How do I include the cost of cash-on-delivery orders that customers refuse in my break-even?
Spread the cost of refused orders over the orders that actually get paid, and add each paid order's share to the variable cost. If one order in ten is refused and each refusal costs you 30, every paid order carries 30 ÷ 9 = 3.33 extra, and your break-even is counted in paid orders rather than dispatched ones.
Why ignoring refused orders does not work
A refused order brings in no money, but it costs you: outbound shipping, usually return shipping, and sometimes a collection fee or damaged packaging. The Break-even calculator knows nothing about refusals or returns; it assumes every unit counted was sold and paid for. Unless you put that cost somewhere, break-even comes out lower than it really is.
Spreading the cost, step by step
- Work out your refusal rate from your own orders over past months, not a general figure. Say it is one in ten.
- Work out what one refusal costs you: say 30 for shipping both ways. The product goes back into stock, so leave it out.
- Spread it over paid orders: out of ten orders, nine are paid, so each carries 30 ÷ 9 = 3.33.
- Add the share to the variable cost: 95 + 3.33 = 98.33.
The numbers before and after refusals
- No refusals: fixed costs 5,000, price 150, variable cost 95. Contribution 55; break-even 90.91, rounded up to 91 orders.
- 10% refused: variable cost 98.33, contribution 51.67; break-even 96.77, rounded up to 97 paid orders, with revenue of 14,550.
- 20% refused: two in ten, so 60 spread over eight orders = 7.5 each. Cost 102.5, contribution 47.5; break-even 105.26, rounded up to 106 paid orders.
These are paid orders. To get 97 paid orders at a 10% refusal rate you need to dispatch about 97 ÷ 0.9 = 107.78, so 108 orders. At 20% you need 106 ÷ 0.8 = 132.5, so 133 dispatched orders. That is the figure to plan with your courier and warehouse.
What to do when refusals run high
- Confirming orders by message before dispatch cuts impulse orders; then rerun the numbers with the new refusal rate.
- A small cash-on-delivery fee, or a small discount for paying upfront, changes the figures. Test the new price with the Selling-price calculator.
- Check the per-unit margin after adding refusal costs with the Profit margin calculator; it may be thinner than you expect.
Common questions
Should the product's value be part of the refusal cost?
Not if it comes back resaleable. If it comes back damaged and cannot be sold, add its cost to the refusal cost.
Why divide by paid orders rather than all orders?
Because only paid orders bring in money, so they are the ones that must cover the refused ones.
Does the tool work out the refusal rate for me?
No. The tool does not handle returns. You turn them into an amount per order and add it to the variable cost.