What is RTO in Ecommerce?

Close to 100 per cent of pin codes in India have seen e-commerce adoption. 

With India expecting to have over 907 million internet users by 2023, the Indian e-commerce market is expected to have an annual gross merchandise value of $350Bn by 2030!

So, does the rising demand to shop online bring only profit for the e-commerce sellers? 

Ideally not!

Studies show that RTO makes up over 20-30% of all orders, which means your business can straight-up lose 20% of possible revenue gained. So, it’s important for your business to learn about Handling Ecommerce RTO Steps and strategies that can work for you.

So, it’s important for your business to learn about: What Do Sellers Need to Know About RTO In E-Commerce?

In this blog, we’ll try to look at the major reasons why RTO happens, their impact on sellers and some proven strategies that can work for you.

So without much delay, let’s get into the core of it!

What is RTO in Ecommerce?

This is quite a known fact that RTO orders can eat your revenue - straight up to 20%.

But what exactly is an RTO, what does it mean for e-commerce and how is it a worry for them?

Let us take you through all these questions one by one in this section.
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Starting off with:

What is an RTO

Return to Origin (RTO in ecommerce) occurs when a shipped package is returned to its initial location, typically the seller's warehouse or distribution centre.
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This can pose significant challenges for e-commerce businesses, potentially leading to:

1. Increased shipping costs: RTOs incur double shipping expenses, both for the initial delivery and the return.
2. Reduced customer satisfaction: Failed deliveries can lead to customer frustration and a diminished brand reputation.
3. Lost revenue: Undelivered orders represent lost sales opportunities.
4. Damaged or expired goods: Repeated handling and transportation can damage or spoil products.
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Major reasons for RTOs

1. Incorrect or Incomplete Address Information

Inaccurate or incomplete address details provided by customers are a major cause of RTO in ecommerce. 

This can happen due to simple errors, typos, or outdated information. When couriers are unable to locate the correct delivery address, they are forced to return the package to the sender.

2. Customer Refusal of Delivery

Customers may refuse delivery for various reasons, such as dissatisfaction with the product, inability to pay the cash-on-delivery (COD) amount, or being unavailable to receive the package. 

This can lead to RTO and additional costs for the e-commerce business.

3. Damaged or Defective Products

If a product is damaged or defective during transit, it may be returned to the seller as unsellable. This can lead to RTO, as well as the need to replace the product for the customer, incurring additional costs.

4. Ineffective Communication with Customers

Lack of communication between the e-commerce business and the customer can contribute to RTOs. For instance, if the customer is not informed about delivery schedules or potential delays, they may be unavailable to receive the package, leading to RTO.

5. Lack of Customer Feedback Analysis

E-commerce businesses should regularly analyse customer feedback to identify recurring issues that contribute to RTOs. By addressing user feedback proactively, they can effectively reduce RTO rates and improve overall customer satisfaction.
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Impact on e-commerce businesses

RTO orders are difficult for e-commerce brands as they add extra cost and administrative overhead for the brands.

This even means if the brand doesn’t have a proper process in place, it could impact the customer experience negatively.
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Let’s understand some major reasons why brands find it difficult to manage return orders:

1. Increased cost for return shipping, tracking & verification

Each time an RTO request is placed, the e-commerce brand has to bear the cost of return shipping. 

Managing and covering these shipping charges can be a financial burden, especially if return rates are high as it requires a tool called Return Management System and negotiation with shipping providers to minimise expenses.

This even means that users must be kept informed every time on updates for their exchange/refund, hence this involves tracking shipments and verifying their status, which may require additional resources and coordination.

2. Managing reverse logistics 

E-commerce businesses require well-established reverse logistics processes to handle RTO effectively. This system oversees the collection of returned items, whether for restocking, recycling, or disposal, thereby limiting Return to Origin shipment and enhancing operational efficiency.

A crucial aspect of Reverse Logistics is inventory management. Returned products should be automatically routed back into an inventory system such that it helps prevent stock outs or overstock conditions.

Upon return, these items undergo inspection to determine their condition. If suitable, they are restocked or refurbished for resale.

3. Deteriorating customer experience

The efficiency of an ecommerce business's RTO management can have a big impact on the overall customer experience. 

A smooth and effortless return process helps in customer satisfaction and loyalty, encouraging repeat purchases. Conversely, a difficult, or lengthy return process can defer customers from making future purchases.

4. Product quality and packaging

Frequent RTO can be an indicator of issues with product quality or packaging. This means businesses need to continually assess and improve these aspects to reduce return rates and maintain customer satisfaction.

Handling RTO in ecommerce business including their returns policy, logistics, and customer service, can make a significant difference in their success and sustainability in a competitive market.
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How to use First Party data for your E-commerce brand

Regularly monitoring your RTO rates can help you identify trends and pinpoint areas for improvement. For example, you might notice that RTO rates are higher for specific product categories, shipping carriers, or delivery locations. 

This information can be used to develop targeted strategies to address these issues and reduce overall RTO rates.

Tracking and analysing your RTO performance

Analysing data is one of the best ways to understand the reasons behind RTO orders. However, analysing data is best when you have a large sample set, right?

So does this mean that we’re telling you you have to suffer losses before you start to analyse RTO patterns? No, No, this is not what we mean!

What we mean is RTO software can analyse data across all of its customers (D2C brands in this case) and flag various patterns that can lead to RTO orders.

Let us explain this to you in detail with the example of our own RTO suite and explain to you how this works:

Pragma, analyses millions of return orders, right from cosmetic brands to apparel across 450+ D2C brands in India.
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The Deep Analytical insights about customer behaviour that it provides can help individual D2C players to minimise RTO as they get access to:

1. In-depth analytics on product performance, and pincode performance.

2. Access to live data to build strategies on the go.

3. Multi-level nested reasons for better customer understanding. 

4. Assign different return reasons for different product types.

5. Flagging of risky users during order placement or return placement.
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It is important to understand that as you work towards enhancing the user experience, safeguarding your brand against fraudulent buyers who exploit the convenient return process is equally important. 

Hence, the multi-step approval process for accepting return requests makes sure you don’t receive random return requests from customers. 

Customisable Multi-step approval for accepting return requests

By evaluating different sets of people, brands can make sure to show a different return policy that might restrict the return of a product, but only exchange, or support different kinds of refunds like - Coupons, Bank transfers, Store credit, etc.

Furthermore, with return requests rising in number, you can put Return restrictions on select products that help the customer be aware of the no-return policy well in advance like; innerware, electronics above Rs. 2,500, etc.
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How to calculate RTO rates 

RTO in ecommerce, that it the return rate can be calculated by dividing the total amount of products returned by the total amount of products sold in a particular period. Its formula is given by – 
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RTO Ecommerce Return Rate = (Products Returned/Products Sold) X 100

For instance, if you sold 10,000 products in 1 year while 2000 units were returned, your Return Rate would be: 2000 / 10,000 x 100 = 20%
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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.
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How do we Reduce RTO in E-commerce?

We know RTO e-commerce acts as a huge blockers to sellers, it’s important for you to make sure that you minimise RTO orders. 

While having zero RTO orders is a long-term goal, today, let us help you get started with the simple steps that can help you stay ahead of your competitors.

Method 1: Monitoring underperforming pincodes

As we mentioned in the above sections, a tool like Pragma can help you with data on what pincodes are associated with high RTO percentages. So, as a first step, you can restrict delivery to such pincodes. 

This can be found by analysing historical data on products, categories, and resellers. Also, this can help you evaluate the past RTO performance of all courier services in these areas. 

This can then be flagged as underperforming pincodes. 

Pragma’s RTO Suite will give you a comparison of the fulfilment rates for various delivery partners on that underperforming pincode and you can route the orders for that specific pincode via a delivery partner with a higher fulfilment rate.

Method 2: Introduce COD verification to all your orders

With a COD verification feature in place, you can make sure to have verified every one of your COD orders before it is sent to the seller/warehouse.

This includes verifying the user’s number by calling or SMS, helping in flagging impulsive purchases, and helping your team to take immediate action.
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In general, the businesses that work with Pragma use many customisable features to either reduce COD orders or verify them. A few of them are:

1. COD purchases can have different coupons at checkout.
2. Since timeliness is an important factor in e-commerce, you can play around with the delivery date that tempts users to choose a prepaid mode.
3. You can keep COD options only for repeat customers, or users who are purchasing for the first time with you.
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Many brands even skip the COD verification for their loyal customers helping in better customer retention as well.

If returns still arise, the brand can issue wallet refunds, or simply coupons for the customer to shop again instead of a full refund.

With businesses in the D2C space losing due to COD orders, Pragma helped Emami reduce losses for its COD payment method, where COD accounted for 85% of all their purchases.

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Method 3: Validating address to reduce RTO

Incorrect or incomplete addresses provided by customers significantly contribute to RTO cases. Several address validation checks can be employed such as:

• Scrutinising address character length
• Checking for missing landmarks
• Ensuring address-pincode alignment
• Verifying the accuracy of mobile numbers, etc.
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When an incorrect or incomplete address is identified, immediate communication will be initiated with the customer to rectify the issue before dispatching the shipment.

This can significantly increase the likelihood of successful delivery. In cases where a correct address is not obtained, it's advisable to cancel the shipment before dispatch to avoid unnecessary shipping costs.

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Method 4: Customised return policy for different products

You need to filter return requests because not everything that a customer buys can be returned.

You can put restrictions such as:

• All electronics above INR 5,000 will be routed to the service centre, instead of the e-commerce brand.
• Specific items in clothing like innerwear can’t be returned.
• 7 days return period for specific items
• Issuing coupons/wallet refund instead of full refund.
• A strict exchange policy instead of return.

Method 5: Delivering orders faster

When a logistics partner picks up an order, they promise a certain delivery date to the customer - generally known as the Estimated delivery date.

But when the delivery partner fails to deliver the product by this date, there is a high chance that a customer might change their mind, cancel the existing order, and place a new order from another e-commerce website. 

You should ensure that the logistics partners are given tight targets for the first attempt within the specific delivery date, helping brands reduce RTO orders.

With customisable features on Pragma’s RTO Suite, brands with the help of delivery partners can allow their customers to select a date and time of delivery that makes sure the customer is available to collect the parcel. 

Another simple option is to provide the delivery person's number to the customer for easy coordination with the delivery partner.

How does Pragma come to the rescue?

With Pragma’s RTO suite using an AI algorithm to scan 300+ parameters that identify & flag risky orders in real-time, e-commerce businesses can be assured of Brands Reversing RTO Losses caused by limited address information by 45 to 60%

Result?

1. Brands have increased prepaid orders from 25% to 35%, 
2. 60% Reduction in RTOs
3. 35% Reduction in NDRs
4. Reduce info-related RTOs by 45 to 60%

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