Question about % of returns

I've followed the thread below about return rates and the information provided was excellent. But one factor has me puzzled and it wasn't addressed in that thread.

Why does the RATE of return rise when volume rises? I can understand why the NUMBER of returns would rise but not why the rate would.

For example, a product has been steadily selling at about 100 units per month, with a consistent rate of 3-4 returns per month. Let's say a new marketing strategy increases sales by a factor of 5. i.e., to 500 per month. Wouldn't the number of returns increase to 15-20 per month, reflecting the established return rate (or something very close to it)?

Is there some economic/business factor that would raise the rate higher? Does anyone know? I'm sure more than a few of us would be interested in learning the answer.

Thanks much...
Eve §:)

> Why does the RATE of return rise when volume
> rises? I can understand why the NUMBER of
> returns would rise but not why the rate
> would.

Eve:

Sticking with the example given in the thread below (an audio tape set - I am changing the topic though)...

An audio tape set for fossickers advertised in a few fossicking magazines and newsletters. A niche market being targeted.

Take the same ad and use it outside of the niche and you are now getting people not in that niche. Some will be curious and buy. And then return. Others will be curious and buy and keep the product. And others will buy just because it is something to buy :o)

Because your marketing is now aimed at people outside of the niche, the overall number of sales will increase. And seeing as many of those people aren't "into fossicking" a higher percentage of buyers will return the product.

Another element that needs to be considered and monitored the whole time is your ROI.

An increased number of sales may end up giving an increased rate of return. But how does that work out with the money spent on advertising?

The mass market publications go out to more people and an ad costs more to run. So you automatically need a higher response to cover ad costs. Factor in a higher product return rate and your "ad dollar : money return" ratio will drop.

If you stay in your niche publication and change the marketing to entice more people to buy, then once again, people who normally wouldn't buy, do. As the product was not designed for them, the product return rate should increase.

Keep an eye on your bottom line while this happens. The last thing you want is to sell more than normal, return more and go out backward on product restocking and spoilage costs.

If you had previously been selling 100 units per month with a 3% return, you were profiting from 97 units. Should a change in marketing (headline, copy, price, guarantee, whatever) attract more buyers who normally wouldn't have bought you may increase your sales to 110 per month. A 10% increase. If returns then jump to 10% (11 units) you are profiting from 99 units sold and kept. You are now two more units better off. BUT, you are now restocking 11 units (some of which will be no good due to spoilage) instead of 3 and that costs you more time and money while you are only increasing "real sales" by two. You're handling four times the return for only two more sales. Is it worth it? You have to do the math to figure that one out.

Michael Ross


If you're looking for quick and easy businesses to start, then check out The Great Ideas Letter

> Why does the RATE of return rise when volume
> rises? I can understand why the NUMBER of
> returns would rise but not why the rate
> would.

If the number of products sold increases, the effect on your rate of return will depend on WHY the number of products sold increases.

There are a number of reasons why it might not increase. Let's say you have a new product, and you try one distribution channel, and you get a 3% return rate. If you try another distribution channel that is just as good, there's no reason your return rate should rise, if all is the same.

I think what previous posts were discussing was how aggressive your marketing was. So for example, in a base case, you might have a fairly mild ad that suggests the benefits of your products, and you get a 3% return rate.

Now in the new scenario, you might target the same group of people but be a lot more aggressive in your marketing. Now, by aggressive I don't mean angry etc, but I mean you might push the product more, promise more, and the like.

In this case, it's likely you'll get the same people buying who bought in the first place... But you might also get more people that wouldn't have been convinced by your first ad but are by your second, more aggressive ad. But because the ad is more aggressive, chances are a greater proportion of people will think the product is not really for them after purchasing, and return it.

And thus your return rates should go up.

Having said that, this is just my take on what's been said so far. I don't have any skill or ability with marketing or direct sales, but I think that's how the numbers work. :)

Best Regards,

Thomas.

Hi, Mike --

Your explanation clarified the situation very nicely. Thanks much!

Eve §:)

Hi, Thomas --

Your explanation, along with Mike's, cleared my confusion right up. Thanks much!

Eve §:)