Calculate Cancellation Rate and Improve Seller Performance – Tips for Amazon Sellers (including Calculation Formula)
The order comes in – but delivery of the goods is not possible. Not a pleasant scenario for either the customer or the seller. Because aside from the fact that a cancellation results in lost revenue, this situation is not exactly conducive to customer loyalty. However, Amazon sellers face an additional problem: The so-called cancellation rate before order fulfillment is a very important metric that directly factors into the calculation of seller performance.
Thus, this Amazon KPI also influences your chances as a seller of winning the Buy Box or how your products rank within search results. Accordingly, anyone selling on Amazon should keep an eye on the cancellation rate. But what situations are captured by the cancellation rate before fulfillment, and how can you avoid them?
What is the cancellation rate before fulfillment?
At Amazon, cancellation has a different definition than what sellers might be used to. The cancellation rate does not measure cancellations from the customer, as one might initially assume. This metric rather measures how often the marketplace seller has canceled an order within the last seven days before they could complete the order fulfillment, and relates this to the total number of all orders during that period.
This also means: This KPI is only relevant when marketplace sellers ship their orders themselves, for example, through Fulfillment by Merchant (FBM) or Prime by Seller. If they have delegated order fulfillment to the online giant as part of Fulfillment by Amazon (FBA), then the cancellation rate before fulfillment does not factor into the seller rating.
Amazon measures the cancellation rate before fulfillment primarily as an indicator of a seller’s inventory management. In most cases, sellers cannot fulfill an order because the item is out of stock. Cancellations made by the customer through their Amazon account do not count towards this, even if they are made before order fulfillment.
Why is a high cancellation rate before fulfillment negative?
Amazon understandably wants to keep the cancellation rate as low as possible. There are mainly two reasons for this:
Both aspects convince marketplace sellers that they should cancel as few orders as possible. More importantly: The impact on performance is immense. Seller performance is an important indicator for the Amazon algorithm when it comes to awarding the Buy Box.
Winning the so-called cart field is, however, crucial for a high conversion rate. About 90 percent of customers make purchases through the yellow button. So, those who do not appear there hardly get any sales. Only when the cancellation rate before fulfillment tends towards 0% can sellers compete against their competitors.
The same applies to private label sellers. Appearing high in the search results is not just a matter of professional SEO optimization. If the other metrics are not aligned, achieving a good ranking is hardly possible, as the algorithm is programmed to show customers the products that are most likely to satisfy them.
How is the cancellation rate before fulfillment calculated?
According to Amazon’s guidelines, the cancellation rate before fulfillment must remain below 2.5% for the seller to be allowed to sell on Amazon. If a seller has to make more cancellations, they risk the suspension of their seller account.
Cancellation Rate: Formula for Calculation
Calculating the cancellation rate is relatively simple. The number of canceled orders is divided by the total number of orders, and this result is multiplied by 100.
Cancellation Rate in % = (Canceled Orders / Total Number of Orders) x 100
A value below 2.5% does not jeopardize the selling license, yet the cancellation rate before fulfillment should be much lower, ideally tending towards 0%. Only then is there a chance to win the Buy Box.
Tips for a Low Cancellation Rate
To keep the cancellation rate low as an Amazon seller, one thing is especially important: good inventory management! Thanks to digitalization, many processes can be automated: Intelligent systems, for example, forecast expected sales for the coming weeks and alert when the inventory is running low.
Even better: Those who automatically connect their internal inventory management system to Amazon can prevent overselling right at the source, thus keeping the cancellation rate before fulfillment low on its own. Additionally, sellers should particularly keep an eye on the purchase trends of popular products. If an increase in sales is anticipated or a buying trend for one of these products develops on Amazon, it may be advisable to increase stock levels early. There are also intelligent solutions that make your life easier. With SELLERLOGIC Business Analytics, bestsellers and so-called “shelf warmers” can be identified in seconds, allowing not only for the avoidance of cancellations but also for effective sales increases.
Implementing such processes is not only time-consuming but also costly. Additionally, sellers need more staff to handle shipping as sales increase. Those who cannot or do not want to allocate these resources should utilize Amazon’s FBA program. This not only covers the entire fulfillment process – from storage to packing to shipping – but also alleviates sellers from worrying about many of the demanding metrics that play a role in winning the Buy Box, alongside the cancellation rate before fulfillment.
It happens that customers want to cancel their order and contact the seller directly to do so. This can have various reasons, such as when they only want to return part of the order but still wish to purchase the other part. If the seller agrees and cancels the order, this counts towards the cancellation rate before fulfillment. Therefore, customers should always be encouraged to go through the official route via their own Amazon customer account and cancel the order there themselves. If only part of the order needs to be canceled, the seller can resolve this through a partial refund. The only exception is emails with the subject “Order Cancellation Request from Amazon Customer …”, where Amazon automatically recognizes that it is a cancellation request from the customer.
Conclusion: Always Keep an Eye on the Cancellation Rate!
A cancellation rate before order fulfillment that is too high is problematic on several levels: Revenue is lost, the customer is unlikely to order from you again, and Amazon penalizes you as well – if you exceed the threshold of 2.5%, you may even face deactivation of your seller account.
In general, the cancellation rate on Amazon should ideally tend towards 0%. Only then do you have a good chance of winning the Amazon Buy Box or ranking high. Since cancellations by the seller are often due to insufficient stock, you should rely on professional inventory management and automatically connect it to Amazon. This prevents overselling and constantly monitors stock levels.
FAQs
Basically, the cancellation rate indicates how many planned bookings or transactions were ultimately canceled in relation to all planned bookings or transactions. But what does canceled mean at Amazon? Cancellation has a different meaning here. At Amazon, the cancellation rate (or cancellation rate) is the number of cancellations made by the online seller in the last seven days.
To avoid account suspension, the cancellation rate must be below 2.5%. However, in a healthy online business that has its inventory management under control, it tends to be closer to 0%.
A high cancellation rate is disadvantageous, especially for Amazon sellers. On one hand, cancellations not only mean a loss of revenue for the sellers but also for the e-commerce platform itself, as both lose commissions on the sale. They also lead to dissatisfaction among customers, which may cause them to refrain from making further purchases and turn to the competition instead.
Most cancellations by sellers are due to empty stock. Therefore, invest time and energy in solid inventory management or find a tool or service provider that can handle this task for you.
Image credits in the order of the images: © Александр Байду – stock.adobe.com
