Small vs. Large Sellers: You Won’t Believe Who Has a Higher Amazon Return Rate
February 28, 2022
In this post you will find out:
- How scale affects online return rates
- What industries have higher return rates
- The unexpected effects COVID-19 had on Amazon returns
Can the cost of Amazon returns be too expensive to make money? If you’re an online seller with an active Amazon store, you might be nervous about scaling inventory orders due to increased costs on things such as returns processing.
And while Amazon’s lenient return policy can hinder profit and even get your product listing removed if your return rate gets too high, this doesn’t have to be an obstacle for growing your business.
Many sellers assume that scaling up also means increasing the rate of return. But we analyzed 8fig seller data to see how high growth impacts customer return rates and found out what actually happened in 2021.
Amazon Stores with Higher Sales Have Lower Return Rates on Average
Returns are one of the costs of doing business on Amazon, but that doesn’t make it any easier on many sellers. More than the lost inventory, a return signals that a customer wasn’t satisfied with a product and that the seller may have lost the customer’s business for life.
We’ve got good news for anyone looking to scale, though: after analyzing our seller data, we found that return rates actually decrease as stores grow their revenue on the platform.
We compared the rate of return from a sample of our smaller sellers to our largest and found that stores generating the most revenue had a 53% lower average return rate compared to stores generating the least revenue.
If you’re a seller looking to scale, you can rest easy knowing that a higher return rate doesn’t typically follow more sales. In fact, this data could signal that stores with the opportunity to grow often have a solid product that will continue to perform well as it is introduced to new customers and markets.
Take Jessica, a 7-figure Amazon seller who grew her revenue from $500K to $3M in just 10 months with 8fig. She used 8fig funding to cover 90% of costs for her hero product’s supply chain and then invested sales revenue into other areas of the business, such as expanding to the UK. Introducing her product to new markets caused explosive revenue growth, while simultaneously decreasing her Amazon rate of return.
At 8fig, we use a growth planning technology to forecast future growth based on current sales data. If you can plan your demand, we’ll fund it with continuous capital that scales with you. Start building your free Growth Plan and submit it to receive a funding offer.
Understanding Your Amazon Return Percentage
Thanks to Amazon’s 30-day return policy for most products, online sellers may start some days with more money than they end with. What’s more, sellers who use FBA don’t even get to set their own product return policy — Amazon does. Even stores that fulfill and ship their inventory with third-party vendors are likely to adopt a similar return policy to stay competitive in the marketplace.
Your Amazon return rate is the percent of your sales that get returned by buyers. Calculating this metric can tell you a lot about the product you’re selling. For example, if you have a low return rate, you can assume that customers who receive your products are happy with the purchase.
Amazon also analyzes your return rate to see whether customers are satisfied with your products. High refund rates that fall into key categories send negative signals to Amazon, and the marketplace will remove listings that have higher than average refund rates.
To calculate your Amazon return rate, start by heading to Seller Central and navigating to Manage Returns. Gather data on the both number of return requests and total orders received for a particular product. Then, divide the return requests by total orders to get your return rate. You can calculate this monthly, quarterly, yearly, or historically.
Now that you’ve got your Amazon return rate, you can use this data to make improvements to your product, Amazon store listing, and more. The goal is to lower your return rate as you grow, but there are other factors that impact return rates that may be out of your control.
Return Rates by Industry and How it Impacts Your Amazon Store Performance
When it comes to returns, there’s a lot of factors that play a role. One of the biggest is what you’re selling since some industries are prone to more returns than others. For example, consumers are much more likely to return high-priced items like electronics than affordable ones such as beauty products.
Check out the chart below to see eCommerce return frequency by industry.
Clothing and apparel have the highest return rates since sizing and fit are harder to determine online, sans dressing room. Online apparel sellers can reduce returns by investing in appropriate sizing charts and paying attention to customer reviews. This will also help limit exchanges, which come with their own costs and can overwhelm customer service systems.
3 Ways COVID-19 Impacted Customer Returns
During COVID-19, Amazon profits have grown by 220%. As an online seller, it’s been a unique opportunity to capture more sales while delivering goods safely and quickly during unprecedented times.
Amazon temporarily extended its return policy during the pandemic, and staffing shortages have caused the retail giant to quietly tell consumers to keep items they’ve requested to return at no cost in order to slow return processing. These are just some of the ways customer returns have shifted since March 2020.
We gathered a few more examples from around the web of COVID-19’s impact on return rates on Amazon. Check them out.
1. Customers lose sense of smell and appetite for scented products, such as candles.
As omicron surges, so do negative reviews and refund requests for scented products such as Yankee Candles. Of course, one of the main symptoms of COVID-19 is a loss of taste or smell. In the chart above, you can see infections rising as negative reviews for a Yankee Candle product roll in listing “little to no scent” as the reason for the one star.
2. Retail sizing gets down to the nose
Masks have been an unexpected best seller since March 2020. But this demand for consumer facial coverings has also made sizing charts more specific than ever, as sellers are challenged to get product sizing right down to the nose. Alan Osetek, Chief Commercial Officer of Intentwise, says “be sure to include exact product measurements, size and color choices, materials description (example – for clothing), and answers to FAQs.”
3. Pandemic price gouging creates unhappy customers
As demands for scarce goods such as toilet paper and sanitation wipes skyrocketed, so did prices. Pandemic trends, like baking bread, also caused unexpected products like yeast to sell out fast. While low inventory periods are a smart time to hike prices on Amazon, you’ll always run the risk of unhappy customers and more returns, especially if you raise costs to unreasonable levels.
As an online seller, you should do everything in your power to reduce your Amazon return rate, but it’s also important to remember that these returns come with the territory. Rather than get defeated, use the data to optimize your product research and marketing to improve your customer journey over time.
Build an 8fig Growth Plan to get more capital to invest in marketing, inventory, and other areas of your supply chain. Submitting an offer is free and the funding is continuous, equity-free, and built to scale with your store.
In order to calculate the rate of return between large and small Amazon Sellers who use 8fig, we averaged both our 36 highest revenue-generating Amazon Sellers and our 36 lowest revenue-generating Amazon Sellers. From there, we compared the differences between the averages to see the difference in return rates.
Karlyn is an eCommerce writer and Content Marketing Manager for 8fig. She's on a mission to democratize online retail by empowering small and medium-sized businesses with resources and tools they need to compete in dynamic marketplaces.