Your business’ cancellation rate can cost you millions. Whether you’re the one canceling the order or your customer is, the cost is high. The reason your business or your customer is canceling an order? That varies, but a single system can impact both. Read on to explore the what, the why, and the how to reduce both of your order cancellation rates.
What is the order cancellation rate?
The order cancellation rate measures the rate at which ecommerce orders are canceled. This can happen in two ways:
- Your customer cancels their order
- You cancel your customer’s order
Some may consider shopping cart abandonment and bounce rates at different parts of the pre-purchase journey as ‘order cancellations.’ For simplicity, we’ll look at only post-purchase order cancellations.
Why do customers cancel their orders?
Dealing with order cancellations is a normal part of running a business. According to NRF, ecommerce returns in 2023 were $743 billion and 2022 yielded $816 billion in ecommerce returns. It’s no secret that online shopping became increasingly popular during the pandemic. The numbers show that this method of shopping will continue to prevail.
Because of this, businesses must understand why your customers cancel orders. There are a variety of reasons why your customer may cancel an order. For example, if your customer purchases a clothing item, it may not fit as expected. Maybe the style was off. This is called a preference-based return, which makes up about 75% of returns within fashion companies. 10% of returns are typically faulty or damaged items.
In a different survey, CIO Bulletin reports the percentages and other reasons your customer may cancel an order:
- 45% of customers cancel items because they changed their mind
- 35% of consumers cancel products because of long delivery times
- 40% of shoppers cancel goods because of high shipping costs
Not to mention the non-obvious reasons. Many customers cancel orders because they are notified of changes the business makes to their order, like:
- Items unavailable, only sending partial order
- Shipping delayed, original estimates were wrong
- Items cannot be delivered together, will be sent in split shipments
This is a bad customer experience. And, what’s an even worse notification for a customer to receive? The business telling them their order is canceled.
Why do businesses (you) cancel customer orders?
You don’t have the same amount of control when a customer cancels an order as you do when you do. So, why does it happen?
The #1 reason for you to cancel a customer’s order is because the inventory your website told them was in stock, is in fact, out of stock. Typically due to slow or infrequent inventory updates. Maybe you do one batch update a day, or two. Regardless of how many, all of the time in between leaves room for inventory discrepancies. AKA promising inventory you don’t have, canceling the order, and losing the sale.
How is the order cancellation rate calculated?
Calculating and evaluating your cancellation rate is essential for improving efficiency. To calculate the cancellation rate, use the following formula:
Cancellation rate = Number of canceled bookings / Number of total bookings
You can choose to calculate their cancellation rates using daily, monthly, or annual metrics. Now, it’s time to use that to see what canceled orders are costing your business.
What is the business impact of the order cancellation rate?
When you understand your order cancellation rate, you are able to understand the monetary impact that is having. Check out this calculator to see exactly how much canceled orders are costing you. Just add in your number of orders per year, average order value, and canceled order rate. Whether it’s the rate at which your customers cancel their orders or you do, the formula remains the same. Other than the monetary impact you found with the calculator, there are other ways it hurts your business, including:
- Negative customer experience the moment it happens
- Lose customers to competitors when it does
- Costly calls to customer support / your contact center
- Reduced customer trust in the accuracy of your inventory availability and delivery promises
- Bad customer reviews
In addition to that, when customers are the ones canceling it can lead to:
- Excess inventory
- Higher inventory carrying costs
- Increase in markdowns to combat this
The costs of canceled orders expands further than most realize. Don’t worry, there is a solution
How do you reduce the order cancellation rate?
To begin combating cancellation rates, start with inventory.
- A unified view of inventory availability across all of your locations
- Safety stock buffers set to avoid underselling and overselling
- Live event streaming over large infrequent batch updates
- Utilize future (inbound) inventory
Then, make sure you’re setting delivery promises you can keep. With accurate estimated delivery dates as early as search.
All of this is easier said than done. That’s why you need a dedicated distributed order management system. Imagine showing 24 promises in under 500 ms on your PLP. No impact to latency, no cached data. Or reducing canceled orders by 93%.
Fluent Commerce offers a distributed order management system, Fluent Order Management, that makes this all possible. It allows ecommerce businesses to reduce canceled orders with accurate inventory availability data. To learn more about how this can help you provide the best customer experience every time, contact us today or schedule a free demo.
