strategies and models. Intelligent KPI analytics boosts your bottom line, gives critical insights into areas that need improvement, and identifies areas for revenue generation. Here we have mentioned all several eCommerce returns KPI that may be considered for a recurrent growth cycle.
8.1) What is a good eCommerce returns rate?
On average, the returns rate for any eCommerce brand is around 20-30%. Therefore, the ideal situation is to have a return rate with refunds of around 5-10%. The major focus should be converting returns to exchanges.
8.2) What are some common mistakes retailers make with eCommerce returns?
The first mistake is not having a clearly defined returns policy. This is important since most customers like to have a predefined return window and exchange policy. The second mistake would be not having a returns management authorization system that can automate the approval process.