Returns cost calculator
See what returns cost your store in a year, and how much you keep when a customer takes an exchange instead of a refund. Enter your own order numbers and costs; the calculator runs in your browser and nothing you type is sent to us.
Calculator
What returns cost you each year
| Line | Per year | Per return |
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What this calculator works out
Returns cost a store in two ways. There is the money you spend handling them: return labels, the time to receive and check each item, and the value lost on goods you cannot sell again at full price. And there is the sale itself: a refund gives the revenue back, so the gross profit you made on that order is gone.
This calculator adds up both for a year, then shows what changes when some customers take an exchange or store credit instead of a refund. An exchange keeps the sale but costs you an outbound shipment, so the calculator nets that off before telling you what you keep.
The formula
- Returns per year = orders × return rate.
- Value returned per return = average order value × share of the order returned. Product cost of a return = that value × product cost %.
- Return shipping = returns × return shipping per return.
- Processing labor = returns × minutes per return ÷ 60 × labor cost per hour.
- Inventory loss = returns × product cost of a return × (written off % + rest % × (1 − recovery %)), where rest % = 100% − restocked % − written off %.
- Exchange shipping = returns × exchange % × outbound shipping per exchange.
- Operating cost of returns = return shipping + processing labor + inventory loss + exchange shipping.
- Gross profit lost to refunds = returns × refund % × value returned × (1 − product cost %).
- Gross profit kept by moving refunds to exchanges = returns × points moved × (value returned × (1 − product cost %) − outbound shipping per exchange).
Worked example
A store takes 20,000 orders a year at an average of $80, and 15% of orders come back in full. Its products cost 40% of the selling price. It pays $8 for each return label, spends 10 minutes on each return at $20 an hour, restocks 70% of returned items, writes off 10% and recovers 30% of product cost on the other 20%. Customers choose a refund 70% of the time, an exchange 20% and store credit 10%, and each exchange costs $7 to ship out.
- Returns: 20,000 × 15% = 3,000
- Return shipping: 3,000 × $8 = $24,000
- Processing labor: 3,000 × 10 ÷ 60 × $20 = $10,000
- Inventory loss: 3,000 × $32 × (10% + 20% × 70%) = $23,040
- Exchange shipping: 3,000 × 20% × $7 = $4,200
- Operating cost of returns: $61,240, or $20.41 per return
- Gross profit lost to refunds: 3,000 × 70% × $80 × 60% = $100,800
Returns cost this store $162,040 a year including lost profit, about 10.1% of its $1,600,000 revenue. Moving 10 points of refunds to exchanges keeps $24,000 of revenue and $12,300 of gross profit after the extra outbound shipping, bringing the total to $149,740.
What the model leaves out
- Payment fees that are not refunded, customer service time and fraud are not included. Add them to the labor cost or return shipping if they matter for you.
- It assumes store credit is spent in full and that an exchanged item is in stock, with the same selling value and product-cost share as the returned item. Later shipping or handling costs when store credit is redeemed are not included. Exchanges that end up as refunds anyway should stay in the refund share.
- The model counts one return shipment and handling event per returned order. Use average costs that include extra parcels or repeated returns if those occur. Enter order values and product costs on the same basis, excluding tax collected for a tax authority.
- It does not predict whether a returns policy changes how many people buy. To compare two policies on conversion and return rate, use the free returns ROI calculator.
Frequently asked questions
What does a return cost an online store?
The direct costs are the return label if you pay for it, the staff time to receive, inspect and restock the item, and the value lost on items you cannot sell again at full price. On top of that, a refund undoes the sale, so the gross profit you made on it is gone too.
Why does the calculator show lost gross profit separately?
A refund is not a cost in the same way a return label is: the customer gets their money back and you get the goods back. What you lose is the profit the sale would have made. Keeping it on its own line shows how much of the problem is operating cost and how much is lost sales.
How is an exchange different from a refund in this model?
An exchange keeps the order's revenue. You still pay to receive and process the returned item, and you pay outbound shipping for the replacement, which is entered separately. A refund gives the revenue back and loses the gross profit on the order.
Is store credit the same as keeping the sale?
The cash stays with you, and the model assumes the credit is spent in full, so it counts the sale's gross profit as kept. Credit that is never spent is a liability on your books until it expires or is released, and how that works depends on where you trade, so check with your accountant.
What return rate should I enter?
Use your own: orders with at least one return divided by orders, over a period old enough that the full return window has closed. A recent month will understate the rate because some of its returns have not arrived yet.
Does Forthroute make exchanges the default?
No. Refund is the default resolution in the Forthroute return portal. You can offer exchange incentives in the portal, and every refund is issued by you, not automatically.
Offer exchanges in your return portal
Forthroute is a Shopify returns app with a branded return portal and prepaid return labels. Refund is the default resolution, and you can offer exchange incentives to customers who would rather swap. Every refund is issued by you.