The percentage of merchandise returned over a particular period can be calculated by simply dividing the number of items returned by the number that has been sold. If, however, you wish to calculate the percentage of returns on a dollar basis, you must consider additional factors such as penalties charged to customers for returning merchandise as well as the costs associated with restocking returned items.
Determine the period during which you will accept returns. To accurately calculate the percentage of merchandise returned, you must determine how much time customers have to return what they buy and wait until customers are no longer allowed to return merchandise before counting the merchandise as sold for certain. If, for instance, you wish to calculate what percentage of sneakers sold between January 1 and March 31 have been returned, and customers have 30 days to return sneakers, you must wait until April 30. Any calculation performed before this date will be subject to revisions, as some customers could still return their sneakers after you arrive at a returns figure.
Determine how many of the units that were sold during the time period were later returned, and divide that number by the number of units sold. Multiply your answer by 100 to calculate the percentage of units returned. If 80 pairs of sneakers have been sold and 10 pairs were later returned, for instance, returns expressed as a percentage would be 10 divided by 80, multiplied by 100, which equals 12.5 percent.
A key decision you must make is how to account for merchandise that was merely exchanged. If a customer exchanges a pair of sneakers with a larger size a week after purchase, would that be considered a return? What if the customer returns the sneakers and uses her store credit to buy a pair of shorts? The answers to these questions depend on the specific accounting rules that apply to your industry and what management wishes to see in sales reports.
Calculate the net sales price of returned merchandise. Next, subtract the penalties charged to customers for returns, and add any costs associated with restocking returned merchandise. Now divide this figure by net sales and multiply the result by 100. The result will give you the net returns percentage in dollar figures. Assume, for instance, that you have sold $3,000 worth of goods and $300 worth of merchandise has been returned. Assume you charge a 10 percent restocking fee for returns, which equals $30 in this case. Also assume that you have incurred a $20 cost to repackage and inspect returned items. Your net returns percentage, in dollar terms, equals $300 minus $30, plus $20, divided by $3,000, times 100. This results in 9.7 percent.
Hunkar Ozyasar is the former high-yield bond strategist for Deutsche Bank. He has been quoted in publications including "Financial Times" and the "Wall Street Journal." His book, "When Time Management Fails," is published in 12 countries while Ozyasar’s finance articles are featured on Nikkei, Japan’s premier financial news service. He holds a Master of Business Administration from Kellogg Graduate School.