May 18, 2020

It's Seamless Shopping! Just Return The Item

They'll tell you that the customer loves it.

They'll tell you that your software needs to handle it.

They'll tell you it is "table stakes" or they'll say something equally vapid to demand that you make it brain-dead easy for the customer to return merchandise.

Good for the customer.

Really, really good for the vendor selling software/services.

How about for you?

Let's say you have a $100 average order value ... you sell five items at $20 each, to make the math easy. Let's also make the math easy ... say it costs you $7 to have the item seamlessly returned to you, and we'll say it costs $5 to reprocess the item in your distribution center ... you lose $12 on every item that is returned.
  • Let's also say that your cost of goods sold is 40%.
  • Let's also say that pick/pack/ship expenses are 10% of gross sales.
Pretend that the customer keeps 100% of this order.
  • $100 average order value.
  • Cost of Goods = 0.40*$100 = $40.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Contribution / Variable Profit = $100.00 - $40.00 - $10.00 = $50.00.
Pretend that the customer returns one item.
  • $100 average order value.
  • Net Sales = $80.00.
  • Cost of Goods = 0.40*$80.00 = $32.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Net Returns Expense on One Item = 1 * ($5 + $7) = $12.00.
  • Contribution / Variable Profit = $80.00 - $32.00 - $10.00 - $12.00 = $26.00.
Pretend that the customer returns two items.
  • $100 average order value.
  • Net Sales = $60.00.
  • Cost of Goods = 0.40*$60.00 = $24.00.
  • Pick/Pack/Ship Expense = 0.10*$100 = $10.00.
  • Net Returns Expense on Two Items = 2 * ($5 + $7) = $24.00.
  • Contribution / Variable Profit = $60.00 - $24.00 - $10.00 - $24.00 = $2.00.
Oh my goodness.
  • Keep 5/5 Items = $50.00 variable profit.
  • Keep 4/5 Items = $26.00 variable profit.
  • Keep 3/5 Items =   $2.00 variable profit.
Make it seamless?

Make no money.

We're gonna need a solution for this, aren't we?

More on the topic tomorrow.

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