Quantify Your Return Abuse in 3 Steps – Forter

Quantify Your Return Abuse in 3 Steps

The fraud team owns transactions. Customer service issues refunds. Operations does the processing. Return abuse hides in the gaps between all three, draining resources throughout your organisation. Find out what this undetected abuse is costing you.

The True Cost of Abuse

Say someone filed a false INR claim. The most obvious costs — the cost of goods and the refund itself — are just the tip of the iceberg. Take a look beneath the surface. There are also logistics costs and overhead expenses. Someone packed the item in the warehouse and a customer service representative processed its return.

You're also losing margin from ultimately not being able to sell that item.

If this keeps happening, your instinct may be to tighten policy. But that may cause customers to abandon their purchases. Because the costs are so fragmented across teams, it's difficult to calculate the true cost of abuse. But understanding the magnitude of the problem is the first step to solving it.

53% of retailers see a reduction in return rate after implementing return fees.

Source: NRF

37% have also lost customers after tightening return policies.

Source: NRF

3-Step Framework

Build your complete picture

01

Step One

Clearly define "abuse"

There's no universal definition of "abuse." The term varies from one business to the next, and even one team to the next. Merchants draw the line with wardrobing thresholds, INR claim frequency, and return-to-purchase ratio cutoffs, to name a few.

It's important to have your own definition that spans the entire organisation. That way, a customer service rep and a fraud analyst would classify the same behaviour the same way.

Key signals
Wardrobing thresholds, INR claim frequency, return-to-purchase ratio cutoffs

Key principle
A CS rep and a fraud analyst should classify the same behaviour the same way

02

Step Two

Build your total cost of abuse

The goal is a single per-order cost of abuse figure: one number that lets you tie return abuse back to specific business lines, justify policy decisions internally, and quantify the recovery opportunity. Most merchants undercount significantly because they only capture the direct refund. The real cost has two components: what you pay out, and what you fail to earn.

Getting to an accurate total requires more inputs than most teams expect. A complete calculation accounts for variables like whether your business covers outbound and return shipping costs, your fulfilment unit processing cost, your customer service team's cost per ticket versus cost per call, the percentage of INR claims that come back as service chargebacks rather than standard refunds, and what proportion of returned items are actually restockable versus written off. Each of those inputs changes your number — sometimes materially.

What you pay out
Shipping, fulfilment, CS cost per ticket or call, chargeback fees

What you fail to earn
Lost margin on items that can't be restocked or resold to a legitimate buyer

03

Step Three

Calculate your total cost per order, account, or programme

Start by calculating your total cost of abuse per order. Then roll up to account level to identify serial abusers. Lastly, segment by channel or campaign to find where the abuse is concentrated.

That will give you insight into where return abuse has the biggest impact and its downstream effect on the customer experience.

Per order
Base cost calculation — your single unit of measurement

Per account
Roll up to identify serial abusers across your customer base

By channel or campaign
Segment to find where abuse is most concentrated

Downstream impact
Understand the effect on customer experience and retention

The Profitability Formula

Cost of inventory
What you paid for the goods

=
Profitability impact
Your true cost of abuse per order

Do you know what return abuse is actually costing you?

Uncover the undetected abuse in your business. Answer 5 questions to find out how much you're losing.