Refund Rate on Amazon: A Complete Seller’s Guide to Reducing Returns

Refund rates are a critical metric for Amazon sellers, as they directly impact account health, profitability, and reputation. Adding another layer of scrutiny, Amazon unveiled the ‘‘Frequently Returned Item‘ badge in early 2023, effectively placing sellers under the spotlight and exposing products with high return rates to potential buyers. This label highlights products with higher-than-average return rates, encouraging customers to make more informed purchasing decisions.

While this feature helps buyers, it presents significant challenges for sellers, as the badge can deter potential buyers and harm sales. In this article, we’ll explore what refund rates are, why they matter, and how to avoid the “Frequently Returned Item” badge.

What Is a Refund Rate on Amazon?

The refund rate is a key metric that measures the percentage of sold units that customers return or request a refund for. Amazon calculates it using the following formula:

Refund Rate = (Number of Units Refunded ÷ Number of Units Sold) x 100%

For example, if you sold 500 units of a product during a selected time period and 25 were refunded, the refund rate would be:

(25 ÷ 500) x 100% = 5%

This metric is displayed in Amazon’s Business Reports, helping sellers track and analyze refund trends over specific time periods. Monitoring this rate is essential to identify potential issues with product quality, descriptions, or customer satisfaction.

Unfortunately this metric is not available on the child or parent ASIN data level.

Why Refund Rates Matter

Refund rates affect your Amazon business in several ways:

1. Account Health Amazon monitors refund rates closely. Sellers with consistently high refund rates risk account health warnings, listing suspensions, or even account deactivation.
2. Profitability Refunds result in financial losses due to shipping cost and devaluation of returned products, especially in categories like electronics or apparel. Such products are often resold at a discount as “used” or “open box” items.
3. Customer Trust High refund rates often correlate with negative reviews and low ratings, damaging your product’s reputation.
4. “Frequently Returned Item” Badge The “Frequently Returned Item” badge, introduced in early 2023, is applied to product pages for ASINs with significantly higher return rates than similar items in the same category. This badge can discourage potential buyers and lead to declining sales.

What Is the “Frequently Returned Item” Badge?

Amazon designed the “Frequently Returned Item” badge to improve the shopping experience by flagging products with unusually high return rates. It appears on product detail pages when:

• The product’s return rate significantly exceeds the category average.
• The ASIN has sufficient sales volume to ensure the data is accurate.

The badge is displayed prominently on the product page, signaling to customers that they should review the product details and customer reviews before purchasing.

How Amazon Determines the Badge

Amazon evaluates return rates for each ASIN based on customer returns and compares them to similar ASINs in the same category. Key factors include:

• Return Rate Comparison: The product’s return rate relative to similar items.
• Sales Volume: Ensures accuracy by requiring a sufficient unit sold.

The Voice of the Customer (VOC) dashboard provides sellers with trailing 7-day, 1-month, 3-month, and 12-month return rates, along with the “suggested return rate” for avoiding the badge. This dashboard helps sellers identify issues and make necessary adjustments.

Refund Rate vs. Return Rate: What’s the Difference?

Understanding the distinction between refund rate and return rate is crucial for sellers to interpret their metrics accurately:

1. Refund Rate:
   • Definition: The percentage of units refunded out of the total units sold.
   • Key Insight: Reflects financial impact due to refunds, regardless of whether the product was physically returned.
   • Example: A customer receives a defective item and is refunded but doesn’t return the product.
2. Return Rate:
   • Definition: The percentage of units returned out of the total units sold.
   • Key Insight: Focuses on the physical return of products, often tied to operational or quality issues.
   • Example: A customer returns an item due to an incorrect size or product mismatch.

Why It Matters:

• Refunds without Returns: Some refunds (e.g., for non-returnable or damaged items) may not result in physical returns but still impact your refund rate.
• Return Logistics: High return rates can signal issues with product descriptions, quality, or sizing that need attention.
• Actionable Insights: Use the Voice of the Customer dashboard to differentiate between NCX-related returns (Not as Customer Expected) and general returns, so you can address root causes effectively.

What Is the NCX Return Rate?

Amazon introduced the NCX Return Rate in January 2024. This metric specifically measures the number of orders returned due to product- or listing-related issues (NCX stands for “Not as Customer Expected”). It’s calculated as:

NCX Return Rate = (Number of NCX Returns ÷ Total Orders) x 100%

The NCX Return Rate is not based on all returns but only on those where customers reported dissatisfaction due to issues like misleading product descriptions, inaccurate images, or quality problems.

In addition to the NCX Return Rate, the VOC dashboard also includes:

• NCX Review Rate: The number of negative reviews (1- and 2-star) tied to product- or listing-related issues.
• Enhanced Trends: Visualization of negative feedback trends and root causes, such as packaging problems or product defects.

How to Avoid the Frequently Returned Item Badge

Amazon automatically removes the badge when a product’s return rate approaches the suggested return rate. However, Amazon may also remove it earlier if there’s a consistent downward trend in returns.

To avoid the badge:

1. Improve Listings: Ensure product descriptions, images, and size charts are accurate.
2. Enhance Product Quality: Address defects and ensure proper packaging.
3. Monitor Voice of the Customer Data: Regularly review VOC return rates and feedback to identify problem areas.
4. Educate Customers: Provide clear instructions or guides to reduce incorrect usage.

What Is a Good Refund Rate on Amazon?

Amazon does not officially provide a universal benchmark for a “good” return rate across all categories, as acceptable return rates vary significantly depending on the product category, the type of product, and customer expectations. However, 3% is a widely cited figure for many product categories and is considered a general target for sellers to aim for. This number is derived from industry observations and seller experiences rather than an explicit Amazon policy.

The ideal refund rate varies by category, but here are general benchmarks:

• Under 3%: Ideal for most products and categories.
• 3–5%: Worth addressing before the listing is impacted.
• Above 5%: Warrants immediate action.

Category-Specific Benchmarks:

• High-Refund Categories: Electronics and apparel tend to have higher refund rates (around 8–12%) due to compatibility or fit issues.
• Low-Refund Categories: Consumables like groceries or supplements should have a refund rate below 3%.

Common Causes of High Refund Rates

1. Misleading Listings: Inaccurate descriptions or images can lead to customer dissatisfaction.
2. Quality Issues: Defective or inconsistent products often result in higher refunds.
3. Unmet Expectations: Overpromising features can backfire.
4. Delivery Problems: Damaged goods or late shipments frustrate customers.
5. Poor Packaging/Labeling: Errors such as incorrect labels can lead to customers receiving the wrong order.

How to Reduce Refund Rates

1. Download Refund Rate Report Use the VOC dashboard and download refund rate reports from Seller Central:
   • Navigate to Payments > Transaction View > Select “Refund” from Transaction Type.
   • Analyze the data to identify SKUs with high return rates.
2. Optimize Listings
   • Provide accurate product details, clear images, and size guides.
   • Manage customer expectations by highlighting product limitations.
3. Focus on Quality Control
   • Inspect inventory for defects.
   • Work with reliable suppliers to maintain consistent quality.
4. Improve Packaging and Delivery
   • Use sturdy packaging to minimize damage during transit.
   • Offer reliable shipping options.
5. Use Customer Feedback
   • Analyze reviews and return reasons to identify and fix recurring issues.
   • Update product details based on common customer questions.
6. Educate Customers
   • Include instructions, FAQs, or tutorials to help customers use the product correctly.
7. Golden Tip #1: Utilize Inserts
   • Include inserts in your packaging asking customers to leave feedback.
   • Provide an email contact for customers who are dissatisfied, offering them a direct way to resolve issues instead of leaving negative reviews or initiating refunds.
8. Golden Tip #2: Leverage Amazon’s “Contact Customer” Tool
   • Use the Contact Customer feature to reach out to buyers who left 1-star or 3-star reviews.
   • Offer a courtesy refund or gather additional details about their concerns. This direct communication can help resolve issues and improve customer satisfaction.

When Should You Worry About Your Refund Rate?

You should be concerned if:

• Your refund rate exceeds 3%.
• A product is flagged in the VOC dashboard as “at risk” for the badge.
• You receive the “Frequently Returned Item” badge.

These indicators require immediate action to protect your account health and profitability.

Conclusion

Refund rates are an essential performance metric for Amazon sellers. Maintaining a low refund rate not only safeguards your account health but also helps you avoid the “Frequently Returned Item” badge, which can deter buyers and harm your sales.

By leveraging tools like the Voice of the Customer dashboard, optimizing your listings, and improving product quality, you can identify and resolve issues that drive refunds, enhancing your overall performance on Amazon.

Need help managing refund rates or optimizing your Amazon listings? At NivoAds, we specialize in helping sellers enhance account health and boost sales. Schedule a free audit today to uncover actionable strategies for success!