SEPTEMBER 15, 2022
Return-to-Origin (RTO) damages the profitability of D2C brands. Higher RTO impacts a brand’s unit economics – revenue lost from the order, money spent on customer acquisition costs, and money spent on logistics. To make matters worse, in-transit shipments could get damaged, which impacts their re-saleability.
D2C brands can reduce their RTO with deeper partnerships, better processes, and technology. In this blog, we will explain four ways to reduce your RTO. But first, what is RTO and why is it such a critical metric for D2C brands?
The RTO rate is calculated as:
RTO rate = (Orders not delivered + Orders canceled before delivery) / Total number of orders
1. Calculate actual quantity sold
You should calculate your total sales (actual quantity sold) based on completed sales – not just checkouts at the webstore. Only sales that are delivered and paid. To get to it, you must exclude RTO shipments from your sales. This will give you a true idea of your business performance.
Lower RTO = Higher ROI
2. Calculate complete shipping costs
Your shipping costs need to include forward transportation and RTO-related return shipping costs.
3. Fine-tune your execution
Use your RTO data to fine-tune your assortment (high RTO SKUs), improve consumer targeting (pin codes with higher RTO), and build consumer profiles (address, phone number, buying history) to further reduce your RTO.
By now it’s clear that a lower RTO means better unit economics for your brand. Below are four ways to reduce RTO for your D2C brand:
1. Offer consumers regular delivery updates
Regular post-checkout shipment updates improve the consumer experience. You can provide your consumers with shipment lifecycle status updates – order received, order packed, order ready for shipment, order handed to delivery partner, order reached consumer’s city, out for delivery, and delivered. These updates can be via different mediums, such as WhatsApp, SMS, or Email. You will increase your engagement with your consumers, and grow their confidence in your brand. The regular communication flow not only shows that your brand cares but also keeps the imminently arriving product front of mind. This will help reduce the chances of cancellations, thereby reducing RTO.
2. Pre-delivery buyer information verification
Ensure that the contact details (phone number and address) shared by the consumers are genuine and authentic. Use a one-time password (OTP) based system to capture the correct phone numbers of buyers. If there are incorrect addresses, call your consumers to verify their addresses before shipping their orders. This will reduce RTO due to incorrect phone numbers or addresses.
3. Make pre-paid orders more attractive than cash-on-delivery (COD)
In India, almost 40% of COD orders face RTO, which is primarily due to:
While COD has helped e-commerce adoption in India, it should be judiciously used to keep a check on RTO. You can incentivize pre-paid orders with discounts or cashback. This increases the volume of pre-paid orders. For example – our client, Nestasia, a popular home decor D2C brand, reduced its RTO by 20%. They took two steps:
1) Clearly differentiated and incentivized their customers to choose prepaid by charging Rs. 40 on COD orders
2) Customers who rejected a COD shipment, were subsequently only offered prepaid
4. Provide faster shipping
When a consumer orders a product, they expect to receive it as soon as possible. Otherwise, they may find an alternate source. Therefore, it is extremely important to deliver shipments within 72 hrs to reduce RTO.