How to find product lines that lose money once returns are counted
The short answer
The cost of returns hits hardest on lines that are returned often and earn thin margin. Join return data to product cost at line level, then flag every line where the return rate sits above 20% and margin after returns sits below 30%. Review those lines for repricing, a product page fix or delisting.
Return rate and margin analysis by line
Why it matters
Lines that are returned often and earn thin margin cost you twice, once in the discount or markdown and again in handling and lost resale value. Finding them lets you reprice, fix the product page or delist before the next buy repeats the loss.
The question to ask
Copy this into Lexi as written.
How to work it out
1. Calculate return rate by line. Divide units returned by units sold over the same 12 months, to smooth out seasonal spikes.
2. Calculate margin after returns. Take net sales after returns, less the cost of goods you kept, divided by net sales after returns, using the price customers paid after discount.
3. Flag the overlap. Filter to lines above your return threshold and below your margin floor, rank by net revenue lost, and check whether a small group of customers drives most of the returns.
What the answer looks like
Illustrative output on sample data
Illustrative example: how Lexi answers this for an apparel retailer. It joins 12 months of returns to product cost by line, using the price customers paid after discount, and flags lines above a 20% return rate and below 30% margin after returns.
- Linen wide-leg pants: 2,000 sold at $60, 560 returned (28%). Margin after returns = (86,400 - 64,800) ÷ 86,400 = 25%.
- Cotton crew tees: 3,000 sold at $25, 9% returned, 52% margin after returns.
What the data shows
The pants clear the return threshold and miss the margin floor. After $8 handling per return, they keep about 20% of net sales.
What it means
Returns cluster in two sizes and come mostly from first-time online buyers, which points to a fit problem on the product page.
What to do
Fix the size guidance and imagery first, then review price if the return rate holds.
Handling cost here is an average per return. Would you like the full list of flagged lines?
Frequently asked questions
What is a good return rate threshold to use?
Anchor the threshold to the market and your own mix. The National Retail Federation and Happy Returns 2025 Retail Returns Landscape report put expected US returns at 15.8% of all retail sales and 19.3% of online sales. The 20% default here sits just above the online figure, so a line that crosses it returns more than a typical online purchase.
Do I need product cost data?
Yes. Without cost you can rank lines by return rate and revenue, but you cannot see margin after returns, which is the point of the exercise. Most retailers hold cost in their enterprise resource planning (ERP) system or point of sale (POS) product file.
Should handling costs be included in margin after returns?
Include them where you can measure them. Return shipping, inspection and repackaging can turn a line with acceptable margin after returns into a loss, especially for bulky or low-price items. If you lack exact figures, apply an average cost per return by category and refine it later.