Refund rate

In plain words

Refund rate is the share of your revenue that you give back. It is refunded revenue divided by the revenue of the same orders.

A refund costs more than the money returned. The product was made, picked and shipped, and often the card fee is not handed back either. So an order refunded in full loses its whole cost. That makes each point of refund rate more expensive than a point of discount.

Formula

• Refund rate = refunded revenue ÷ gross revenue, for the same orders
• Refund reserve in a forecast = revenue × expected refund rate

Worked example

Forecast at a 5% refund rate, the $40.00 bag's order sets aside $2.00 and keeps $15.36. At 8%, the engine sets aside $3.20 and the order keeps $14.16.

Three more points of refunds took the margin rate from 38.4% to 35.4%.

Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.

Refund rate is not return rate

Return rate counts units or orders sent back. Refund rate counts money. A partial refund for a late delivery raises the refund rate with no return at all, and a returned item that is exchanged is a return with no refund. For margin, the money is what counts.

Using it

Measure it per offer and per option, on orders old enough for their refunds to have arrived. Last week's orders always look clean. Compare each offer's rate with the reserve its forecast used. An offer that runs well above its reserve is attracting buyers who send more back, and that belongs in its price.

In Offer Suite

Offer Suite's forecast charges an expected refund rate as a reserve. Realized figures drop the reserve and net each order's actual refunds from its revenue, so the two can be compared offer by offer.

Source: Offer Suite's money definitions, checked against real Shopify orders.