Returns math for a sub-$50 DTC product

Apparel runs 20-30%. Beauty runs 5-10%. Home goods run 5-15%. Consumables run under 5%. Pick a return-rate band based on your category, not an optimistic guess.

The SKU-level decision

The above is a single-SKU model. Real DTC catalogues have ranges. The math at SKU level surfaces something founders rarely see:

A SKU at 30%+ return rate is almost always destroying margin even if it's a top seller.

Example: a top-selling apparel SKU at 100 units/month and 35% return rate produces ~$1,000 of net contribution. A second-tier SKU at 40 units/month and 8% return rate produces ~$700. The "best seller" looks 2.5x bigger in revenue terms but is only 1.4x in actual contribution. Once you factor in customer-support time on returns (which scales linearly with returns volume), the second-tier SKU is often more profitable per dollar of working capital tied up in inventory.

The decision this triggers:

• Drop the SKU if the return rate is structural (size-fit problem, expectation mismatch, photography issue) and you can't fix it quickly.
• Fix and re-test if the return rate is signal (one batch had a defect, sizing chart needs an update, hero shot was misleading).
• Reprice up if returns are concentrated in price-sensitive buyers — sometimes a 10% price increase weeds out the wrong customers and cuts returns disproportionately.

What to model from day one

• A returns line in your unit-economics spreadsheet, with a band, not a point estimate.
• Customer-support hours per 100 orders × your effective hourly cost.
• Restocking labour even if you do it yourself (your time has a value).
• A 25-40% "unsellable" rate on returned inventory.

The math is depressing the first time you see it. It's much less depressing than blowing through six months of cash because you assumed returns wouldn't apply to you.