Return Rate Calculator: The Short Answer
A brand sells 1,000 hoodies at £40 before VAT, and 150 come back. The return rate calculator divides returns by sales to give a 15 per cent return rate, but the more useful number comes next. At an illustrative landed cost of £12.50, £5.00 of handling per return and 85 per cent of returns resold, each return costs the brand about £34.38 in profit, so the 150 returns cost £5,156 in total. Gross margin falls from 68.8 per cent before returns to 65.7 per cent after. The returned money is only part of the cost.
The figures are placeholders chosen to show the method, not benchmarks. Return rates differ widely between categories, channels and fits, so the useful comparison is always your own style against its own history.
A return rate calculator is most useful when it changes behaviour. Seeing that each return costs more than the profit on a sale makes the case for spending on fit, photography and testing, because the saving from preventing a return is larger than most brands expect. It also shows which part of the cost to attack: preventing the return, handling it cheaply, or making sure it can be resold.
Use the Return Rate Calculator
Enter the units you sold and the units that came back, then the selling price before VAT and the landed cost per unit. Add the handling cost of one return, which covers return postage, inspection and repacking, and the share of returns you can resell. The return rate calculator returns the return rate, the profit lost on each return and in total, and your gross margin before and after returns.
Return rate calculator
Return rate and profit lost
Placeholder figures for illustration, not benchmarks. Return rates vary widely by category and channel; use your own data.
Run the return rate calculator for one style at a time. A returns problem is usually concentrated in one fit, one size or one colour, and an average across the range hides it. Our guide to reducing garment returns from fit and shrinkage explains the usual causes.
How Return Rate Is Calculated
The return rate is units returned divided by units sold, as a percentage. It can be calculated by units, by orders or by value, so say which one you use, and keep it consistent. Value-based rates can differ from unit-based ones if returns skew towards higher-priced items.
From returns to profit lost
- 1Count sales and returnsUnits sold and units returned, in the same period.
- 2Find the rateReturns ÷ sales × 100.
- 3Add margin forgoneReturns × (price − landed cost).
- 4Add handlingReturns × handling cost per return.
- 5Add write-offsUnsellable returns × landed cost.
- 6Compare with sales profitProfit before returns minus the total above.
The result is the true cost of returns, which is higher than the refund because the margin on the sale is lost as well. If outbound postage is free, add that too, since it is spent again on every reorder. Our clothing profit margin calculator shows what the margin looks like before returns.
What Each Return Costs
Every return has three parts, shown in the table. The largest is the margin on the sale that did not stay a sale. Handling and written-off stock are smaller, but they are cash you spend, not just a sale you miss.
The cost of one return in the example
| Component | Amount per return | What it covers |
|---|---|---|
| Margin forgone | £27.50 | Price £40.00 minus landed cost £12.50 |
| Handling | £5.00 | Return postage, inspection and repacking |
| Written-off stock | £1.88 | 15% of returns not resold, at £12.50 landed cost |
| Total profit lost | £34.38 | Per return |
Arithmetic from the placeholder inputs in the calculator. The 15% not resold is 100% minus the 85% resale assumption. Illustrative figures.
Notice that a return costs more than the profit on a sale, since you also pay to handle it. A brand that earns £27.50 on a hoodie loses £34.38 when it comes back. Two returns wipe out the profit on two and a half sales.
Where the Lost Profit Comes From
The pie shows the £5,156 lost to returns in the example, split into the three components. Margin forgone dominates, which is why preventing a return is more valuable than processing it efficiently.
Components of the £5,156 profit lost to 150 returns
- Margin forgone on returned sales (£4,125)80%
- Handling (£750)14.5%
- Written-off stock (£281)5.5%
Arithmetic from the example: £4,125 margin forgone, £750 handling and £281 written-off stock. Illustrative figures.
Efficient handling helps with the small slices, but the large one only shrinks if fewer products come back. That means fit, description, photography and quality, which our guide to oversized hoodie fit without increasing returns covers.
How the Return Rate Changes the Bottom Line
The table holds everything else constant and varies the return rate on 1,000 sales. Profit lost rises in step with returns, and the margin after returns falls.
Effect of return rate on profit, for 1,000 hoodies sold
| Return rate | Units returned | Profit lost to returns | Profit after returns | Margin after returns |
|---|---|---|---|---|
| 5% | 50 | £1,719 | £25,781 | 67.8% |
| 10% | 100 | £3,438 | £24,062 | 66.8% |
| 15% | 150 | £5,156 | £22,344 | 65.7% |
| 20% | 200 | £6,875 | £20,625 | 64.5% |
| 25% | 250 | £8,594 | £18,906 | 63.0% |
Arithmetic from the placeholder inputs: £40 price, £12.50 landed cost, £5 handling, 85% resold. Illustrative figures, not benchmarks.
Profit lost to returns by return rate, for 1,000 hoodies sold
Profit lost (£)
Arithmetic from the table above. Placeholder inputs.
Each extra five points of return rate costs about £1,720 in the example. For a brand near break-even, that is the difference between a profit and a loss, which the break even calculator for clothing helps you test.
What Resale Does to the Cost
A returned garment that can be resold is worth far more than one that cannot. The table varies the share of returns you can resell, holding the return rate at 15 per cent.
Cost of a return at different resale shares
| Returns resold | Profit lost per return | Total profit lost |
|---|---|---|
| 100% | £32.50 | £4,875 |
| 85% | £34.38 | £5,156 |
| 70% | £36.25 | £5,438 |
| 50% | £38.75 | £5,812 |
Arithmetic from the placeholder inputs; only the resale share changes. Illustrative figures.
Resale share depends on condition, season and how fast you can inspect and relist. If a style is seasonal, a return in the last week is worth less. Garment testing and clear care labels reduce the damage that makes returns unsellable, and our guide to garment testing covers the checks.
Bracketing and Why It Matters
Many online shoppers order two sizes and send one back. These returns are not a sign of a bad product, but they cost the same to handle as any other, and they inflate the return rate. If your category invites it, record how many returns came from orders containing the same style in two sizes, because the fix is different: better size guidance rather than a better garment.
A return rate calculator can include these returns in the total or work on the rest only. Either is reasonable if you are consistent, and the answer to the question of profit lost is the same, since the handling cost is incurred whatever the reason. What changes is where you look for a cure.
Returns Across a Range, Not Just a Style
Brands often find that a small number of styles account for most returns. Sort your styles by return rate and by units returned, and look at the top few. A style with a high rate and low volume is a different problem from one with a moderate rate and high volume, because the total profit lost is what counts.
Run the return rate calculator on the worst few and compare the profit lost against the cost of a fix. A new size chart, a fit sample or a change of fabric may cost a few hundred pounds and save a few thousand, but only the numbers will tell you whether that is true for your style.
Where Returns Come From in Clothing
Most clothing returns trace to a handful of causes. Fit is the largest for many brands, followed by differences between the image and the product, quality problems and the habit of buying several sizes to try on. Which dominates for you, only your own data can say, so ask returning customers for a reason code.
Steps that reduce returns
- Publish measurements, not just size labels
- Check grading across the size range before bulk
- Test shrinkage so the garment fits after washing
- Photograph and describe the product accurately
- Record a reason for every return, by size and colour
- Review the style when a size or colour stands out
A general list. Industry bodies such as the British Retail Consortium and the British Fashion Council publish guidance for retailers and brands.
Shrinkage is a fixable cause, and the fabric shrinkage calculator shows how to plan for it. Once returns are lower, the sell through rate calculator tells you whether the stock is moving.
How Ruhrose Helps You Reduce Fit Returns
Ruhrose develops hoodies, fleece, jersey, denim and woven casualwear for UK buyers, with production in Bangladesh. We sample before bulk, check measurements against the size chart and explain how shrinkage is allowed for, so that fit problems are found before they reach customers. Ruhrose's clothing manufacturing pages show what we make.
Before you approve bulk production, ask yourself one question: would a customer who followed the size chart end up with a garment that fits?