In plain words
A refund reserve is the share of revenue you expect to give back in refunds, charged against each order when you forecast its margin. You don't know which orders will be refunded, but you do know roughly how many, so the forecast carries that rate.
Once orders are real, the reserve gives way to what was actually refunded. A forecast with a 5% reserve and a month with 8% refunds differ by three points of revenue, and that difference is the kind a margin report should show.
Formula
- Refund reserve = revenue × expected refund rate
Worked example
At a 5% reserve, the $40.00 bag carries $2.00 for refunds in its forecast margin of $15.36. Its unit cost, fulfilment and shipping stay in full: a refunded order was still made, picked and shipped.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| cogs | per unit | −$12.00 |
| pick_pack | per order | −$1.18 |
| packaging | per parcel | −$0.50 |
| shipping | per parcel | −$7.50 |
| processing_fixed | per order | −$0.30 |
| refunds | percent | −$2.00 |
| processing | percent | −$1.16 |
| Gross margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
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.
A refund reserve is not the refunds that happened
The reserve is a rate in a forecast. Realized profit replaces it with the refunded revenue each order actually recorded. Reporting both lets a brand see when an offer attracts more returns than its products usually do.
Using it
Set it per product line from your own refund history, not from an industry average. Apparel and footwear refund far more than consumables. Revisit it when an offer changes who buys: a deep first-order discount can bring buyers who return more, and a reserve set before the offer will understate its cost.
In Offer Suite
In Offer Suite the forecast charges the refund rate, and realized cost is computed with the rates at zero, because the order's actual refunds are netted from its revenue instead.
Source: Offer Suite's money definitions (decision 41), checked against real Shopify orders.