May 31, 2020

Returns on a First Order

Thought you might find this one interesting ... this came up in a project a while back and it mirrors what we saw when I worked at Eddie Bauer back in the day.

Ready?

First-Time Buyer Rebuy Rates and Spend per Repurchaser in First Full Year on the File.
  • Did Not Return Anything = 38% Rebuy Rate, $205 Spend/Repurchaser, 9% Future Return Rate.
  • Returned 1+ Item, Kept 1+ Item = 38% Rebuy Rate, $210 Spend/Repurchaser, 20% Future Return Rate.
  • Returned Every Item = 44% Rebuy Rate, $180 Spend/Repurchaser, 12% Future Return Rate.
Let's assume that each returned item costs the brand $10 and let's assume that each item costs $40 for the customer to purchase. Let's assume that 20% of future demand is consumed by ad costs, let's assume that 45% of demand flows-through to profit. Which customer segment was most profitable in the first full year?
  • Did Not Return Anything = $77.90 future demand, $7.01 returned, $1.75 returns cost, $14.57 profit.
  • Returned 1+ Item, Kept 1+ Item = $79.80 future demand, $15.96 returned, $3.99 returns cost, $8.78 profit.
  • Returned Every Item = $79.20 future demand, $9.50 returned, $2.38 returns cost, $13.15 profit.
Which customer would you prefer to have, long-term?

The customer that didn't return anything is clearly best.

The customer that returned everything is second best. Apparently your generous returns policy creates good feelings ... resulting in a higher rebuy rate with lower future spend yielding a reasonable return rate and 90%ish of future profit.

This dynamic comes up repeatedly ... not all the time, but often enough that I needed to share it with you.

You measure this stuff, right?

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