Last quarter, I asked the COO of a ~$300M distributor a simple question:
“Do you know the exact P&L impact of your customer and vendor returns?”
He gave me the look. You know the one—half nod, half squint, full of unspoken math, assumptions, and hope.
“I don’t think returns are a major issue for us,” he said. “Our return rate is under 3% of transactions.”
I paused, then asked, “And what’s the P&L impact of that 3%?”
He looked down, almost like he’d been caught.
“I don’t think anyone in our organization really knows,” he said.
Fast forward to today: We’ve uncovered that those 3% of transactions were masking hundreds of thousands in lost credits, avoidable labor costs, and revenue leakage—all hiding in plain sight.
Returns are no longer just a cost of doing business. They’re a blind spot—one that finance can't model, ops can't see, and sales doesn’t own.
And yet, returns touch every function:
But nobody has the metrics. Nobody owns the problem. And nobody’s tying it back to profitability.
Distributors running smart returns strategies are already winning:
Everyone else? They're subsidizing inefficiency with margin they can’t afford to lose, especially in the 2025 economic climate.
If you're not measuring these four KPIs, you're flying blind.
What it tells you: How much money you've left on the table from vendors
Why it matters: Every credit you don’t claim is a loss of oxygen to your business. Dollars that can be used to fuel growth. And they add up—fast.
How to act: Track every return against its credit. Audit gaps monthly. Assign someone to own recovery.
One ops team discovered $278,000 in unclaimed credits from just two vendors. In a single quarter.
What it tells you: How often you’re refunding customers without recovering from your supplier.
Why it matters: Your business shouldn’t be the bank (as it is, you likely already give your customers 30-day payment terms). This KPI exposes the credit seesaw—when you pay out more than you pull in. ERP systems treat customer returns & vendor returns as 2 unique and unrelated transactions—creating a near-impossible mission to match vendor credits and understand the specific returns creating this seesaw.
How to act: Create a ratio: credits paid out / credits received. High ratio = leaking margin. Dig into root causes—vendor lag, process gaps, or misaligned terms. Identify the individual transactions causing these deltas.
One company found they were crediting customers 40% faster than they reconciled with vendors. That’s a cash gap you can’t afford.
What it tells you: Whether your restocking fees are covering actual labor costs.
Why it matters: If it costs you $33+ to restock and you charge $20, you lose every time someone sends a product back.
How to act: Understand industry average return processing costs. Align restocking fees to recover your real expenses.
After comparing true labor costs, one team restructured fees and recovered $100K annually — without affecting customer satisfaction.
What it tells you: How often returns cause payment delays or deductions.
Why it matters: Returns shouldn’t stall cash. But unclear processes, mismatched credits, or missing RMAs create disputes—and disputes destroy cash flow.
How to act: Track # of disputes and dollar value tied specifically to returns. Flag repeat offenders (customers or reps). Streamline communication between AR and operations.
A finance leader discovered 70% of unresolved disputes were returns-related. New SOPs cut open disputes in half in 60 days.
These KPIs aren’t just reports—they’re your P&L truth serum.
Measure them, and you'll:
Most teams think they know their returns impact. But until you measure these KPIs, you're guessing.
Here’s what winning supply chain orgs are doing now:
The numbers don’t lie. But they won’t show up until you look for them.
At Continuum, we give distributors a clear view of the KPIs that matter most. You’ll stop bleeding cash, start making smarter decisions, and turn returns into a lever—not a liability.
Ready to measure what really matters? Book a demo today.Your P&L will thank you.