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The highest return rate is achieved by the Online tradewhile there are relatively few returns in bricks-and-mortar retail. As the returned items have not been sold but have caused costs for the retailer, the companies are endeavouring to identify and reduce these costs. The number of returns varies greatly depending on the product range or product grouping. There are also major differences according to gender and age.

According to experts, around 3.5 billion shipments were transported with 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 of Bamberg, around 280 million shipments and around 490 million products were returned in the same year.

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

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The return rate as a key figure

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

The reasons for a return are many and varied, ranging from a delivery time that is too long to a faulty delivery. delivery up to a complaint. In Germany, around 70 % of returns are returned as A-grade 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 options for calculating the returns rate in a company's own online trade. In the context of returns logistics, there are three Calculations are decisive for the profitability of companies. They are based on the logistics familiar level of service and ensure better opportunities for comparison.

Alpha return rate = number of returned packages

This formula allows for improved planning and organisation of parcel processing and is based on the logistics perspective. It is primarily used by shippers in the fashion and footwear industries. The alpha returns rate is an event-related indicator that sets the number of returns in relation to the number of goods dispatch processes. It is calculated 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 focuses on the perspective of the product range so that items with a high return rate can be identified. This calculation of the returns rate is most frequently used in online retail. In the controlling this calculation method is related to the 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 conjunction with the item-related beta return rate, retailers can quickly determine whether buyers tend to return high-priced 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 minimising the number of unwanted returns. The Federal Association Ecommerce The German E-Commerce and Distance Selling Trade Association gives an average range of one to eight to one to five in relation to the beta response rate.

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, since Industry and business model.

What is a good response rate? 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 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. You can compare this value with the results of the beta return rate and determine which individual goods 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 deduct the returns from the dispatch turnover, you get the goods turnover. The cost price is deducted from this and the result is the gross profit. In combination 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 product ranges for which you have too high a return rate and your 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 have an impact on the contribution margin or gross profit. It is therefore advisable to always synchronise the returns rate with other operational key figures if you want to identify exactly where you are losing sales due to returns.

The loss of returns

In addition to the returns rate, the returns loss can also be determined. This includes factors such as the processing 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 quantity of returns. It depends on many influencing factors. It starts with the industry, the contribution margin and the willingness to be fair to customers. An accommodating returns policy increases customer satisfaction and competitiveness. However, this is always offset by the effort and costs involved. Achieving the right 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 right through to human resources management. If you then want to react quickly and dynamically, for example to selectively adjust prices or test measures in the online shop, data integration is required. This not only requires 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 such as SAP Business One is prepared for such requirements and can be the essential building block for these tasks.