Product Returns: Calculate Their Effect on Real Margin

This worksheet suits an online retailer reviewing an established product. It measures contribution per original order, including orders later returned. Use completed return outcomes from a consistent cohort so recent orders with no time to be returned do not artificially lower your return rate.

Build the result for an order kept by the customer

The fictional item sells for $100. It costs $40 landed, $8 to send, $3 to pack and $3 in payment fees. A kept order therefore contributes $46 before overhead and tax. These are illustrative inputs, not any platform's current fee schedule.

For returned orders, the example assumes a full $100 refund, no payment-fee recovery, $10 return freight, $4 inspection and $30 of usable inventory recovered. The $30 is the stock value retained for this management comparison, not another sale or a statutory inventory valuation.

Assumptions: Fictional Australian-dollar management example. Revenue and costs exclude any recoverable GST; non-recoverable tax is included in costs. No GST entitlement or income-tax deduction is assumed for your business. Contribution is before unallocated overhead and income tax.

Item	Customer keeps item	Customer returns item
Original revenue	$100	$100
Refund	$0	−$100
Original stock cost	−$40	−$40
Outbound freight, pack and fee	−$14	−$14
Return freight and inspection	$0	−$14
Usable stock recovered	$0	$30
Contribution	$46	−$38

Original ASBG worked example. All businesses, amounts and scenarios are fictional. The table contains the same figures as the visual.

The return result is $100 − $100 − $40 − $14 − $14 + $30 = −$38. Compared with a kept order, that is an $84 reduction. Do not subtract the refund a second time when calculating the overall cohort result.

Weight the outcomes by the return rate

Expected contribution per original order = kept-order contribution × kept proportion + returned-order contribution × return proportion.

Assumptions: Fictional Australian-dollar management example. Revenue and costs exclude any recoverable GST; non-recoverable tax is included in costs. No GST entitlement or income-tax deduction is assumed for your business. Contribution is before unallocated overhead and income tax.

Return rate	Calculation	Contribution/order
5%	95% × $46 + 5% × −$38	$41.80
10%	90% × $46 + 10% × −$38	$37.60
20%	80% × $46 + 20% × −$38	$29.20

Original ASBG worked example. All businesses, amounts and scenarios are fictional. The table contains the same figures as the visual.

At a 10% return rate, the model leaves $37.60 per original order. For 100 original orders with exactly ten returns, the same calculation gives $3,760 contribution. It is not $3,760 of cash in the bank: the recovered stock still needs to be sold.

If no usable stock is recovered, a return contributes −$68 and the 10% case falls to $34.60 per original order. If it can be resold, track that later sale separately using the recovered stock's cost basis and its own delivery costs. Do not count both $30 of recovered inventory and the later sale's entire proceeds as profit.

Check the reasons and rules behind the numbers

Split damaged, faulty, incorrect and change-of-mind returns. Review actual provider refund terms and transaction statements for fees retained or returned. Supplier credits and postage recoveries belong in the worksheet only when supported; their receipt dates belong in the cash forecast.

The ACCC's refunds and returns guidance explains consumer remedies and return-cost responsibilities. This costing model does not decide a customer's entitlement or authorise refusing a remedy. Have the policy and any uncertain case checked separately.

Where to get help

Ask your bookkeeper to reconcile refunds, stock movements and supplier credits. Continue with marketplace cost comparisons, a product keep-or-drop decision or the pricing and profit hub.