What is RTO ( Return to Origin): Reasons, and its impact on businesses

Sourabh Upreti
Sourabh Upreti
December 23, 2022

Ah, another product was returned from the customer.

Wouldn't it be great if your customers are so happy with your product that they don't want to return them?

Yes, that’s the dream of every Shopify store owner like you.😉

But it does not happen all the time. And it's a problem that you need to deal with. 🥲.

I know, I know: it's a pain to deal with returns. You have to take time out of your day (and maybe even lose money) on shipping costs and stuff, and then there's all that hassle of getting the item back in your hands… It's enough to drive any small business owner mad!

But don't despair—we're here to help you out! 😌

We've got some tips for dealing with returns that will make it easier than ever.

Let's minimize your RTO together.

What is Return to Origin (RTO)?

The term RTO refers to Return to Origin. When a parcel cannot be delivered to the customer for any reason, it is marked as Return To Origin (RTO) and sent back from where it came.

The seller must pay all forward and reverse logistics expenses if this happens. Yes, that sucks! In fact, eCommerce retailers lose up to 30% of their revenue to returns and exchanges. 

When an RTO product is ordered again, the online store has to repack it for shipping and ensure its quality measures are in place.

In a nutshell, it's a nightmare for a D2C owner like you. Isn't it?

Why is reducing RTO important?

Because reducing RTO saves you dollars 😉.

When you know the cost of RTO, you can prevent it from happening as much as possible. You can also control the costs of handling returns and use them to your advantage.

With RTO, you can:

1. Calculate the number of products that are actually sold.

To get an accurate picture of your business, you need to calculate the total sales made (not just checkouts)—and exclude RTO from that figure. Mark the product as sold only when it reaches the customer's hands.

If your RTO is low, it's a good indicator that your business is doing well and not losing money. If you're getting a lot of returns, it's time to look at how your business works and see what changes can be made to fix the problem.

 2. Calculate your profit margin.

If you know the RTO, you can calculate the profit margin of your business. 

This will tell you how much money is left after subtracting all costs from your total sales. Your profit margin is the percentage of sales you make after deducting expenses from your total income. It's a great way to see whether or not you're making money on each product sold.

For example, if your RTO is 5%, then for every $100 that comes through the door of your store, only $95 will be available to pay for expenses (including labor).

3. Fine-tune your execution.

Gather your RTO data, and use it to fine-tune your assortment of high RTO SKUs, target consumers more effectively (using pin codes with higher RTO), and build consumer profiles that will help you reduce future returns.

4. Estimate shipping charges.

In estimating shipping charges for your products, you need to consider both the cost of shipping the product and what it will cost you if it is not delivered or returned. 

Thus, when you know the RTO rates, you can plan them accordingly. 

What are the common reasons for RTO in D2C? 

Returning products can be costly for retailers, but identifying the root cause of returns—rather than simply accepting them at face value—can save companies from such losses.

There are several common reasons why your D2C store may have high RTO. No matter what, you must identify the error and fix it.

Here are the top reasons for RTO:

1. Incorrect user information.

The most common reason for a high RTO is incorrect user information.

For example, if the user provides the wrong delivery information, you may have to handle the returns and deliver them to the right person.

So, it’s essential to verify the user information before processing orders.

Sometimes, spelling errors can also lead to an erroneous order being placed. A misspelled address makes it hard for the delivery partner to understand where you want your package delivered, leading to an RTO.

2. The customer is unavailable to get the product.

If a customer is unavailable to get the product, it may lead to an RTO. 

For example, you'll have to send the package back if they are not at work or home when the delivery partner arrives.  

When a customer is unavailable to accept delivery and does not respond to phone calls, the package will be marked “customer unavailable” by the carrier.

3. Fraudulent order.

Certain kinds of D2C fraud will always result in a return. In other cases, customers may request returns even though their orders were legitimate.

And worse still, bad actors who want to sabotage an online retailer can place dummy orders that are filled, shipped, and then automatically returned—all without ever having been opened by anyone!

Online sellers are forced to pay for their own returns, and this causes some online retailers to go out of business. According to the retail survey conducted by NRF, for every $1 billion in sales, an average retailer incurs $165 million in merchandise returns and loses $10.40 to refund fraud.

4. Wrong product delivered.

Sometimes, customers return products because the merchandise is the wrong size, color, or style. Or they may receive an item that doesn't match what was advertised on your website.

And you have to handle these kinds of situations, 

Even if it’s not your fault, you may be held responsible for the product being returned. If this happens, check with the customer to see if they want an exchange or a refund before processing the return. But by reducing returns due to quality issues, you can recoup as much as 20% of lost revenue.

5. Damaged items.

If an item is damaged in transit or has missing parts, it can be returned to you by the customer. Again, make sure that customers know whether they need to contact you before making any returns related to this issue.

How to calculate RTO?

You can calculate the RTO using the formula below,

RTO rate = (Orders not delivered + Orders canceled before delivery) / Total number of orders

The RTO is the percentage of orders that were not delivered on time. This is a good indicator of how well your shipping process is working. The lower your RTO, the better because it means you can ship products out faster and more reliably than before.

The best ways to reduce RTO orders.

Though it's impossible to eliminate the RTO from your D2C business completely, you can lower the RTO by changing how you handle orders.

Guess what?

Using the Whatsapp Business API, you can achieve this goal. Whatsapp has enabled businesses to form closer relationships with customers, thus increasing successful purchases and improving the experience after purchase.

Here are some ways to reduce the RTO:

1. Share accurate product information.

As we mentioned, if customers receive something other than what they have ordered, they’re likely to return it. To avoid this problem, make sure that you have accurate product information.

With WhatsApp Business API you can send bulk images and other product information to customers. You can give customers personalized information about new products or sales by writing accurate product descriptions and adding clear images.

With BiteSpeed, you can send all the information to customers and help them make informed decisions about their purchases. 

use bitespeed to send information to customers

This helps you avoid the common problem of customers ordering something different from what they expected. Thus, low RTO rates. 

2. Update your customers about the order status.

Tracking updates are essential to customer satisfaction and can substantially reduce anxiety among impatient customers awaiting their orders. In fact, 97% of customers want to be kept up to date on the status of their orders.

The best way to deliver tracking updates is by using a service that's both fast and efficient. One such method is messaging customers on Whatsapp, which is proven effective because it's simpler than sending emails or text messages.

The reason? Whatsapp messages are confirmed within seconds, while emails are often ignored or deleted before they are read.

And the important thing is....your competitors are not aware of this!

With BiteSpeed, you can send tracking updates on Whatsapp with just a few clicks. It's super easy to use and requires no additional resources.

send tracking updates using bitespeed

Leave it to us; we will keep your customers happy!

3. Cross-check the information.

While sending tracking updates on Whatsapp is essential, it’s equally important to cross-check the information. You don’t want to send wrong data that could be detrimental to your brand image or cause a loss in revenue.

With BiteSpeed, you can easily cross-check the information and ensure everything is correct before sending out an update message.

Bye-bye RTO losses!

4. Reduce COD orders.

Let us tell a bitter truth: RTOs eat into your net margin, and the average return rate for COD orders is 40%.

Yes, that's huge. But it doesn't have to be like that.

Your best buddy BiteSpeed can help you to change the COD orders to prepaid orders with a single message. It allows you to send a special offer to customers who have made COD orders, asking them if they'd like to pay in advance for their next order and receive 10% off.

COD to Prepaid using Bitespeed

And who else refuses a decent offer?

5. Improve product packaging.

Shipping damage is something that can happen to anyone. But if your customers receive their orders in damaged packaging, they will be disappointed and decide not to order from you again.

This can cause a massive drop in sales! So make sure your products are packaged well and securely before being sent to customers.

As we always do, here are our tips to make sure that your products are packaged properly:

  • Use plenty of cushioning material inside the box. This will help absorb any shocks during transit and prevent damage to your products.
  • Choose strong, durable packaging materials for all your items. This will ensure that even if an item does break during transit, nothing else gets damaged by its falling pieces!
  • Use a sturdy cardboard box with reinforced corners and edges. This will help prevent any damage from occurring if an item does break during shipping, as the box will hold together better than other types of packaging material.
  • Wrap each item individually in bubble wrap before placing it inside your box, as this can provide further protection if something goes wrong during transit.

And finally, check over all your packaging materials before sending them off. This will help ensure that there are no holes or tears in the cardboard box and that nothing can get through to damage your items during transit!

6. Offer customer support. 

To reduce your product returns rate, you should provide customer support to help your customers if they have any problems with the product that they are going to purchase.

In this way, you can provide better information about the product and reduce the return rates caused by the customer’s lack of information about the product.

You can create a custom chatbot that answers the common questions that customers have about your products and provides them with the information they need to make a decision about whether or not to purchase.

With BiteSpeed, you can create a WhatsApp chatbot that can respond to the questions that your customers have about your products.

Moreover, your agents can clear all their doubts about the product and it'll build trust with the customer. Chatbot lets you automate frequently asked questions like

  • Where's my order?
  • What's your return policy?

Moreover, it can also collect more information about the customer's concerns and preferences. You can use this for future marketing campaigns and by the support agent to respond accordingly.

Wrapping up.

Though RTO losses constitute a significant concern for D2C companies, it is possible to overcome them. The key is to have a solid understanding of the RTO loss landscape and then proactively address it.

With a perfect solution, the RTO losses can be reduced to a bare minimum. This will help you improve its bottom line and ensure healthy growth in the coming years.

BiteSpeed is a simple yet powerful solution that helps you reduce RTO losses and increase your sales. It provides a single platform to manage your entire customer lifecycle—from onboarding to post-purchase. BiteSpeed helps you create personalized experiences for every customer by personalizing content and automating the workflow.

And the best part is we will help you get back on your feet without costing you any money. Get started now for free.

Can't wait to help you!

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