What's the average cost of a return?

$25-50 for most e-commerce products. Simple apparel items average $30-40. Electronics and complex products can exceed $50-100. Consumables that can't be restocked cost their full COGS plus processing.

Should I offer free returns?

It depends on your margins and competition. Free returns increase conversion 20-30% but also increase return rates 10-20%. Calculate: Does the incremental revenue from better conversion exceed the cost of more returns?

How do I calculate if my return policy is profitable?

Compare: (Conversion lift × Additional revenue × Margin) vs (Return rate increase × Return cost). If conversion gains outweigh return costs, free returns make sense.

What return rate should I target?

Industry average is 15-20%. High performers hit 8-12%. If you're above 25%, investigate product quality, accuracy, and sizing issues.

When do returns become unsustainable?

When return costs exceed 8-10% of revenue, it's a crisis. At that point, either raise prices, adjust policy, or fix root causes.

How do I reduce return costs?

Prevention first: better photos, size guides, and descriptions. Then optimize processing: automation, regional centers, drop-off partnerships. Finally, reduce depreciation: faster processing, secondary markets, smarter liquidation.

The True Cost of Returns: Beyond Shipping (What E-commerce Stores Really Pay)

Every return costs you money. That much is obvious. But most e-commerce operators dramatically underestimate how much. They see the return shipping label—$9.50—and think that's the cost. It's not even close.

The true cost of a return includes shipping, processing, restocking, inventory depreciation, and a cascade of operational expenses that can total $25-50 per return. For some products, the return costs more than the original margin.

This guide breaks down every component of return costs and shows you how to calculate—and reduce—your actual return expense.

The Full Cost Breakdown

Component 1: Return Shipping ($8-15)

What you pay to get the product back:

Method	Cost Range
Prepaid return label (carrier)	$8-15
Return shipping portal	$7-12
Customer-paid return	$0 (but hurts CX)
Drop-off program	$4-8

Variables affecting return shipping cost:

Package weight and dimensions
Origin/destination zones
Carrier selection
Negotiated rates

Component 2: Processing Labor ($3-8)

The labor to handle a return:

Task	Time	Cost (@$18/hr)
Receive and scan package	1-2 min	$0.30-0.60
Open and verify contents	2-3 min	$0.60-0.90
Inspect product condition	2-5 min	$0.60-1.50
Process refund/exchange	2-3 min	$0.60-0.90
Restock (if resellable)	3-5 min	$0.90-1.50
Dispose/liquidate (if not)	2-3 min	$0.60-0.90
Total	12-21 min	$3.60-6.30

High-volume operations with automation: $3-4 per return

Manual operations: $6-8 per return

Component 3: Quality Inspection ($2-5)

Determining resale condition:

Inspection Level	Time	Cost
Visual check only	1-2 min	$0.50-1.00
Functionality test	3-5 min	$1.50-2.50
Full QA (electronics)	5-10 min	$2.50-5.00
Repackaging assessment	2-3 min	$1.00-1.50

Products requiring extensive inspection: Electronics, appliances, equipment

Products with minimal inspection: Apparel, accessories, books

Component 4: Restocking/Disposition ($2-4)

What happens to the returned item:

Outcome	Frequency	Cost
Full restock (A condition)	40-60%	$2-3
Open-box/B-stock	20-30%	$3-4
Refurbishment needed	10-20%	$5-15
Liquidation/salvage	5-10%	$1-2
Disposal	3-5%	$1-2

Average restocking cost across outcomes: $2.50-4.00

Component 5: Inventory Depreciation ($5-50+)

The value lost when a returned item can't resell at full price:

Condition	Resale Price	Depreciation
Like new, original packaging	100%	0%
Like new, packaging damaged	90-95%	5-10%
Open box/B-stock	70-80%	20-30%
Refurbished	50-70%	30-50%
Liquidation	10-30%	70-90%
Write-off	0%	100%

Example on $60 product:

Scenario	Value Loss
Restocked as new	$0
Sold as open-box (75%)	$15
Sent to liquidator (20%)	$48
Written off	$60

Average depreciation: 15-25% of product cost

Component 6: Customer Service ($3-6)

Time spent managing the return:

Interaction	Frequency	Cost
Initial return request	50-70%	$2-4
Status inquiry	20-30%	$1-2
Refund delay follow-up	10-20%	$1-2
Escalation/complaint	5-10%	$3-5

Average customer service cost per return: $3-6

Component 7: Payment Processing Losses ($0.50-1.50)

The payment fees that don't come back:

Component	On Original Sale	On Refund
Stripe/PayPal %	2.9%	Not refunded
Transaction fee	$0.30	Not refunded
Chargeback risk	0.5-1%	Increased

Example: $60 order

Original fees: $2.04
Fees refunded: $0
Net loss: $2.04

Average payment processing loss: $0.75-1.50

Component 8: Hidden Operational Costs ($2-5)

The overhead most stores forget:

Cost	Per Return
Warehouse space (return area)	$0.50-1.00
Technology (RMA systems)	$0.25-0.50
Returns reporting/analysis	$0.25-0.50
Management overhead	$0.50-1.00
Insurance adjustment	$0.25-0.50
Total hidden	$1.75-3.50

Total Cost Calculation

Formula

` Total Return Cost = Return shipping + Processing labor + Quality inspection + Restocking/disposition + Inventory depreciation + Customer service + Payment processing loss + Hidden operational costs `

Example: Apparel ($60 dress)

Component	Cost
Return shipping	$9.50
Processing labor	$4.50
Quality inspection	$1.50
Restocking	$2.50
Inventory depreciation (20% avg)	$12.00
Customer service	$3.50
Payment processing	$1.75
Hidden costs	$2.50
Total	$37.75

On a $60 product with 60% margin ($36 gross profit), this return eliminates profit from 1.05 additional sales.

Example: Electronics ($150 Bluetooth speaker)

Component	Cost
Return shipping	$12.50
Processing labor	$6.00
Quality inspection	$4.50
Restocking	$3.50
Inventory depreciation (30% avg)	$45.00
Customer service	$4.00
Payment processing	$4.50
Hidden costs	$3.00
Total	$83.00

On a $150 product with 50% margin ($75 gross profit), this return eliminates profit from 1.1 additional sales—but the high depreciation means many returns cost more than the margin.

Example: Beauty/Cosmetics ($35 skincare product)

Component	Cost
Return shipping	$7.50
Processing labor	$3.50
Quality inspection	$2.00
Restocking (often can't)	$1.00
Inventory depreciation (100%—can't resell)	$14.00
Customer service	$3.00
Payment processing	$1.30
Hidden costs	$2.00
Total	$34.30

Consumable returns often can't be restocked—the entire COGS is lost plus all processing costs.

The Multiplier Effect

Returns Kill More Than Their Direct Cost

Margin impact multiplier:

` Sales Needed to Offset Return = Return Cost ÷ Unit Margin `

Product	Return Cost	Unit Margin	Sales to Offset
$60 apparel	$38	$36	1.05 sales
$150 electronics	$83	$75	1.1 sales
$35 cosmetics	$34	$21	1.6 sales

In other words:

Every apparel return requires ~2 additional sales to break even
Every electronics return requires ~2 additional sales
Every cosmetics return requires ~2.5 additional sales

Portfolio Impact

Example: 10,000 orders, 20% return rate, $50 AOV

Metric	Value
Total orders	10,000
Returns	2,000
Gross revenue	$500,000
Gross margin (55%)	$275,000
Return cost ($35 avg)	$70,000
Net margin impact	-25% of gross margin

Returns consumed 25% of gross margin before any other expenses.

Return Rates by Industry

Benchmarks

Industry	Avg Return Rate	High Performers
Apparel	25-40%	15-20%
Shoes	20-35%	10-15%
Electronics	10-20%	5-10%
Home & Garden	10-15%	5-8%
Health & Beauty	5-10%	2-5%
Food & Beverage	2-5%	<2%
E-commerce average	15-20%	8-12%

High-Return Product Characteristics

Characteristic	Return Rate Impact
Fit-dependent (apparel, shoes)	+10-20%
Size variability	+5-15%
High complexity	+5-10%
Impulse purchase	+5-10%
Gift purchases	+5-10%
Low brand familiarity	+5-10%

Strategies to Reduce Return Costs

Strategy 1: Prevent Returns (Best ROI)

Prevention approaches:

Initiative	Impact on Return Rate	Cost
Better product photos	-10-20%	$500-2,000/product
Size guides/fit tools	-15-25% (apparel)	$1,000-5,000
Detailed specifications	-5-15%	Low
Customer reviews	-10-15%	Free/low
Video content	-10-20%	$500-3,000/product
Virtual try-on	-15-25%	$5,000-50,000

ROI example:

1,000 orders/month, 20% returns = 200 returns
Return cost = $35 each = $7,000/month
Reduce to 15% returns (150) = $5,250/month
Savings = $1,750/month = $21,000/year
Investment in photos/guides = $5,000
ROI: 320% in year one

Strategy 2: Optimize Return Processing

Reduce per-return cost:

Initiative	Cost Reduction
Automation (scanning, routing)	-$1-2/return
Batch processing	-$0.50-1.00/return
Return centers (regional)	-$2-3/return (shipping)
Drop-off partnerships	-$3-5/return (shipping)
Streamlined inspection	-$0.50-1.00/return

Strategy 3: Reduce Depreciation

Get more returns back to saleable:

Initiative	Depreciation Reduction
Faster processing (inventory freshness)	-5-10%
Better repackaging	-5-10%
Secondary marketplaces (open-box)	-10-20%
Refurbishment capabilities	-10-30%
Smarter liquidation partners	-5-15%

Strategy 4: Policy Optimization

Balance customer experience and cost:

Policy Change	Impact
Restocking fees (5-15%)	+$2.50-7.50/return recovered
Shortened return window	-5-15% returns
Final sale on discounted items	-20-30% of those returns
Customer-paid returns (some items)	Shipping cost eliminated
Exchange incentives	-10-20% refund requests

Strategy 5: Packaging for Returns

Design packages that come back intact:

Feature	Benefit
Resealable boxes	Easy return, less damage
Durable packaging	Survives round trip
Clear return instructions	Fewer customer service calls
Pre-printed return label area	Faster processing
Right-sized packaging	Lower return shipping cost

Measuring Return Costs

Key Metrics to Track

Metric	Formula	Target
Return rate	Returns ÷ Orders	<15%
Return cost per order	Total return cost ÷ Orders	<$5
Return cost per return	Total return cost ÷ Returns	<$30
Restocking success rate	Resellable returns ÷ Total returns	>70%
Return reason distribution	By category	Track trends

Return Cost Dashboard

Track monthly:

Month	Returns	Rate	Total Cost	Cost/Return	Restocked %
Jan	180	18%	$6,300	$35.00	62%
Feb	165	17%	$5,445	$33.00	68%
Mar	150	15%	$4,650	$31.00	72%

Return Reason Analysis

Categorize every return:

Reason	% of Returns	Actionable?
Didn't fit	35%	Size guide
Different than expected	25%	Better photos
Quality issue	15%	QC improvement
Changed mind	12%	Policy review
Damaged in shipping	8%	Packaging
Wrong item sent	5%	Fulfillment accuracy