Insights
Data Solutions Architect
Analytics and Data Science
The impact of returns is one of the biggest challenges for many industries. Whether it’s the cost of processing returns, the environmental impact or the chance they are no longer able to be sold, returns are often pivotal in a product’s profits. Optoro estimates that just 50% of returns make it back into store inventory.
By moving closer to your returns data, it is possible to gain a heightened view of individual product profits and navigate informed, data-driven decisions on where to invest your marketing.
Inquisitive questioning into your products is key to unlocking the truth within your data. Which product has the highest return rate? How much is profit affected after returns? Are you still operating on a positive ROI?
The monumental effect of returns across retail industries leaves many clients baffled by the wider impact on their profits. This example data from our recent whitepaper illustrates the power of returns, highlighting products that on the surface appear to be most profitable, although later reveal to be operating at a loss after considering returns.
| Category | Spend | Revenue | ROAS |
| Dresses | $193,050 | $1,254,825 | 650% |
| T-Shirts | $135,000 | $877,500 | 650% |
| Sandals | $75,000 | $487,500 | 650% |
| Hoodies | $57,000 | $370,500 | 650% |
After gathering the individual product metrics for spend, revenue and ROAS targets, the next step is to establish the impact of taking returns data into account and review how this influences each product.
| Category | Spend | Revenue | ROAS | Returns | Profit After Returns | Net ROI |
| Dresses | $193,050 | $1,254,825 | 650% | $627,413 | $125,483 | -35% |
| T-Shirts | $135,000 | $877,500 | 650% | $307,125 | $148,298 | 10% |
| Sandals | $75,000 | $487,500 | 650% | $170,625 | $91,894 | 23% |
| Hoodies | $57,000 | $370,500 | 650% | $74,100 | $91,884 | 61% |
By adding in these extra metrics on an item-by-item basis, you begin to unlock a deeper level of insight into how your data really looks after considering the challenge of returns. It is at this point you would then amend your strategy, using the true ROI of each product to navigate informed, data-driven decisions.
As evidenced in the above table, products that initially appear to be the highest profiting are often actually operating on a negative ROI. Tracking returns data heightens your perspective of each product, allowing you to unlock the truths within your data and streamline your strategy to boost ROI.
Significant financial risks soon come into play without consideration of the power and potential of returns. With both products and customers differing vastly in return rates, data-driven insight is key to informing where and how much to invest in products.
The rapid nature of online retail and rising customer expectations can easily spiral into logistical nightmares, significantly impacting profits and wider strategic goals. Given the fluctuation of both products and consumers across markets, industries and regions, building a bespoke, data-driven strategy is becoming increasingly vital for making profitable decisions and truly understanding your market.
A UK study of 2,000 shoppers found that 78% would buy more in the long run from retailers with free returns. Three quarters said returns are a key part of how they select a retailer and 86% say free returns will make them more loyal. It’s evident that returns are important to customers and zooming into your returns data will nurture a better understanding of the entire customer journey, unlocking the strategy and approach which works best for your business.
Moving closer to the individual metrics within your data nurtures a more personal and relatable experience along the customer journey, implementing personalized marketing from these deeper insights to encourage customers to invest or return to your brand.
The average online return rate of 23% is staggering when compared to the in-store return rate of less than 1%. Zooming into your returns data is a simple and efficient route to boosting profits and improving your overall website performance.
Breaking down each section with example data, we look at innovative ways to nurture an in-depth understanding of the entire customer journey and three of the industry’s key challenges:
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