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Calculate True Refund Cost
Common Questions
Frequently Asked Questions
What is the true cost of a refund?
The refunded dollars are only part of it. The true cost also includes the ad spend you can't recover, return shipping (often pre-paid), restocking and repackaging at your 3PL, any payment processing fees the gateway keeps, and COGS on products that come back unsellable. For a $75 order with $18 CPA, a refund typically costs $30-50 beyond the refunded amount.
Do payment processors keep their fees on refunds?
Stripe and Shop Pay keep both their percentage fee and fixed per-transaction fee on refunds. PayPal returns the percentage but keeps the fixed fee. Square returns the full fee. On a $75 order through Stripe, that's $2.48 you don't get back per refund - small individually, real money at volume.
How does refund rate impact ad spend efficiency?
A 6% refund rate effectively raises your CAC by 6%. If you spent $18 to acquire each customer and 6% refund, your real CPA on retained customers is $18 / 0.94 = $19.15. Combined with refund handling costs, refunds typically inflate effective CAC by 8-15%.
What's a normal refund rate for ecommerce?
It varies wildly by category. Apparel often runs 15-30% due to fit issues. Beauty and consumables run 3-6%. Electronics 8-12%. Home goods 5-10%. Anything above your category average is signal something is off in product description, sizing, or QC.
How do I reduce refunds without losing sales?
The highest-ROI interventions are usually: detailed sizing charts with model measurements, multiple PDP photos showing scale and texture, video reviews showing real use, post-purchase emails setting expectations, and QC checks on bestsellers. Most merchants find a 25% refund reduction is achievable in 90 days without conversion-rate impact.
Should I offer free returns?
It depends on your margin. Free returns lift conversion rate (typically 10-30%) but also lift return rate (typically 15-40%). If your gross margin is under 40%, free returns usually hurt net profit. If margin is over 60%, the conversion lift usually dominates. Run the math on your specific numbers before committing.
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