Refund Rate Calculator
See what refunds really cost — lost revenue plus shipping, kept fees, and dead stock, usually 1.5–2× the sticker refund.
Written by Dorothy Ibrahim, 10+ years in banking & finance
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How we calculate this
This calculator prices what refunds really cost — not just the revenue you hand back, but the money you never see again: outbound shipping, the processing fees most processors keep on refunds, restocking labor, and the product cost of returns you cannot resell. Split into "revenue you give back" and "money you never see again," the true cost per refund typically runs well above the sticker refund amount, which changes how much prevention is worth.
The formulas
- Refunds per month
- orders per month × refund rate
- Revenue given back
- refunds per month × average order value
- Hard cost per refund (money you never see again)
- shipping cost + kept processing fee + restock labor + (share of returns not resellable × average order value × product-cost %)The kept fee applies when your processor keeps its fees on refunds (most do): AOV × 2.9% + $0.30 by default. Non-restockable returns lose the full product cost.
- True monthly refund cost
- revenue given back + refunds per month × hard cost per refund
- True cost per refund
- average order value + hard cost per refund
- Annual value of cutting the rate 2 points
- orders per month × 2% × true cost per refund × 12
Worked example
- Say you do 600 orders/month at a $45 average order value with a 6% refund rate, $6 shipping per order, a processor that keeps its fees, restockable returns costing $3 of labor each, a 35% product cost, and 70% of returns resellable.
- Refunds = 600 × 6% = 36 per month, giving back 36 × $45 = $1,620 of revenue.
- Hard cost per refund = $6 shipping + $1.61 kept processing fee ($45 × 2.9% + $0.30) + $3 restock labor + $4.73 dead stock (30% not resellable × $45 × 35%) = $15.33.
- True monthly cost = $1,620 + 36 × $15.33 = $2,171.88 — about 8% of your $27,000 monthly revenue.
- Each refund really costs $60.33, not the $45 sticker — 1.34× the refund amount.
- Cutting the rate from 6% to 4% would avoid 12 refunds a month, worth 12 × $60.33 × 12 ≈ $8,688 per year.
Rates, benchmarks & sources
- Default kept-fee estimate when the processor keeps its fees on refunds — override the toggle if yours returns them — Config: generic card-processing rate (2.9% + $0.30)
- Refund-rate bands: under 5% low, 5–10% watch (typical general e-commerce), above 10% high; typical rates by product type — apparel 15–25%, general e-commerce 5–10%, digital under 2% — Rule of thumb
Figures current as of 2026-07-02. See our methodology & editorial standards for how constants are versioned and verified.
What this tool doesn’t model
- Excludes return shipping labels — if you pay for return postage, add it to the shipping cost per order, since it is equally unrecoverable.
- Does not model chargebacks, which carry their own fees and dispute costs, or partial refunds and exchanges, which lose less than a full refund.
- Assumes one average order value and one uniform hard-cost profile; a store with both a $20 and a $200 product should run each line separately.
- The dead-stock estimate uses a flat resellable percentage — actual recovery on returns varies with condition grading and liquidation channels.
- The rate bands and the by-category typical rates (apparel 15–25%, general e-commerce 5–10%, digital under 2%) are rules of thumb, not published standards.
Frequently asked questions
Why does a refund cost more than the refund amount?
Because refunding the sale price only returns the revenue — several costs stay spent. The outbound shipping is gone, most payment processors keep their processing fees on refunds, restocking takes labor, and the share of returns you cannot resell takes its product cost with it. At the defaults each $45 refund really costs $60.33 — 1.34 times the sticker — and higher shipping costs or lower resellability push the multiple further up.
What is a normal refund rate for an online store?
As a rule of thumb it varies hugely by product type: apparel commonly runs 15–25% (sizing and fit), general e-commerce 5–10%, and digital products under 2%. The tool’s bands treat under 5% as low and above 10% as high for a general store — but compare yourself against your own category, since a 12% rate can be excellent for apparel and alarming for electronics.
Do payment processors really keep their fees when I refund an order?
Most do — when you refund a customer, the percentage and fixed fee the processor charged on the original sale are typically not returned to you, so every refund costs you the fee twice over (you paid it, and got no sale). The calculator estimates this with the config default of 2.9% + $0.30 per order; if your processor does return fees on refunds, flip the toggle and the term drops out.
What is the cheapest way to cut my refund rate?
Usually prevention at the listing level: accurate size charts, more photos, honest descriptions, and clear expectations about materials and dimensions attack the root causes of returns without touching your policy. Stricter return policies also cut refunds, but they cut conversion too, so they often cost more than they save. The tool prices the 2-point improvement — about $8,688 per year at the defaults — so you can compare it to the cost of the fix.
How should I treat returns I cannot resell?
As a real cost, not a rounding error. The share of returns that come back damaged, worn, or unsellable loses its full product cost — at the defaults, 30% of returns × $45 order × 35% product cost adds $4.73 to every refund on average. Tracking your actual resellable percentage (condition-grade your returns for a month) makes this number real instead of a guess.
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themoneysheet provides educational estimates, not financial, tax, or legal advice. Figures use published rates and formulas current as of the date shown, but your situation may differ. Consult a qualified professional (CPA, attorney, or licensed advisor) before making financial decisions.