The top 3 things DTC brands do wrong when calculating Return Rates and why it’s bad for business →
If you are having a hard time reeling in out-of-control return rates in your DTC business, I can guarantee you are doing a few things wrong.
In fact, I’ve made a short list of the top 3 things brand entrepreneurs do wrong when calculating their return rates.
Over a year and a half ago, I took on an operations lead role with a premium DTC fashion brand. One of the areas under my domain was returns. Very quickly, I observed a few things:
We were paying an outrageous amount on a returns platform that charged us a monthly fee plus an additional fee per return. Our costs there alone were in excess of $1,2K.
That return platform did not offer us actionable insights.
And when I got to the bottom of the numbers, we had an out of control return rate pushing upwards and beyond 30%.
Money and customers were literally flying out the window.
Unchecked return rates are a major problem to the long-term success of a DTC brand. The data and the math prove it - high return rates will:
Cost you money - Even when you charge customers for return shipping and restocking fees, returns will take away from your bottom line. Are you specifically factoring return costs into your operating margin?
Cost you customers - Multiple surveys show that customers who make a return after their first purchase are anywhere from 30% to 70% least likely to purchase again from that brand. This missed opportunity to generate repeat customers will have an impact on your order frequency.
Compromise your ad spend - Let’s say you have a high-converting ad - have you ever taken the time to analyze whether or not those conversions are resulting in high return rates? If not, you may be doubly throwing money into ads that are ultimately costing you more money in returns.
Here are the top three things and how it helped us reduce our return rate by 50% and below the national average over the course of two seasons.
ONE: Your returns portal shouldn’t be a money pit
First, we migrated to a more affordable returns platform that offered the same critical features as our previous provider. I won’t name names, but let’s just say we moved from a solution called “Oops” to one called “Return-me”.
With this move, we saved 70% on our monthly costs off-the-bat, demonstrating that expensive software alone is NOT the answer to reducing your return rates and overall return costs. To do that requires an active brand strategy that iteratively monitors strategic KPIs and customer feedback.
TWO: You can’t control what you don’t measure (accurately)
One of the biggest mistakes we were making (along with most DTC business) is that we were quantifying our return rate based on refunds:revenue per month. This is soo incredibly not helpful for the following reasons:
Not all returns result in a refund and not all refunds are the result of a return. Returns run the gambit from exchanges, to store credit, to damages, and mis-ships. These expanded returns are not captured in the “refund amount” alone. What we really needed to do was view our returns by volume and their related costs to better identify patterns and opportunities to improve the situation.
For our specific DTC business model, we had a 30-day return window. This meant that many returns originally purchased and/or initiated in Month 1, weren’t being captured until Month 2. It really made no sense to quantify return volumes for orders from Month 1 against orders from Month 2. This left us with an erratically morphing return rate month-over-month that never truly gave us a true pulse on how we were performing. The fix for this was to start rolling our return rate based on a rolling 3-month window where we were able to document an accurate average return rate.
THREE: Customer Retention will always be your best bet
Lastly, we learned that making returns more challenging for customers is not the answer, nor is offering free returns a “proven” solution to retaining high-value customers. Instead, we focused on identifying top return reasons and problematic products and took proactive steps to address them. Most of these issues were addressed via product development or adding clarity to our product pages.
As a result, we were able to optimize our return rate and simultaneously generate trust with our customers to keep them coming back.
All-in-all, reducing return rates requires a strategic approach that requires accurate KPIs, customer feedback, AND iterative monitoring. Again, in our case, just by sticking with a simple process, we were able to reduce our return rate by a whopping 50%.
So please, don't let expensive software, fluffy vanity metrics, or desperate business advice lead you down the wrong path. Instead, focus on building trust with your customers by understanding your return KPIs and related costs, addressing the root causes of returns, and finding ways to proactively mitigate them.
Actively reduce your ecommerce returns now.
Get in on the Return Rate Optimization Workshop engineered exclusively for premium DTC brands. Having spent over a year developing this framework with real clients and using real data generated by real customer experiences, the RRO workshop delivers proven best practices to help brand entrepreneurs overcome out-of-control return rates, increase profitability, and strengthen customer retention. Learn more.