Refund Calculator
What a refund costs against two baselines, since the processing fee and outbound shipping belong to one and the lost margin to the other.
Order value $68.00
Refunded to the customer $68.00, 100%
Compared with the sale sticking
margin that disappears $41.00
shipping back $0.00
stock value not recovered $4.05 at 85% resale
total $45.05
not included the outbound shipping and the processing fee: both were spent either way
Compared with the order never existing
processing fee kept by the provider $2.27, which most providers keep
shipping out $6.40
shipping back $0.00
stock value not recovered $4.05
total $12.72
not included the margin, because an order that never happened never earned one
Sales needed to replace it
gross margin a sale $41.00
sales to cover the lost contribution 1.10
Across the period
orders 1,420
refunds 59.6 at 4.2%
revenue $96,560.00
gross margin before refunds $58,220.00
cost of refunds $2,686.78
margin after refunds $55,533.22
share of margin lost 4.6%
a point off the refund rate $639.71
What a policy change would need
1% more orders pays for a refund rate up to 5.1%
2% more orders pays for a refund rate up to 5.98%
5% more orders pays for a refund rate up to 8.53%
A $68.00 refund costs $45.05 against the sale having stuck, and $12.72
against the order never existing. Those are different questions and
adding them together double counts: the outbound shipping and the
processing fee belong only to the second, and the margin only to the
first.
Most payment providers keep the percentage fee on a refunded
transaction. Stripe stopped returning it in 2019, PayPal keeps the fixed
fee, and the amounts are small individually and material at volume.
Check your provider rather than assuming.
A refund is not a reversed sale. Reversing a sale would restore the
margin and the fee; a refund restores neither, which is why the cost
above exceeds the money returned.
Refund rate is a product signal before it is a cost. Wrong size, not as
described, arrived damaged and changed mind are four different problems,
and only the first three are fixable by you. A single rate hides all of
them.
A generous policy can raise net revenue. It lifts conversion, and if the
lift outweighs the extra refunds it pays for itself: the table above
shows what refund rate a given conversion lift would fund. Retailers who
tightened their policies have repeatedly found the lost sales cost more
than the refunds saved.
A restocking fee recovers some cost. Where consumer law gives a right to
cancel, as the EU and UK distance-selling rules do, it usually cannot be
charged on that cancellation, and it can cost more in reviews than it
recovers.
Chargebacks are the expensive version. A disputed transaction carries a
fee of fifteen to a hundred dollars on top of the refund, and a
chargeback rate above about one percent puts the merchant account itself
at risk, which is why refunding a complaint quickly is usually cheaper
than winning it.
Consumer law sets a floor your policy cannot go below. The EU and UK
give fourteen days to cancel a distance sale for any reason, many US
states have their own rules, and a policy that contradicts the statutory
right is unenforceable rather than clever.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
“What does a refund cost us” is two questions wearing one coat, and the usual answer adds them together.
Against the sale having stuck, a refund costs the contribution you no longer have: the gross margin, plus the return leg and whatever the stock lost in value. The outbound shipping and the processing fee are not in it, because they were spent in that scenario too. Against the order never existing, it costs only what actually left the building: the fee the provider kept, the postage, the impairment. No margin, because there was none.
On the example those are $45.05 and $12.72. A figure of $57.77 is neither, and it is what you get by adding a margin the second scenario never earned to postage the first scenario spent anyway.
How to use
- Put in the order value, how much of it was refunded, and the unit cost.
- Add the processing fee and both legs of shipping, and say whether your provider returns the fee.
- Add the orders and the refund rate to see what the refunds take out of a period’s margin, and what a conversion lift would have to be worth to pay for a more generous policy.
Example
A $68 order costing $27 to make, refunded in full, with no return required:
Compared with the sale sticking
margin that disappears $41.00
shipping back $0.00
stock value not recovered $4.05 at 85% resale
total $45.05
not included the outbound shipping and the processing fee: both were spent either way
Compared with the order never existing
processing fee kept by the provider $2.27, which most providers keep
shipping out $6.40
shipping back $0.00
stock value not recovered $4.05
total $12.72
not included the margin, because an order that never happened never earned one
Sales needed to replace it
gross margin a sale $41.00
sales to cover the lost contribution 1.10
Across the period
orders 1,420
refunds 59.6 at 4.2%
gross margin before refunds $58,220.00
cost of refunds $2,686.78
margin after refunds $55,533.22
share of margin lost 4.6%
a point off the refund rate $639.71
What a policy change would need
1% more orders pays for a refund rate up to 5.1%
2% more orders pays for a refund rate up to 5.98%
5% more orders pays for a refund rate up to 8.53%The last block is the one that changes decisions. One percent more orders pays for nearly a point more refund rate, which is usually a better trade than the policy tightening that would have prevented it.
Pitfalls
Do not add the two totals. They answer different questions about the same event. The first is the number for a decision about the product or the policy; the second is the hole in this month’s cash.
The processing fee is usually gone. Stripe stopped returning the percentage fee in 2019 and PayPal keeps the fixed portion. On a $68 order that is $2.27 you paid to make a sale that unmade itself, and at volume it is a line worth knowing rather than assuming.
A refund is not a reversed sale. Reversing a sale would give back the margin and the fee. A refund gives back neither, which is why the cost above is larger than the money returned in one case and smaller in the other.
Tightening the policy costs sales. Retailers who shortened windows or started charging for returns have repeatedly found the lost conversions cost more than the refunds saved. The table prices that trade instead of assuming it goes one way.
Chargebacks are the expensive version. A disputed transaction carries a fee of fifteen to a hundred dollars on top of the refund, and a rate above about one percent puts the merchant account itself at risk. Refunding a complaint quickly is usually cheaper than winning the dispute.
Consumer law sets a floor. The EU and UK give fourteen days to cancel a distance sale for any reason, and many US states have their own rules. A restocking fee that contradicts a statutory cancellation right is unenforceable rather than clever.
The rate is a product signal first. Wrong size, not as described, arrived damaged and changed mind are four problems and only the first three are yours to fix. A single refund rate hides all of them.
Compatibility
Arithmetic in the browser: nothing is uploaded and nothing is stored.
Both baselines come from the same inputs, and the difference between them is exactly the outbound shipping plus the processing fee plus the margin. The test suite asserts that raising the outbound shipping moves only the second figure and that a product with no margin at all produces a sale-baseline cost of just the return costs, which are the two ways this calculation is usually got wrong.
The period figures use the sale-baseline cost, since the question there is what the refunds took out of the margin that was earned. The policy table compares the margin on extra orders against the cost of refunds across the larger base, so the refund rate it quotes is the one the extra volume would fund rather than the one it would cause.
Partial refunds scale the margin and the impairment but not the fee or the postage, because those do not come back in proportion.