10 Reverse Logistics Metrics to Track in eCommerce
Rebecca Fox

August 27, 2023

Track reverse logistics metrics to get a clear understanding of how well your returns process is performing and where you can optimize it. 

Why Track Reverse Logistics Metrics?

Reverse logistics metrics are key performance indicators (KPIs) that measure the efficiency and effectiveness of your returns process. 

They help you track and analyze various aspects of your reverse logistics such as the return rate, the return-to-refund time, the return-to-resale time, the cost of returns, and the environmental impact of returns.

By monitoring and improving these metrics, you can increase profitability, improve the customer experience, and make your business more sustainable.

10 Reverse Logistics Metrics to Track in Your eCommerce Store

Here are some of the key reverse logistics metrics that are important to keep track of for your eCommerce business:

1. Return Rate

The return rate is the percentage of products returned by customers out of the total number of products sold. This metric indicates how satisfied your customers are with your products and how well they meet expectations.

What Should I Look For?

The average return rate for eCommerce is 19%, so if your return rate is far above that, it might mean that your products aren’t meeting your customers’ needs, or that your product descriptions, images, or sizing charts aren’t accurate or clear enough. 

You want your return rate to be as low as possible, as a low return rate likely means that your products are delivering value and quality to your customers, and they don’t feel a need to return things.

How to Calculate Your Return Rate

To calculate your return rate, divide the number of products returned by the number of products sold in a given timeframe. 

For example, if you sold 100 products and 20 products were returned in a month, your return rate would be 20%.

You can also segment your return rate by product category, channel, customer segment, or any other relevant factor to identify patterns and trends. For example, you may find that certain products have higher return rates than others, or that certain channels or customer segments have different return behaviors.

To reduce your return rate, you can:

  • Provide accurate and detailed product descriptions and sizing charts.
  • Display customer reviews and user-generated content.
  • Use product recommendations and personalization.

2. Return-to-Refund Time

The return-to-refund time is the average number of days it takes to process a return and issue a refund to the customer. This metric reflects how efficient your returns process is and how quickly you can resolve customer issues.

What Should I Look For?

Ideally, your return-to-refund time should be as short as possible, as a long return-to-refund time can lead to customer dissatisfaction, frustration, and a higher churn rate. 

Customers expect to receive their refunds as soon as possible after they initiate a return, so a short return-to-refund time can improve customer satisfaction and trust. 

How to Calculate Your Return-to-Refund Time

To calculate your return-to-refund time, subtract the date when the customer initiated the return from the date when the refund was issued. 

For example, if a customer initiated a return on January 1st and received a refund on January 5th, the return-to-refund time would be 4 days.

To reduce your return-to-refund time, you can:

  • Automate your returns workflow and processing using ReturnGO.
  • Use pre-paid return shipping labels and QR codes.
  • Offer instant refunds or store credit.
  • Communicate with your customers throughout the returns process.

3. Return-to-Resale Time

The return-to-resale time is the average number of days it takes to resell a returned product after it is received back to your warehouse. This metric shows how effectively you can recover the value of returned products and reduce loss of inventory.

What Should I Look For?

Your return-to-resale time should be as short as possible, as a long return-to-resale time can result in lost revenue opportunities and increased inventory holding costs.

Returned products can be resold quickly to new customers or existing customers who are looking for discounts or deals, and a short return-to-resale time can increase revenue potential, decrease inventory holding costs, and maintain product quality.

How to Calculate Your Return-to-Resale Time

To calculate your return-to-resale time, you need to subtract the date when the returned product was received by you from the date when the product was resold. 

For example, if you received a returned product on January 1st and resold it on January 10th, the return-to-resale time would be 9 days.

You may find that certain products have higher or lower demand than others, or that certain channels are more successful for reselling returned items.

To reduce your return-to-resale time, you can:

  • Use inventory management software to track and optimize your stock levels.
  • Offer flash sales, discounts, coupons, or loyalty programs to incentivize purchases.
  • Resell returned products through alternative channels, such as online marketplaces, outlets, or donation centers.

4. Cost of Returns

The cost of returns is the total amount of money spent on handling returns, including shipping, handling, inspection, repair, restocking, disposal, etc. This metric measures how much returns affect your bottom line and profitability.

What Should I Look For?

A high cost of returns can erode your profit margin by increasing your operational expenses, and returns can also reduce your revenue by lowering your sales volume and average order value. 

By lowering the cost of returns, you can improve your profit margin by decreasing your operational expenses and boosting your customer lifetime value.

How to Calculate the Cost of Returns

To calculate your cost of returns, add up all the expenses incurred by returns in a given timeframe. 

For example, if in a given month you spent $1000 on shipping, $500 on handling, $200 on inspection, $100 on repair, $50 on restocking, and $150 on disposal, your cost of returns would be $2000.

To reduce your cost of returns, you can:

  • Optimize your shipping and packaging methods.
  • Implement quality control measures to prevent defective or damaged products.
  • Use data analytics to forecast demand and supply.
  • Implement a reverse logistics strategy to minimize waste and maximize value.

5. Environmental Impact of Returns

The environmental impact of returns is the total amount of waste and emissions generated by returns, including packaging materials, carbon emissions from transportation, landfill space, etc. This metric assesses how much returns affect the environment and climate change.

What Should I Look For?

A high environmental impact of returns can harm the planet by increasing greenhouse gas emissions, deforestation, pollution, and resource depletion.

A low environmental impact of returns can benefit the planet by reducing greenhouse gas emissions, deforestation, pollution, and resource depletion. 

How to Calculate Your Environmental Impact of Returns

To calculate your environmental impact of returns, you estimate the amount of waste and emissions produced by returns in a given timeframe. 

For example, if you shipped 1000 returned products in a month using cardboard boxes and trucks, you can use online calculators or tools to estimate the amount of cardboard waste and carbon emissions generated by these activities.

ReturnGO tracks your carbon footprint and helps you reduce your environmental impact by offering sustainable return methods and printerless return labels.

To reduce your environmental impact of returns, you can:

  • Use reusable or recyclable packaging materials.
  • Partner with local or green shipping providers.
  • Offer incentives for customers to keep or donate products instead of returning them.
  • Calculate and offset the carbon emissions of your returns.

6. Return Reasons

Return reasons are the explanations customers provide for why they are returning a product. Tracking return reasons is crucial in reverse logistics for understanding the root causes of returns and taking proactive measures to reduce them.

What Should I Look For?

Pay close attention to the top return reasons provided by customers. Look for recurring patterns, such as common product defects, sizing issues, or inaccurate product descriptions. Identifying these patterns can help you pinpoint specific areas for improvement.

How to Calculate Your Return Reasons

To find your top return reasons, categorize returns by reason, see how often each reason appears, and calculate the percentage for each reason, and the reasons with the highest percentage are your top return reasons.

To calculate the percentage of a return reason, divide the number of returns with a specific reason by the total number of returns, then multiply the result by 100 to get the percentage. 

ReturnGO automates this process, providing in-depth analysis and valuable insights into your top return reasons and products to help you improve your products and processes.

To reduce returns based on your top return reasons:

  • Address common product defects by improving quality control and testing processes.
  • Provide accurate and detailed product descriptions to set proper customer expectations.
  • Display user-generated photos and reviews to help customers make more informed buying decisions.
  • Continuously refine your products and processes based on post-purchase customer feedback.

7. Return Volume

Return volume refers to the number of returns you receive within a specific timeframe, usually measured on a monthly basis. This metric provides insights into the scale of operations needed.

Plan staffing, warehouse space, and other logistics to handle your average and peak return volumes. Volume may fluctuate seasonally, with promotions, or as your business grows.

What Should I Look For?

A high return volume can have both positive and negative implications, depending on the context. 

On one hand, it could signify increased sales, as more products are being bought and therefore more are being returned. However, it could also indicate an increased return rate, suggesting potential issues with product quality or sizing. 

Therefore it’s crucial to consider the return volume in relation to the return rate.

How to Calculate Your Return Volume

To calculate your return volume, look at the total number of items that have been returned to your store within a specific timeframe. 

It’s worth noting that you shouldn’t need to manually figure this out, as both your eCommerce store and returns management system can provide you with the relevant information about your return volume.

To reduce your return volume, consider:

  • Improving the accuracy of product pages to set customer expectations.
  • Conducting thorough quality checks before shipping out orders.
  • Collecting feedback to better understand customer needs and pain points.

Chat with our experts to boost your customer return experience and LTV today.

8. Percentage of Supply Chain Costs from Reverse Logistics

The percentage of supply chain costs from reverse logistics shows you what proportion of your overall supply chain costs go towards reverse logistics activities like transport, warehousing, and processing returns.

What Should I Look For?

A high percentage of supply chain costs related to reverse logistics shows that a significant portion of your overall supply chain expenses are going towards dealing with returns, repairs, and other reverse logistics tasks. This could mean that your reverse logistics process isn’t as efficient as it could be.

The aim should be to strategically lower these costs as much as possible. By optimizing your reverse logistics process, increasing efficiency, and reducing returns, you can effectively control costs while maintaining a high level of efficiency and satisfaction among your customers.

How to Calculate Your Percent of Supply Chain Costs from Reverse Logistics

To calculate the portion of supply chain costs attributed to reverse logistics, determine the total cost of reverse logistics in a given timeframe, calculate the total supply chain costs for that timeframe, then divide the total reverse logistics cost by the total supply chain cost and multiply the result by 100 to get the percentage.

A simple formula would be:

Percentage of Supply Chain Costs from Reverse Logistics = (Total Reverse Logistics Cost / Total Supply Chain Cost) * 100

Here are some strategies you can implement to reduce the portion of supply chain costs from reverse logistics:

  • Streamline your return process to quickly assess, categorize, and process returned items, reducing the time and resources needed for reverse logistics.
  • Repair or refurbish returned items to bring them back to a sellable condition, which will lower disposal costs and increase the value recovered from returns.
  • Set proper expectations for customers in order to minimize the number of unnecessary returns and associated costs.

9. Item Handling Costs

Item handling costs are the amount of money spent on receiving and processing returned items at your warehouse.

This sums up the costs involved in handling a returned item from start to finish, including:

  • Shipping
  • Inspection
  • Storage
  • Processing
  • Disposal

What Should I Look For?

If item handling costs are high, your returns process may be inefficient. Aim to lower your item handling costs and make sure your process for receiving, inspecting, processing, and disposing of returned items is streamlined and cost-effective.

How to Calculate Item Handling Costs

To calculate the item handling cost, divide the time required to process a return by 60 and multiply it by the hourly wage of the employee who does it. 

For example, if it takes 15 minutes to process an item and the employee earns $10 per hour, then the item handling cost would be $2.50 per item. 

Keep in mind that this formula does not account for other costs such as packaging materials and equipment. Therefore, you’ll need to consider all the factors that affect their item handling costs and decide whether to charge a fee to customers or absorb it as part of your operational expenses.

To lower item handling costs:

  • Train your staff well to ensure accurate and efficient processing and minimize errors.
  • Automate as much of your reverse logistics process as possible.
  • Work with an experienced third-party provider for efficient handling.

10. Pre-Paid Shipping Label Usage

Pre-paid shipping label usage is a metric that assesses the proportion of returns initiated through a pre-paid, automatically generated return shipping label versus customers shipping items back using any other method.

What Should I Look For?

Providing pre-paid return shipping labels drastically simplifies the process for the customer and gives you control over the shipping carrier and shipping costs.

The higher the rate of pre-paid label use, the smoother and more efficient returns are. A low percentage suggests that customers are using alternative shipping methods, which might result in longer processing times and higher costs. Encourage the use of pre-paid return shipping labels.

How to Calculate Pre-Paid Shipping Label Usage

To calculate the usage of pre-paid shipping labels, divide the number of returns initiated using pre-paid labels by the total number of returns and multiply the result by 100 to get the percentage.

For example, if 300 out of 500 returns this month were initiated using pre-paid labels, the return shipping label usage would be (300 / 500) * 100 = 60%.

A simple formula would be:

Return Label Use = (Returns with Label / Total Returns) x 100

To encourage pre-paid return shipping label use:

  • Clearly communicate to customers the benefits and convenience of using pre-paid return labels.
  • Offer incentives such as bonus credit or free return shipping for customers who use pre-paid labels.
  • Integrate with shipping carriers through ReturnGO to automatically generate pre-paid return labels.

Track, Measure, and Optimize

You can’t improve what you don’t measure. Monitoring these key reverse logistics metrics provides the visibility needed for you to streamline your operations.

With an efficient, data-driven reverse logistics process, eCommerce returns become an opportunity rather than a liability. You’ll have happier customers, lower costs, and a higher profit margin.

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