What is a Refund?
A refund is a money issued back to you customer when they either return a product or have an issue with a product (that is covered under your return/refund policy). This is a negative metric that factors into many of your overall ecommerce metrics. For example, to calculate your total sales (a revenue metric), you would use the following formula: Sum of revenue = gross sales - discounts - returns + taxes + shipping charges. For many revenue and other financial metrics, you need to subtract your refunds as that is money flowing back out of your company and represents negative sales.
Why is monitoring Refunds important?
Staying up to date with the rate at which your customers are getting refunds is essential to the health of your business. Remember, refunds are a negative metric, directly detracting from you total sales and overall revenue. If you see a new product that is constantly being returned due to quality or other issues, you may need to reassess your supply chain and consider sourcing better products or exploring new vendors. You have a fairly small window to delight new customers after attracting them. If customers are having a poor experience with your products and returning them, you’re unlikely to retain them as a customer (unless you step up your customer service and find them a solution, which can make them feel cared for). So, not only is a high refund rate indicative of a hit to your revenue, but it can bode ill for your company’s reputation and overall success.