How to reduce order cancellation rates

Your business' cancellation rate can cost you millions. Whether you're the one cancelling the order or your customer is, the cost is high. What is the reason your business or your customer is cancelling 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 order cancellation rates.

Why do customers cancel their orders?

According to recent reports, particularly from the National Retail Federation (NRF), approximately 17% of all retail revenue is expected to be returned by customers.

So, it's more crucial than ever for businesses to know why customers are cancelling orders. There are a variety of reasons why customers cancel orders. 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 extended delivery times
•  40% of shoppers cancel goods because of high shipping costs

Not to mention the reasons that are not so obvious, many customers cancel orders because they are notified of changes to their order, such as some items being unavailable, the shipping being delayed, or items not being delivered together. 

Why do businesses cancel customer orders?

A retailer cancels a customer's order mainly because the inventory told the website the item was in stock when it wasn't. Typically, this is due to slow or infrequent inventory updates. The system may only do one batch update a day or two.

Regardless of how many, promising inventory you don't have results in order cancellations 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 cancelled bookings / Number of total bookings
• You can choose to calculate cancellation rates using daily, monthly, or annual metrics. 

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 this is having.

Check out this calculator to see precisely how much-cancelled orders are costing you. Add in your number of orders per year, average order value, and cancelled 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, it hurts your business in different ways, including negative customer experience. When it happens, you lose customers to your competitors, you see an increase in costly calls to your customer support team, and you get bad customer reviews. 

When customers cancel, this can lead to excess inventory, an increase in markdowns to combat this and higher inventory carrying costs. 

How do you reduce the order cancellation rate?

To begin reducing cancellation rates, start with inventory.

Make sure your business has a unified view of inventory availability across all locations, including safety stock buffers set to avoid underselling and overselling.

Then, make sure you're setting delivery promises you can keep with accurately estimated delivery dates.

All of this is easier said than done. That's why you need a dedicated distributed order management system to reduce cancelled orders with accurate inventory availability data.