RTO cost calculator

An RTO cost calculator puts a monthly figure on parcels that go out and come back. Enter your cash-on-delivery orders, RTO rate and costs to see the monthly cost, the share each delivered order carries and what a lower rate saves.

What an RTO order costs you

RTO, return to origin, is a parcel the courier brings back to the seller because it could not be delivered. Most often it is a cash-on-delivery, or COD, order the buyer refused, missed or gave a wrong address for.

An RTO order earns nothing, but it is not free. You pay shipping out and shipping back, the packing is spent, and the product itself is lost when it returns damaged, soiled or past its season and cannot be sold again.

None of this shows on a single order, so RTO is easy to underrate. Added up over a month it is a real line in your costs, and spread over the orders that are delivered, it is a cost every sale carries.

How the RTO cost calculator works

The calculator works on one month of COD orders, in five steps:

1. RTO orders are your COD orders multiplied by your RTO rate.
2. The cost of each RTO order is the forward shipping, plus the return shipping, plus the packing, plus the product’s cost multiplied by the share of returned stock you cannot resell.
3. Monthly RTO cost is the RTO orders multiplied by the cost of each.
4. RTO cost per delivered order is the monthly cost divided by the orders that were delivered: your COD orders times one minus the RTO rate.
5. The monthly saving at a target is your COD orders, times the gap between your RTO rate and the target rate, times the cost of each RTO order.

Leave the target empty and the calculator takes five points below your current rate, never less than zero. Every cost you leave empty counts as nothing, so the result grows as you fill the figures in.

A month of COD orders, worked through

Illustration: a seller ships 1,000 COD orders in a month and 20% come back. Forward and return shipping cost ₹ 60 each, packing ₹ 20 and the product ₹ 400, and one returned piece in ten cannot be sold again.

In the illustration, each delivered order carries ₹ 45 for the parcels that came back before it earns anything, and bringing RTO down by five points is worth ₹ 9,000 a month.

What the calculator assumes

The calculator works with averages for one month, so it rests on a few assumptions:

• All the orders are COD. Enter COD orders only, with the RTO rate for COD orders, so prepaid orders do not dilute the figures.
• Average costs. One forward rate, one return rate and one packing cost stand for every parcel; if your rates differ by zone or weight, use a weighted average.
• Forward shipping is charged on returned parcels. Enter nothing for it if your marketplace or courier does not charge it on RTO.
• Stock you cannot resell is lost at cost. A piece sold off at a discount loses less than its full cost.
• Nothing else. COD collection fees, the money held up in parcels on the road and the time spent on returns are left out.

Marketplaces treat RTO in their own ways, and their fee schedules change. Check the current schedule for a returned COD order before you enter the return shipping, and enter what you are actually charged.

How to measure your RTO rate

The calculator needs your RTO rate for COD orders, and it is easy to measure loosely. Count it the same way every month:

• divide the COD parcels that came back undelivered by the COD parcels shipped, not by the orders placed;
• leave out orders cancelled before they shipped, which cost no shipping;
• keep customer returns of delivered orders separate, since they follow a different path and cost;
• date each parcel by when it shipped, so a late return still counts in the month it went out.

Choosing a target RTO rate

A target helps only if you can reach it, so start from your own figures rather than a general benchmark. There is no normal RTO rate: it moves with the category, the price, the region and how orders are confirmed.

Break the rate down before you set the target. RTO by PIN code, by product and by source often shows that a few areas, products or campaigns account for much of it, and the target is the rate with those fixed.

Then treat the saving as a budget. The monthly saving at the target is what an order-confirmation call, a prepaid discount or tighter ad targeting can cost and still pay for itself.

Bringing the RTO rate down

The steps that bring RTO down are well known; the calculator tells you which are worth paying for. Our guide on how to reduce RTO covers each one in detail:

• confirm COD orders before they ship, by a call, a message or a confirmation step at checkout;
• check addresses and PIN codes at checkout, and fix incomplete ones before shipping;
• give buyers a reason to prepay, and limit COD in the PIN codes that refuse most;
• look at the ads and offers that bring in orders that are never delivered.

On a D2C storefront most of these are settings and checkout rules, which we build into D2C storefronts on Shopify and WooCommerce. On marketplaces, RTO shows up in the returns reports we work through in marketplace account management.

Feed the result back into your margin, too. Your RTO rate and the cost of each RTO order go straight into the break-even ROAS calculator as its return rate and cost of each return.

The volumetric weight calculator then checks the shipping costs behind both, since a parcel that comes back is usually charged on the same weight each way.