Is refund rate the same as return rate?

They are often used interchangeably, but they are not quite the same. A return can end in a refund, an exchange or store credit, while refund rate only counts the money given back. If you offer exchanges, your return rate will be higher than your refund rate.

Should I measure refund rate by value or by orders?

By value tells you how much revenue you are losing, which matters most for profit. By orders tells you how often customers are unhappy. Track value as the headline and orders as a second view.

Which month should a refund count in?

Counting refunds against the month of the original sale shows which period's orders went wrong, which is better for finding product problems. Counting them in the month issued matches cash flow. Choose one for each report and keep it consistent.

Do refunds affect gross margin?

Yes. Refunds reduce net sales, and if the returned item can't be resold, its cost is still spent. Products with high refund rates often have a much lower real margin than their price and cost suggest.

How often should I check refund rate?

Monthly for the store as a whole, and more often for new products or after a supplier change.

What Is Refund Rate? Formula, Benchmarks and How to Track It

Refund rate is refunded value divided by gross sales over the same period, as a percentage; some stores track refunded orders divided by total orders instead. A rising refund rate is often the first sign of a product, sizing or description problem.

Every refund costs more than the sale it reverses. You lose the revenue, you often pay shipping twice, someone has to handle the return, and the item may come back in a state you can't sell again. Refund rate measures how much of your sales goes this way.

It is also a useful early warning. When refund rate climbs, something has usually changed - a product, a supplier, a size chart or a product page.

What Is Refund Rate?

Refund rate is the value of refunds divided by gross sales over the same period, shown as a percentage. Some stores track it by count instead - refunded orders divided by total orders - which is useful when order values vary a lot.

It is also called return rate or returns rate, although strictly a return doesn't always end in a refund: some customers exchange the item or take store credit. Whichever version you use, keep the definition the same every month.

🧒 Explained simply You sell 20 cups of lemonade on Saturday. Two customers come back saying it was too sour, and you give them their money back. You sold 20 cups, but you kept the money for 18. Those two refunds are 10% of what you sold - and you still paid for the lemons in those cups.

How to Calculate Refund Rate

Refund Rate = Refunded amount ÷ Gross sales × 100

Say a store has, for one quarter (illustrative round numbers):

Gross sales: $80,000
Refunds issued: $4,800

Refund rate = $4,800 ÷ $80,000 × 100 = 6%

By order count, if the store had 1,600 orders and 120 were fully or partly refunded, the order-based refund rate is 120 ÷ 1,600 × 100 = 7.5%. The two numbers differ because refunded orders are not the same size as the average order.

A few edge cases to decide on up front:

Partial refunds. Count the refunded amount, not the full order value. If you track by orders, decide whether a partial refund counts as a refunded order.
Shipping refunds. If you refund shipping as well as the product, either include shipping in both gross sales and refunds or leave it out of both.
Timing. A refund issued in March for a February order can be counted in either month. Counting it against the month of the original sale shows which period's sales went wrong; counting it in the month issued matches your cash. Both are valid - just don't mix them.

Why Refund Rate Matters

Refunds come straight off gross sales, so they are one of the two things sitting between gross and net sales (discounts are the other). A store can grow gross sales and still see net sales flatten if refunds rise at the same time.

The cost is also bigger than the refund itself. Outbound shipping is usually gone, return shipping may be on you, and returned stock has to be checked, repacked or written off. A product with a healthy gross margin can turn unprofitable once its refunds are counted.

Most usefully, refund rate points at problems you can fix. A spike on one product often means a bad batch, a misleading photo or a size chart that runs small.

What Is a Good Refund Rate?

It varies widely. Apparel and footwear see far higher return rates than consumables or electronics accessories, because fit and feel are hard to judge on a screen. Comparing your store with a different category tells you very little.

The more useful comparison is inside your own store: product against product, category against category, and this season against the same season last year. A product with a refund rate well above similar items in your catalogue is the one to investigate first.

How to Reduce Refund Rate

1. Break it down by product

A handful of SKUs usually cause most refunds. Rank products by refunded amount and by refund rate, then start with the ones that are high on both. Fixing three products can matter more than any store-wide change.

2. Read the refund reasons

Collect a reason with every return and read them next to the rate. "Not as described" points at the product page, "too small" at the size chart, "arrived damaged" at packaging or the carrier, and "changed my mind" at expectations set before purchase.

3. Make product pages answer the real questions

Add measurements, materials, close-up photos and photos in use. If customers keep returning a product for the same reason, put the answer to that reason on the page - near the price and the add-to-cart button, not hidden in a tab.

4. Improve sizing guidance

For clothing and footwear, a clear size chart with how-to-measure instructions and notes like "runs small" cuts down on the habit of ordering two sizes and returning one.

5. Check quality and packaging at the source

A sudden rise on a product that used to be fine often means a supplier or batch change. Spot-check incoming stock and review packaging for items that arrive damaged.

6. Offer exchanges and store credit

Making an exchange as easy as a refund keeps the sale when the problem is size or colour. Keep tracking returns separately so problems stay visible.

How to Track Refund Rate

Chartsy for Ecommerce connects to your BigCommerce store with read-only access and syncs orders, products and customers every hour. It calculates refund rate from your synced orders automatically, and you can break it down by month, product or category. Refunds are reported separately from gross sales, so you can see which products and months they come from.

Views worth checking regularly:

"Show refunds by product for the last 6 months"
"Which categories had the highest refunds this year?"
"Compare refunds and gross sales by month for the last 12 months"

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What is Refund Rate?

Key takeaways