The problem with borrowing a refund target from a podcast
Founders pick up numbers everywhere. Books. Podcasts. Other founders. One line travels best: “great brands keep returns under 2%.” It lands in meetings like a law of nature. For some categories it is real. For others, fantasy.
Here is why. Supplements and drinkware run below 3% or 4%. There is nothing to try on and no color to misjudge. Jewelry, apparel, and footwear run far higher. A buyer cannot feel a chain’s weight through a screen. Or try on a ring. Some returns are built into how the category sells. Chase a number below that floor and the team grabs the only lever left: friction. Conversion drops. Reviews drop. The refund rate barely moves.
The real money hides in what each refund costs. A $100 order comes back. You do not just hand back $100. You pay about $5 return shipping. And $2 to shelve it again. The $20 of ads that won the customer? Gone for good. One refund drains about $127. The right target decides whether the team wins that money back. Or burns conversion trying.
This article is about the second one: refunds. It is the one lever with a different floor in every category. So the target must start from your category’s real floor. Not someone’s brag.
1. An example showing you the numbers
Picture your jewelry store on Shopify. Hoops, chains, and rings. A $100 average order. 2,000 orders a month. Your refund rate is 10%. Right at the jewelry . But at last year’s off-site, someone quoted the podcast line. “Under 2%” became the year’s goal.
The team spent a year pulling the only lever that seemed open: friction. The return window fell from 30 days to 14. A restocking fee. Photo proof before any return. The rate crawled from 10% to 9.5%. Nowhere near 2%. Conversion fell 8%. Reviews slid from 4.5 to 3.9 stars. Weaker reviews made ads work harder. About $2 more per order won, in this example. Roughly $3,200 a quarter saved on refunds. $1,900 given up on lost orders. $11,000 more spent on ads. The wishful target made the store about $9,750 a quarter poorer.
The fix started with this table. Real refund benchmarks for ecommerce.
Refund rates by category, the floor is structural
D2C ecommerce rates from NRF, Statista, and Shopify reports, revenue-weighted. In-store retail runs 30-50% lower, customers try before they buy.
| D2C category | Median | Top quartile (stretch) | ‘Wishful’ (borrowed) |
|---|---|---|---|
| Apparel (general) | 12% | 9% | 2% |
| Footwear | 18% | 14% | 5% |
| Beauty / skincare | 6% | 4% | 2% |
| Supplements | 4% | 3% | 2% |
| Kitchenware / home goods | 4% | 3% | 1% |
| Electronics | 8% | 5% | 2% |
| Jewelry | 10% | 7% | 2% |
| Furniture | 9% | 6% | 2% |
Read the highlighted row. For jewelry, 10% is normal. 7% is great. So the team reset the target to 7% and changed levers. True-scale photos on a hand and a neck. A printable ring sizer. True-color images. No new rules for customers. Within two quarters the rate hit 8.5% and kept falling. Conversion held. Reviews climbed back. The fit work saved about $9,600 a quarter. It cost $6,000 once. Photos and sizing guides.
Here is the per-order prize. At 10%, refunds cost about $11 of every $100 order. This store kept $4 per order after all six costs. At the 7% target, the refund cost is about $7. The store keeps roughly double. Across 24,000 orders a year, closing those three points is worth about $77,000. That money was always there. The 2% target pointed the team away from it.
One honest note. These benchmarks are medians and quartiles. Not promises. Sub-categories differ. Made-to-order rings do not act like chain necklaces. Use the table for direction. Then check your own books.
The sentence that changes how you think about refund targets
The right refund target is your category’s , not the floor of somebody else’s category.
A jewelry store at 7% equals a supplements store at 3%. In this example, chasing the borrowed 2% lost about $9,750 a quarter. Chasing the category’s own 7% earned it back and more.
2. How to set a refund target your team can actually hit
This is an afternoon of benchmark reading and one honest team talk. The target you pick decides which lever the team pulls.
- Look up your D2C category benchmark. Start with the table above. Then check your sub-category. NRF, Statista, and Shopify publish fresh numbers yearly. Read D2C ecommerce rates only. In-store retail runs far lower.
- Set the target at your category’s top quartile. The median is the floor of acceptable. The top quartile is a stretch you can really reach. If your category runs 10% and 7%, the target is 7%. A borrowed 2% is a lever error waiting to happen.
- Choose the lever before you announce the number. A target without a lever is just pressure. Pressured teams reach for friction. Name the work. Photos. Sizing tools. Honest product pages. Customer education. Fixes that cut refunds and help conversion at once.
- Track three side numbers with the headline rate. Conversion. Review score. Ad cost per order. Does one move the wrong way while the refund rate gets better? Then the team is winning the number and losing the business.
- Re-benchmark every year. Category rates drift as buying habits change. So does your product mix. Refresh the benchmark. Restate the target. Retire any goal the math no longer supports.
3. One warning before you act
Benchmarks are ranges, not laws. A made-to-order brand, a heavy gifting mix, or many overseas buyers can all shift your floor. Set direction from the category. Then confirm in your own books. Your accountant can build the per-order math in an hour.
Sitting far above your category’s median? Do not start with targets. That gap usually means a handful of products do most of the damage. Find them first. Another article in this series covers that audit.
4. Frequently asked questions
My investor keeps saying returns should be under 2%. Are they wrong?
They are quoting the wrong category. Under 2% is possible for supplements or single-product drinkware. For jewelry, apparel, or footwear, no amount of hard work gets there. Show them the table. Agree on the top quartile instead.
Where do I find benchmarks I can trust?
The National Retail Federation (NRF) publishes a returns study every year. Statista tracks category return rates. Shopify’s commerce reports break returns down by vertical. Cross-check two sources. Confirm the number is D2C ecommerce, not blended retail.
I am already below my category’s median. Should I push lower?
Only with fit and teaching work. Never added friction. Below the median, each new point costs more work and returns less money. Your next hour may be better spent on another lever, like shipping or ads.
Do these benchmarks apply on Amazon too?
Mostly, yes. But Amazon programs like free returns and try-before-you-buy push rates up. Above all in fit-heavy categories. And marketplace shoppers return more than loyal store customers. Benchmark Amazon listings against Amazon peers. Not your own site.
5. Quick reference: what to avoid and apply
What to avoid
- Borrowing a refund target from a podcast or a different category.
- Treating the category median as failure, it is normal, by definition.
- Announcing a target without naming the lever the team should pull.
- Judging the year on refund rate alone while conversion and reviews slide.
- Keeping the same target for years, categories and catalogs both drift.
What you should do
- Look up your category’s median and top quartile from NRF or Statista data.
- Set the target at the top quartile; treat the median as the floor of acceptable.
- Pick fit, photo, and education work as the lever, not policy friction.
- Track conversion, review score, and ad cost beside the refund rate.
- Re-benchmark yearly and restate the target from fresh category data.
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Definitions, modeling notes & rate-basis disclosures
Definitions
- The six profit levers
- (1) Discounts, (2) Refunds, (3) Product cost (landed COGS), (4) Sales channel and payment fees, (5) Shipping and 3PL fees, (6) Advertising spend.
- Direct-to-Consumer (D2C)
- Selling from your own store straight to the customer. Not through retail shelves or marketplaces.
- Median
- The middle brand in the category: half sit above, half below. The floor of acceptable.
- Top quartile
- The best 25% of the category. The realistic stretch target.
- Structural floor
- The refund level a category cannot go below, set by how the product is bought: sizing, color, and try-on doubt.
- Refund event cost
- Everything one return costs: the $100 given back, about $5 return shipping, about $2 restocking, plus the $20 of ads already spent. About $127 on a $100 order.
- Contribution per order
- Selling price minus all six costs. The money one sale really leaves behind.
Modeling notes
- This article uses the series’ standard teaching store: a $100 average order, product cost $40, standing 10% discount, advertising $20 per order, shipping and 3PL $12, payment and channel fees 3%. It varies only the refund lever: this jewelry store starts at its 10% category median instead of the standard 5%.
- Refund cost per order: each return costs about $107 in cash ($100 back + $5 return shipping + $2 restock). Per order that is $107 times the rate: about $11 at 10%, $7 at 7%, $2 at 2%, rounded to whole dollars. The $20 of lost ads is already counted in the advertising line.
- Contribution per order: $100 − $40 − $10 − $20 − $12 − $3 = $15 before refunds. About $4 at the 10% start and about $8 at the 7% target. The annual prize: three points × $1.07 per point = $3.21 per order × 24,000 orders = $77,040, rounded to $77,000.
- Quarter math on a 6,000-order baseline: the friction year saved 30 avoided refunds × $107 = $3,210, gave up 480 lost orders × $4 = $1,920, and paid $2 more advertising on the remaining 5,520 orders = $11,040, net −$9,750. The fit path saved 90 × $107 = $9,630 per quarter against a one-time $6,000. Savings use the baseline order count for simplicity.
Rate-basis disclosures
- Benchmarks: NRF returns studies, Statista category data, and Shopify commerce reports; revenue-weighted D2C rates. In-store retail runs 30-50% lower.
- Jewelry category: 10% median, 7% top quartile.
- Friction-year effects: refund rate 10% to 9.5%, conversion down 8%, reviews 4.5 to 3.9, ad cost up about $2 per order, typical of observed policy-tightening episodes.
- Return shipping: $5 per return. Restocking: $2 per unit.
- Store volume: 2,000 orders a month at $100 average order value. Whole-dollar rounding throughout.