How much margin leaks to returns and unneeded discounts?
Six numbers, most of which you already know. This is a simple illustrative model: it reports a range and shows its formula below. Two minutes, no email, nothing gated.
Your six inputs
Trailing twelve months, before returns and refunds.
After product costs, before marketing.
Across all orders.
Share of customers who order a second time.
Share of gross revenue refunded for returns.
Discounts given to customers who would have paid full price anyway, as a share of gross revenue. A rough guess is fine.
Illustrative estimate · avoidable leak per year
At the middle of the range, that is roughly 0% of gross profit, or about 0 orders at your average order value.
Illustrative estimate from the numbers you typed, using the formula shown below. The Diagnostic replaces its assumptions with Forward CLV scored on your own customers.
This is an illustrative estimate from six numbers you typed, not a measurement. Your real number comes from your real customers: the Diagnostic scores every customer on your own Shopify history and replaces these assumptions with Forward CLV.
How the estimate works
Four steps, in plain words. Every multiplier is printed here, and none of them comes from a trial or a measurement: they are assumptions, which is why the answer is a range rather than a single number.
01Margin lost to returns
= gross revenue × return rate × gross margin
The profit you would have kept on the sales that came back.
02Discount leak
= gross revenue × discounts to full-price buyers
Discounts given to customers who would have paid full price anyway. This is spend that leaks, not a deduction from Forward CLV, which counts a discounted order simply as a smaller one.
03One-time buyer weighting
= 0.45 + 0.55 × (1 − repeat purchase rate)
Between 0.45, when every customer comes back, and 1, when none do. The fewer customers return, the more spend lands on customers who will not repay it.
04Estimated leak
= (margin lost to returns + discount leak) × weighting × 22%, 36% or 52%
The three shares give the low, middle and high ends of the range. They are our assumption about how much of the leak better targeting could move, not a measurement.
Gross profit, after returns, is gross revenue × (1 − return rate) × gross margin. Average order value only turns the middle of the range into a count of orders.
Worked through on the starting inputs
- $42M × 18% × 62% = $4.7M of margin lost to returns
- $42M × 5% = $2.1M of discount leak
- 0.45 + 0.55 × (1 − 34%) = 0.81 weighting
- ($4.7M + $2.1M) × 0.81 × 22% to 52% = $1.2M to $2.9M a year
See it on your real customers.
The calculator runs on assumptions. The Diagnostic runs on your Shopify history: one read-only connection, every customer scored by Forward CLV, and a read on where your value concentrates and leaks that you keep either way.
Read-only access · No deck required · You keep the analysis either way