Returns rates - tracking the returns.
5 may

Return rates – on the trail of returns

Returns are an increasing burden on online retail. An often-used indicator in a business context is the returns rate. returns are ordered goods that are returned to the seller by the customer. These are used or unused goods. However, the return rate has different dimensions that can be determined from the business figures.

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The highest return rate has the Online tradewhile there are relatively few returns in the stationary trade. Since the returned items have not been sold but have caused costs for the retailer, the companies strive to identify and reduce these. The number of returns varies greatly depending on the assortment or grouping of goods. There are also big differences by gender and age.

According to experts, around 3.5 billion shipments were transported by express and parcel services in Germany in 2018 as a whole. According to a conservative calculation by the Returns Management Research Group at the Otto Friedrich University in Bamberg, around 280 million shipments and around 490 million products were returned in the same year.

the Fashion industry records the highest return rate. Here, around 50 per cent of customers return their ordered goods. The resulting follow-up costs are considerable, not to mention the impact on the environment.

The return rate as a key figure

The returns ratio is the most common indicator in returns management and represents the size ratio of returns to goods sold. The return rate can be calculated in terms of quantity and in monetary units.

The reasons for a return are manifold and range from a too long delivery time to a faulty delivery. delivery to the point of a complaint. In Germany, around 70 % of returns go back to the warehouse as A-goods. sale. In the interest of customer care, it is therefore important to minimise returns, although a zero returns rate is not realistic.

What types of return rates can be distinguished?

There are three possibilities for calculating the returns rate in a company's own online trade. In the context of so-called returns logistics there are three Calculations decisive for the profitability of companies. They are based on the logistics familiar level of service and provide better opportunities for comparison.

Alpha return rate = number of returned packages

This formula allows for improved plannability and organisation of parcel handling and is based on the logistical view. It is mainly used by shippers in the fashion industry and the footwear industry. The alpha return rate is an event-related indicator that puts the number of return processes in relation to the number of goods shipping processes. A calculation is made on the basis of the logistics objects

Formula

Alpha return rate = (Number of returned parcels / Number of shipped parcels) x 100

Beta return rate = number of items returned.

This method revolves around the perspective of the assortment so that items with a high return rate can be identified. In online retail, this calculation of the return rate is used most often. In controlling this calculation method has the relationship to quantity. The beta return rate is a quantity-based metric that relates the quantity of items returned to the number of items sent.

Formula

Beta return rate = (Number of returned items / Number of shipped items) x 100

Gamma return rate = value of returned items.

The gamma method puts the value of the returned goods in relation to the value of the shipped goods and gives the retailer an overview of the value of the returned goods. In combination with the item-related beta return rate, retailers can quickly determine whether shoppers tend to return more high- or low-priced goods. The method is price-based.

Formula

Gamma return rate = (Value of returned items / Value of shipped items) x 100

The interpretation of return rates

From both an economic and an ecological point of view, retailers have a strong interest in keeping the number of unwanted returns as low as possible. The Federal Association Ecommerce und Versandhandel Deutschland e.V. gives an average range of one in eight to one in five in terms of the beta response rate as a guide.

Unsurprisingly, high return rates have a negative impact. Turnover and earnings are reduced. But one can also deduce that a high proportion of customers are dissatisfied and/or do not return. purchases. At the same time, it is not possible to output an ideal value, as here Industry and business model decisively.

What is a good response rate? For this, it is necessary to know the corresponding contribution margins. These must not fall below a certain minimum value. As a rule, this is calculated by subtracting from the contribution margin the Costs for goods, packaging and Shippingbut also marketing (DBII) and overheads (general costs) are deducted. The then remaining contribution margin is the minimum amount at which no Profit is achieved. One can relate this value to the beta return rate results and determine which individual commodities are actually profitable.

Another approach uses the classic key figures of online retailing and breaks down the contribution margin calculation according to

  • Order turnover
  • Shipping turnover
  • returns

If you subtract the returns from the shipping turnover, you get the goods turnover. The cost price is deducted from this and the result is the gross profit. In connection with the contribution margin I and the contribution margin II, you quickly get an overview of the black and red figures. The negative values are then products, product groups and assortments for which the return rate is too high and which have not been sold. processes should improve rapidly.

The main cost drivers for the calculation are sorting, inspection and quality control. These costs have no direct influence on the result of the returns rate, but they do on the contribution margin or gross profit. It is therefore advisable to always synchronise the returns rate with other operational indicators if you want to see exactly where you are losing sales due to returns.

The loss of returns

In addition to the return rate, the return loss can also be determined. This includes variables such as the handling costs for logistics and administration, the transport costs for the company, the damage caused by the returns and the loss of profit.

How many returns are allowed?

There is not just one ideal amount of returns. It depends on many influencing factors. It starts with the industry, affects the contribution margin and the willingness to be accommodating towards customers. An accommodating returns policy increases customer satisfaction and competitiveness. However, this is always countered by effort and costs. Achieving a balance here is not always easy and requires constant levelling.

Where to get all the data ?

To calculate and monitor the return rate, data from the most diverse areas of the company are required. Articles and their properties, customers, Customer groups, warehouse and shipping data, data of the cost accounting to human resources management. If you want to react quickly and dynamically, for example to selectively adjust prices or test measures in the online shop, data integration is required. This requires not only a merchandise management software but also access to the finance and controlling. Better still, one also has access to the data of sales and marketing control.
A fully integrated ERP solution like SAP Business One is prepared for such requirements and can be the essential building block for these tasks.

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