Return rates by category and when a product is not worth listing

Amazon takes a return cut on top of everything else. The buyer returns the product, Amazon refunds the referral fee (minus a small charge), but you still paid the original FBA fee outbound and, for many categories, you pay the return shipping too. The net effect is that a returned unit often costs you more to process than it made you in the first place.

Typical return rates by category

Apparel and shoes: 15 to 30 percent. The buyer tries it on, sends it back. Repeat. Apparel is one of the hardest categories to make work on Amazon because the return rate alone can erase the margin.

Electronics and gadgets: 5 to 10 percent. Lower return rate, but the margin is usually thinner and the cost of a defective return — the unit you cannot resell — is higher.

Home and kitchen: 5 to 8 percent. This is the sweet spot for many sellers. The product works or it does not, and returns are relatively low.

Beauty and personal care: 3 to 6 percent. Low returns, but category restrictions and strong competition from established brands make entry hard.

The calculation

If your net margin on a product is 25 percent and your return rate is 15 percent, the returns alone consume about 4 percent of revenue. On a $25 product with 500 units a month, returns cost roughly $50 a month in fees plus the lost product value.

Now layer FBA return disposal fees on top. If the returned unit cannot be resold as new, Amazon charges you to either dispose of it or ship it back. A product with a 15 percent return rate and a 10 percent unsellable rate is losing units at a noticeably faster rate than you expected.

The threshold

Anything over a 10 percent return rate needs a margin well above 30 percent to survive. If the category's average return rate is above that and your margin is not, skip the category or source a product that beats the average. Most sellers who fail in high-return categories did not model the return rate before they bought inventory.