Every quarterly review follows the same script. Finance walks through revenue. Marketing presents campaign performance. Someone from ops pulls up the refund number, says something like "we're at 15%, we're looking into sizing," and the room moves on in under two minutes.

I know this because I've been the person who later connects that 15% to the P&L. And the conversation that follows is never comfortable.

Nobody in that meeting asks the question that actually matters: where are the refunds coming from? Not which products. Not which sizes. Where, as in which acquisition channels are generating customers who return the product within 30 days.

I've run that analysis for brands doing $6M to $25M in annual revenue. In every single case, the answer reshuffled priorities that had been set for months.

Real scenario. A fashion brand doing roughly $7.5M in gross annual revenue. Around 90,000 orders. Average order value of $83. Numbers that look solid in any investor update.

Their refund rate was sitting at 15%. Industry benchmark for healthy fashion ecommerce is somewhere between 6 and 9%. Nearly double. But because gross revenue kept climbing quarter over quarter, nobody treated it as urgent. It lived in an ops spreadsheet that marketing never opened and finance only glanced at during close.

Let's walk through what 15% actually does to the business.

Gross revenue: $7.5M. After refunds, net revenue drops to $6.375M. That's $1.125M that showed up on dashboards as "revenue" but never actually stayed in the business.

COGS at 40% (product, freight, fulfillment) eats $3M. Marketing spend was $2.1M, roughly 28% of gross. Operating expenses for team, software, and warehouse ran about $1.4M annually.

Now here's the part that gets missed in every P&L I've reviewed. Refunds don't just reverse revenue. They create secondary costs that nobody budgets for.

Reverse logistics. Restocking and write-offs on items that can't be resold (and in fashion, a returned dress that's been tried on and repackaged poorly is often unsellable at full price). Customer support hours spent processing returns. Payment processing fees you already paid and don't get back.

For this brand, those hidden costs added up to roughly $620,000 per year. I've never seen a brand that had this number calculated before we ran the audit. Not once.

Add it all up. Net revenue $6.375M, minus $3M COGS, minus $2.1M marketing, minus $1.4M operations, minus $620K refund burden.

EBITDA: negative $745,000.

A brand that presents as a $7.5M growth story is burning three quarters of a million dollars a year. And leadership had no idea because the refund line lived in a different spreadsheet, owned by a different team, reviewed in a different meeting.

Run the same math with an 8% refund rate. Everything else identical. Same traffic, same products, same team, same ad spend.

Net revenue climbs to $6.9M. Refund burden drops by about $290K.

EBITDA flips to roughly positive $490,000.

That's a $1.2M swing from one metric. And the first time I showed this bridge to a CFO, she literally stopped the meeting and asked why nobody had flagged this before. The answer was simple. The people who owned the refund data didn't own the P&L. And the people who owned the P&L didn't look at refund data at that level of detail.

This is the reframe that changes how you look at the entire business.

When a customer buys a dress because the ad made the fabric look like something it isn't, that's not a CX failure. That's a demand quality failure. The growth engine attracted someone who was never going to keep the product.

Most fashion brands optimize acquisition on three metrics: ROAS, CAC, and conversion rate. All three can look great while the brand hemorrhages cash on returns. None of them account for what happens after checkout.

I call this a finance-blind growth model. The acquisition team gets measured on metrics with zero visibility into downstream profitability. And the refund data sits in a completely different system, owned by a completely different team, reviewed in a completely different meeting.

I've watched this play out three times now, and the sequence is almost always the same.

CAC rises because ad platforms start showing diminishing returns. The brand responds by spending more aggressively to hit revenue targets. Refund rate stays flat or gets worse because nobody changed what "success" means for acquisition.

Then inventory planning breaks down. Reverse flow from returns makes demand forecasting unreliable. The brand starts sitting on excess stock it didn't plan for. Which leads to deeper discounting to move it. Which attracts more price-sensitive buyers who return at higher rates.

By month 14 or 15, the brand is running a spring clearance sale in March that it didn't budget for, funded by margin it doesn't have. I've seen this exact pattern at two different brands doing $8M to $12M. Different categories, different teams, same loop.

By the time finance flags it as structural, the brand has burned through a full year of cash trying to grow its way out of a problem that growth created.

This isn't solved by improving your returns policy or adding more product photos. Those are downstream patches on an upstream problem.

Track refund rate by acquisition channel. Not as an aggregate number in an ops report. As a metric that sits next to ROAS in every campaign review. If your paid social refund rate is 19% and organic is 7%, that's not a product problem. That's a creative and targeting problem.

Measure net contribution after returns, not ROAS. A campaign with 4x ROAS and a 20% refund rate is not outperforming a campaign with 2.5x ROAS and a 6% refund rate. But every dashboard in the business will tell you it is.

Make creative accountable for post-purchase outcomes. This is the counterintuitive part. Better product transparency, real body variance, fabric behavior, honest fit guidance, will lower your conversion rate. But it drops refund rate harder. The brand I mentioned earlier tested "who this is NOT for" messaging on three categories. Conversion dropped 11%. Refund rate dropped 38%. Net margin per order increased because the people who bought actually kept the product.

Tie marketing compensation to EBITDA contribution, not topline revenue. If the growth team is bonused on revenue, refunds will always be someone else's problem. This is a leadership decision, not a marketing tactic.

If you're heading into a Q1 board review or annual planning cycle, pull three numbers before that meeting.

First, your refund rate by acquisition channel. If any paid channel is running 2x or more above your organic baseline, that channel is buying customers who were never going to keep the product.

Second, your total refund burden. Not just the reversed revenue. The reverse logistics, write-offs, support hours, and lost processing fees. Most brands have never totaled this number. When you do, it won't be small.

Third, run the EBITDA bridge. Take your current P&L and rerun it at 8% refund rate, keeping everything else the same. The gap between those two numbers is the cost of your current demand quality.

If that gap is six figures or more, this isn't something that belongs in an ops standup. It belongs in the next board conversation.

What is a healthy refund rate for fashion ecommerce?

Industry benchmarks for fashion ecommerce refund rates sit between 6% and 9%. Brands running above 12% typically have a demand quality problem, not a product quality problem.

The distinction matters because it changes where the fix lives. Product quality fixes are downstream (better sizing, better photos). Demand quality fixes are upstream (acquisition targeting, creative strategy, channel mix).

How do refunds affect EBITDA in ecommerce?

Refunds impact EBITDA through two layers. The obvious layer is lost revenue. The hidden layer is secondary costs: reverse logistics, product write-offs for items that can't be resold, customer support load, and non-recoverable payment processing fees.

For a $7.5M fashion brand, the difference between a 15% and 8% refund rate can represent a $1.2M EBITDA swing. Often the difference between operating at a loss and turning a profit.

How do you reduce ecommerce refund rates without hurting conversion?

The most effective approach is improving demand quality at the acquisition level, not adding friction at checkout. This means tracking refund rates by acquisition channel and creative ID, measuring net contribution after returns instead of ROAS, and making product creative more honest about fit, fabric, and styling.

Brands that test transparent "who this is NOT for" messaging typically see conversion drop 8 to 12% while refund rates drop 30 to 40%, resulting in higher net margin per order.