Using Return Rates to Measure the Quality of a New Supplier

As you know, finding a reliable supplier of wholesale iPhones and Android devices is critical to the profitability and stability of your business. One way to gauge the quality of a new supplier is to inquire about their typical return rates. A supplier’s return rate is a good proxy for quality. As we will discuss in this post. Buying from a supplier with a high return rate comes along with a host of embedded. And often hidden costs that may not be apparent from the initial prices that they quote you. 

Acceptable Return Rates in the Business of Wholesale Phones

Before asking a new supplier about his or her typical return rate. You should have a good idea of what is and is not acceptable. It is important to note that return rates in the wholesale business will always be higher. Than those in the retail business. Which, for a reputable seller, could be 2% or less. This type of return rate is simply impossible in the used phone business. Even if a wholesaler does a good job of testing its devices, there will inevitably be some fallout. In some cases a used phone may pass a test but then fail when it is retested after delivery. Generally, a return rate that falls below 5% is considered very good. We saw a return rate of roughly 3% from our LogicalWireless. Direct warehouse in 2019, which we were very proud of. Rates between 5-10% are typical, although we do not consider them acceptable. Return rates above 10% are simply not acceptable. Buying from suppliers with return rates of 10% or higher indicates. That they are likely not doing a thorough job of testing. Buying from such suppliers will add substantial additional, hidden costs to your purchases.

How to Measure Return Rate

While asking about a supplier’s return rate is a good first step. The only way to know what it is for sure is to buy a sample order from your new supplier. And gauge it for yourself. Make sure that before you do this you get a commitment from your new supplier. That you can return defective devices received in your first order. Even if a supplier does not accept returns, they often will on the first order.

If you are a wholesaler that tests devices yourself, measuring the percent of defects (and the resulting return rate) is easy to do, and is probably a standard part of your operational process. In this case, you must simply track your new supplier’s shipment separately, thoroughly test the devices, and measure the fallout. If you are a smaller wholesaler or a retailer that does not have the ability to test devices, measuring return rates can be a bit tricky, and more costly. In this case, you will have to wait for your customers to complain before you know the true return rate. While we do not recommend this path, if you do opt for it, make sure that you track which customers received the shipment from your new supplier so you know exactly what the supplier’s return rate is.

In either case, once you have purchased a large enough sample and measured the defect rate, take the cost of these returns into consideration before you place your next order.

The Cost of Returns

Often a new supplier will try to lure you into a purchasing relationship by promising low prices and a lax return policy. While a lenient return policy is certainly a plus, returning phones carries with it numerous hidden costs that can be easy to overlook. For this reason, it is often a better idea to work with a supplier that charges more but has a lower return rate. Following are a list of hidden costs associated with returning devices to a supplier:

1. If you do your own quality control, you must consider the operational cost of receiving in devices, testing them, grading them, and then shipping them back to the supplier. In most cases, the supplier will make you bear the cost of return shipping.
2. If you are a retailer that does not test devices and simply resells to your customer, the cost of returns includes both hard costs and soft costs. Not only will you likely bear the cost of packaging devices and shipping them outbound to customers, you will also likely bear the inbound cost of return shipping from your customer and the cost of shipping back to your supplier. While the above hard costs can be substantial, they are nothing compared to the softer cost of your reputation being compromised. 
3. Your cost of capital. This cost is the most often overlooked. In the wholesale cell phones business, the returns process can be time consuming. Weeks could elapse from the time you first pay your supplier to the time that you have returned the devices and receive your credit. Throughout this period, your cash has been tied up, unable to be put to a more productive use.

The Final Word on Return Rates

A high return rate should be viewed as a red flag. A supplier’s return rate is one of the best metrics that you have to gauge quality. While it may be tempting to find a supplier that offers low prices and a lax return rate, you will almost certainly be damaged financially by working with a supplier that shortcuts the quality control process. The better solution is to find a supplier with a low return rate even if their prices are higher. Testing and grading devices effectively the first time around costs your supplier money. However, in the long run, it removes significant inefficiency from the supply chain, and saves you money.

Read more about how to find a reputable supplier here.