Returns processing cost: what each return really costs you

Key takeaways

Returns processing cost is everything a retailer spends to take an item back: customer contact, admin, inspection, refund, restocking and any postage it funds. The admin and contact part is the most controllable. In our example, 500 returns a month use 100 hours of handling. Clear policies and a standard process reduce both the number and the cost.

• Cost per return: contact, admin, inspection, refund and restocking.
• 100 hours a month for 500 returns in our example.
• UK consumers have 14 days to cancel most online orders.
• Better product information prevents returns before they start.

What is included in returns processing cost?

Returns processing cost is the total cost of handling a returned order from the customer's first message to the item being back on sale or written off. It includes staff time at each step and any direct costs the business pays.

• Customer contact: the request and any follow-up.
• Authorisation and labels.
• Receiving and inspection.
• Refund or exchange.
• Restocking, repackaging or disposal.
• Return postage, if you pay it.

• How BPO can help businesses reduce operational costs
• Customer service outsourcing for UK e-commerce

What does one return cost in numbers?

In an illustrative online shop, each return needs about 12 minutes of handling: 4 on customer contact, 3 on receiving and inspection, 3 on the refund and records, and 2 on restocking. At a loaded £19.81 per worked hour that is about £3.96 of labour per return, before postage.

At 500 returns a month, that is 100 hours and about £1,980. Run by a managed team at an indicative £12 an hour, the contact and admin part, 7 of the 12 minutes, would cost about £700 a month instead of £1,155.

• Handling time per return: 12 minutes.
• Labour cost per return: about £3.96.
• 500 returns a month: 100 hours, about £1,980.

• Work out your cost per task before you outsource
• Unit economics: does each new customer still make money?

What does UK law require?

Under the Consumer Contracts Regulations, consumers buying online can usually cancel within 14 days of receiving goods, and then have a further 14 days to send them back. You must refund within 14 days of getting the goods back, or of the customer providing evidence of return. Some items, such as bespoke or perishable goods, are exempt.

Slow refunds are a common cause of repeat contact and complaints, so the deadline is a cost issue as well as a legal one.

• Failure demand: the customer contacts you pay for twice

How do you lower the cost of returns?

Lower the cost by preventing returns, then by making the remaining ones routine. Prevention starts on the product page: accurate sizes, real photographs and honest descriptions. Routine means one process, one form and one set of rules.

• Tag every return with a reason and fix the top causes.
• Use a self-service returns form with required fields.
• Send automatic status updates at each stage.
• Set clear rules for refund, exchange and inspection.
• Batch inspection and restocking at fixed times.

• Straight-through processing: cut the touches per task
• Customer service macros: faster replies at lower cost
• Self-service on your website: let customers help themselves

Which parts can be handed over?

The contact and administration can be handed over: answering return requests, issuing authorisations, updating order records and processing refunds within agreed limits. Physical inspection and restocking stay wherever the stock is. Splitting the process this way works as long as both sides update the same system.

• Order processing outsourcing for manufacturers and brands
• Process handoffs: why every extra handover adds cost

When is a generous returns policy worth the cost?

A generous policy is worth its cost when it increases sales by more than the returns it creates, which is plausible for clothing and other products people need to try. It is not worth it if nobody has checked. Measure return rate and reason by product, and tighten or loosen with evidence.

• Cut costs or grow revenue: which should come first?
• The cost of complexity: when variety eats your margin

What does this look like in practice?

A pattern we see in growing online shops: returns are handled by whoever is free, through email, with no reason recorded. One product accounts for a large share of them because its sizing chart is wrong. Nobody has noticed, because nobody counts. A reason code on every return finds it in a fortnight.

• See client work
• BPO Solutions for UK businesses

Returns cost checklist

Review these each quarter.

• Time each step of a return.
• Calculate labour cost per return.
• Record a reason for every return.
• Rank products by return rate.
• Check refunds meet the 14-day deadline.
• Automate status updates.
• Decide which steps a managed team could run.

• How to reduce e-commerce operating costs as orders grow
• Cost reduction KPIs: the numbers that prove savings are real

Next step

Send us your monthly returns volume and how the process runs today. We will work out the cost per return with you and show where it can come down.