How to Calculate the True Cost of a Return

Most retailers can tell you their return rate. Far fewer can tell you what a return actually costs.

Research suggests that 69% of companies do not fully understand the true cost of returns, while retailers consistently underestimate both return volumes and the operational burden they create.

The problem is that most businesses focus on shipping costs alone. In reality, the true cost of a return includes logistics, labour, inspection, customer service, fraud, markdowns and lost inventory value.

The challenge is not that returns are expensive. It's that most retailers don't know how expensive they really are. Research found that retailers underestimate return rates by an average of 80%, while processing a single return can consume up to 75% of a product's retail value.

For finance and commercial teams, returns are no longer just an operational challenge. They are a hidden profit leak.

Why Most Retailers Underestimate Return Costs

Returns costs rarely sit in one place.

• Transport is owned by logistics.
• Receiving and inspection sit within warehouse operations.
• Refunds are managed by finance.
• Customer enquiries land with customer service.
• Markdowns impact merchandising and commercial teams.

Because the costs are spread across multiple departments, many retailers never see the complete picture. Research suggests fashion retailers lose approximately £7 billion every year through returns processing and associated costs.

The Eight Costs Hidden Inside Every Return

1. Inbound Logistics

Research suggests the average cost of returning an online purchase in the UK reached £14.50 in 2025. However, shipping is only the beginning.

2. Warehouse Receiving and Sorting

Every returned parcel must be received, opened, logged and routed. Labour costs are often hidden within warehouse budgets rather than measured against returns performance.

3. Condition Assessment

Every item must be inspected before a decision can be made. Research highlights that returns require individual handling and inspection, making them significantly more labour intensive than outbound fulfilment.

4. Reprocessing and Repackaging

Returned products frequently require cleaning, steaming, retagging, repackaging or repair before they can be sold again.

5. Refund Processing

Payment processing, chargebacks and finance administration all contribute additional costs.

6. Inventory Value Loss

This is often the biggest hidden cost. Returned products can spend weeks moving through the returns process, missing opportunities to sell at full price. Research suggests products can spend up to four weeks in the returns cycle during busy periods.

7. Fraud and Abuse

Returns fraud, wardrobing and serial returning create losses that extend far beyond the refunded value of the item.

8. Customer Service Resource

Returns-related enquiries consume valuable customer service resource and are frequently overlooked when calculating the true cost of returns.

The Cost Most Retailers Miss: Value Depreciation

The biggest cost is rarely shipping. It's value loss. Research suggests that even when returned products are eventually resold, the combination of handling, reverse logistics, refurbishment and markdowns can reduce profitability by up to 40%.

The longer a product sits waiting for inspection, grading or disposition, the less valuable it becomes.

The Back Perspective: The Cheapest Return Is the One That Never Moves

Most retailers focus on reducing the cost of processing returns. Back focuses on reducing costs before they are incurred.

By capturing product images and applying verification before a return enters the supply chain, retailers can make smarter decisions earlier. This helps reduce:

• Fraud and abuse
• Unnecessary transportation
• Warehouse handling
• Inspection costs
• Inventory value loss

While improving recovery opportunities and customer experience.

See the Cost. Change the Outcome.

Most retailers know their return rate. Very few know what those returns are actually costing the business.

Our free Returns Cost Calculator helps retailers estimate the full financial impact of returns, including operational costs, value depreciation, fraud exposure and recovery opportunities. In just a few minutes, you'll gain a clearer picture of where margin is being lost and where the biggest opportunities for improvement exist.

Calculate Your Returns Cost

Discover what returns are really costing your business and uncover opportunities to reduce costs, recover value and improve profitability.

Try the Returns Cost Calculator

Sources

• Gartner (2023), Returns Cost Research
• Professor Regina Frei, University of the Arts London, Research into the Cost of Returns
• ZigZag Global & Retail Economics (2025), Returns Cost Analysis
• ReBound, The Hidden Costs of Ecommerce Returns
• Retail Economics, UK Retail Returns Research