Costs and pricing
Part of How to record ecommerce conversion budget inputs
Ecommerce conversion cost guide: what a returned order costs under the 14-day refund rules, in pounds
Ecommerce conversion cost guide for England: refund timing, delivery refunds and VAT on a returned order, with a worked pound example for 1,000 orders.
What to take away
- A conversion gain is not cash until the order survives the return window. Cost a change on orders kept, not orders placed.
- For a sales contract, the cancellation period ends 14 days after the goods come into the consumer's physical possession.
- The refund is due within 14 days of the trader receiving the goods or proof of posting, whichever is earlier (or of being told of the cancellation where the trader collects), and standard delivery is refunded too.
- The standard VAT rate is 20%, so a price excluding VAT is multiplied by 1.2.
- All pound figures below are illustrative arithmetic, not benchmarks.
Which rules set the cost of a return?
The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 set the cash rules for distance sales. For a sales contract, the cancellation period ends at the end of 14 days after the day on which the goods come into the physical possession of the consumer (regulation 30).
The refund rules are in regulation 34. The trader must reimburse all payments, other than payments for delivery, and must also reimburse payment for delivery, up to the cost of the least expensive common kind of delivery offered. The table sets out the cost lines that follow.
| Cost line of a return | Rule in regulation 34 | Cash effect |
|---|---|---|
| Goods price | Reimburse all payments other than delivery | Full price goes back |
| Standard delivery | Reimburse delivery, up to the cheapest common kind offered | Delivery paid goes back |
| Refund timing | End of 14 days after goods are received, or earlier proof of return | A date to hold cash for |
| Payment method | Same means of payment as the original transaction | Refund goes back the way the customer paid |
| Refund fee | The trader must not impose any fee in respect of the reimbursement | No charge to the customer |
| Handled goods | Trader may recover the amount by which handling diminished the value, up to the contract price | A deduction, if the goods are worse |
If the express delivery the customer chose cost more than the cheapest common kind, the refund covers only the standard amount.
Two timing rules sit beside the table. Under regulation 34, where the trader has not offered to collect the goods, the 14-day refund period starts when the trader receives them back or the customer supplies proof of posting, whichever is earlier. Where the trader offered to collect, or the contract is not a sale of goods, it runs from the day the trader is told of the cancellation. Under regulation 35, the customer must send goods back within 14 days of telling the trader, and bears the direct cost of returning them unless the trader agreed to pay or failed to say so before the sale.
What does one returned order cost?
Take one order with assumed prices. The goods cost £60 excluding VAT and the customer also pays £5 for standard delivery.
- Goods including VAT£60 times 1.2 is £72.
- Customer pays £72 plus £5 delivery, which is £77.
- Undamaged returnthe trader refunds £72 plus £5, which is £77.
- Handled returnif handling diminished the value by £10, the trader may recover that amount, so the refund is £67.
- Either way, the refund goes back by the original payment method, with no fee charged to the customer.
The multiplier comes from the GOV.UK guide to charging VAT, which gives 20% as the standard rate and multiplies the price excluding VAT by 1.2. A seller must register once taxable turnover for the last 12 months goes over £90,000. Below that, the 1.2 applies only if the seller charges VAT.
What does a conversion test do to cash?
A conversion test adds orders. Some of those orders come back. The example assumes an 8% return rate, an order value of £77 and 15 minutes of handling per return at £30 an hour.
| Line | Baseline, 1,000 orders | After a test adding 50 orders |
|---|---|---|
| Orders | 1,000 | 1,050 |
| Cash taken at £77 | £77,000 | £80,850 |
| Returns at 8% | 80 | 84 |
| Refunds at £77 | £6,160 | £6,468 |
| Handling at £7.50 per return | £600 | £630 |
| Cash after refunds and handling | £70,240 | £73,752 |
The test adds £3,850 of gross cash and £3,512 after refunds and handling, since 4 more returns cost £308 in refunds and £30 in handling. A forecast that stops at orders placed overstates the gain by about 10 per cent.
Keep returns in their own row. The costs and budget guide shows how to record inputs, and the hidden costs article covers post-checkout states and disputed payments.
What do postage and fees add to a returned order?
The refund is only part of the cost. Return postage, the outbound shipping already spent and lost payment fees all sit outside the table above. The figures below are assumptions for the £77 order, so replace them with your own.
- Outbound shipping the seller actually paid£4.20, against the £5 delivery refunded.
- Return postage if the seller offers free returns£4.00. If the customer pays under regulation 35, this line is £0.
- Payment fee not recovered1.5% plus 20p on £77, about £1.36. Check your processor's terms, because some refund the fee and some do not.
- Inspection and restocking£7.50, from the 15 minutes at £30 an hour above.
That adds £17.06 of cost on top of the £77 refund when the seller pays return postage, or £13.06 when the customer pays. A returned order therefore costs the lost margin plus that amount.
How do you carry this into a plan?
Use the return rate from your own data. Do not borrow one. Record the date range, the product mix and the delivery options behind it, because the refund rule treats delivery separately from goods.
The measurement and reporting guide shows how to separate order states. Read the key metrics article before you report a conversion rate, and the risk scenarios article for refund and dispute reserves. Set the net figure against spend with the return on investment method.
- Return rate taken from your own order data.
- Refund per return built from goods plus standard delivery.
- Handling cost per return from an approved hourly rate.
- VAT shown separately from net revenue.
- Gain reported after refunds, not at orders placed.
Common questions
Is delivery refunded when a customer returns an order?
Yes, up to the cost of the least expensive common kind of delivery offered. If the customer chose a dearer kind, only that standard amount comes back.
Can we charge a fee for processing a refund?
No. The trader must not impose any fee on the consumer in respect of the reimbursement. Refunds also go back by the same means of payment as the original transaction, unless the customer agrees otherwise.
Can we deduct for a worn item?
If handling beyond what is necessary to establish the nature, characteristics and functioning of the goods diminished their value, the trader may recover that amount, up to the contract price.
