How to Reduce RTO? Tips and Examples for Indian eCommerce Brands

Is Return to Origin (RTO) the bane of eCommerce existence? Well, as dramatic as it may sound, RTOs are indeed one of the biggest challenges for Indian eCommerce businesses.

On average, up to 20% of ordered items return to origin. And that leads to increased logistics costs, re-packaging and quality check costs, blocked inventory and whatnot! In the worst-case scenario, too many RTOs may lead to a loss of marketplace commission.

Hurts, doesn’t it?

While eCommerce merchants are not entirely responsible for RTOs, they can quickly reduce them by taking some basic measures.

And what are these basic measures? How can RTO be reduced as an Indian eCommerce store?

This blog post will answer all these questions. Let’s start by briefly explaining RTO, and we will proceed from there.

Content Index

What does Return To Origin Mean?

Let’s start with the meaning of return to origin.

Return to origin occurs when a customer orders a product, it is dispatched for delivery, but it remains undelivered, is cancelled mid-way, or is returned after delivery (for multiple reasons; we will get to that later), and it is shipped back to the online store’s warehouse.

This means double the cost involved. If you spent ₹X on packaging, shipping, and logistics, you will now have to pay ₹2X for re-packaging, checking for product quality again, and logistics.

Therefore, any eCommerce store owner prefers to reduce the overall volume of RTO for their business to maintain healthy profitability.

How to Calculate RTO in eCommerce?

The formula to calculate the return to origin is as follows:

Return to Origin = [(Undelivered orders+Returned orders post delivery+Cancelled orders)/ Total orders ] * 100

RTO formula

Suppose your online store receives 50 orders within a month, of which 3 are undelivered, and 7 are returned post delivery.

In that case, your RTO for the month is : [(7+3)/50 * 100] = 20%

This means that every one item out of five sold items is returned to the origin.

What are the Main Reasons behind the High Return to Origin Rate?

There are numerous reasons behind increasing RTOs. We have hand-picked the most common reasons observed for Indian eCommerce stores:

Unclear product information on your store

Sometimes, eCommerce stores don’t include the information a customer needs before purchasing a product. For example, look at this product information taken from an Indian eCommerce website:

The only information included about this dress is its material, length, and where it was made. However, customers require more information, such as a return and refund policy, reviews from past buyers, colour variations, etc. There’s no explanation of body type and size either. You have to pick any size and just pray it fits you.

Now, think from a customer’s perspective. They might place an order out of urgency or due to typical impulse buying. But when they go back and notice that the product details are incomplete, they are bound to have trust issues and may end up cancelling the entire order.

The customer inputs the wrong address or is unavailable during delivery

This happens all the time.

The customer may type the wrong pin code, pin the wrong location from Google Maps, or unknowingly input a past address where they no longer live.

See how a new eCommerce store owner seeks help in this Reddit thread about a similar issue where the customer seeks help for inserting the wrong address:

It may also happen that the customer is not present at home when the delivery executive arrives, and there’s no one to accept the order on their behalf. While there are at least three delivery attempts in standard cases, it would simply mean RTO if the customer is on a long vacation or out of town for a long time.

The delivered item is wrong or damaged

Suppose an item is broken during shipping and reaches the destination as a damaged item. Or the item that reaches the customer is not what they ordered. In such cases, the customer will either not accept the item or return it after delivery.

Watch how this Reddit user shares their experience receiving the wrong item from an Amazon seller.

Such experiences are frustrating for most customers, who would grab the first chance to return a wrong item.

Impulsive purchase is where the shopper changes their mind after purchasing or regrets the purchase

“Impulse buying” is a thing! According to Invesp, 40% of all money spent on eCommerce stores is attributed to impulse purchases. These purchases are driven by emotions, be it a sudden urge to purchase something, an inability to decide between two or more products and buying all of them, or a long desire to buy something and one day hit “Buy Now” all of a sudden.

But what’s the aftermath of impulse buying? The same report shows that 46% of male and 52% of female shoppers regret impulse purchases.

What action should they take at this stage? Well, they return the products, which leads to another RTO.

Fraudulent activities

Finally, some shoppers intentionally place orders and don’t accept them or order an item for an occasion and then return it. They keep doing these as most online stores don’t implement a penalty for these activities. However, for an online store owner, such customers and their fraudulent attempts critically impact overall revenue.

How Does Excessive RTO Impact Your eCommerce Business?

Return to Origin, or RTO, remains among the most pertinent challenges for eCommerce businesses. RTO rates vary widely depending on product category, target markets, and operational efficiency. According to a research publication, Cash-on-delivery return rates can reach as high as 62%, while they hover around 38% for online payments.

Financial impact

The most immediate and tangible impact of RTO that you realise is the financial burden that comes with reverse logistics. The cost of shipping the product back to its origin, restocking fees, and product depreciation sometimes add up to two to three times the original delivery cost.

Plus, indirect costs associated with RTO include increased customer service inquiries, potential loss of customer loyalty, and negative word of mouth. Sometimes, you might be bound to offer extra discounts or refunds, further impacting profitability.

Operational impact

E-commerce return rates are significantly higher than those of traditional brick-and-mortar stores. Online sales return rates range from 20% to 30%, compared to 8% to 10% for physical stores.

High RTOs disrupt inventory management and create discrepancies between available stock and actual sales. This often leads to overstocking and understocking of certain items. In addition, you also have to consider the additional resources and manpower needed to process returned items in warehouses.

In addition, resources should be allocated to investigate the reasons for RTOs and implement preventive measures. However, doing so diverts attention and resources from other key business areas.

Customer experience impact

RTOs can have a notable impact on customer perception of your brand. First, they often result in delayed refunds for customers. This sometimes breeds dissatisfaction and a potential loss of trust in the brand. It can also hurt future purchases and brand loyalty.

Customers often perceive RTOs as a sign of poor service or product quality. High RTO rates deter potential customers and harm the business’s overall reputation.

Research from the Reverse Logistics Magazine highlights another common problem with returns, that is fraud returns:

“For eCommerce companies, an astonishing 14% of returns have been found to be fraudulent. This shows that whilst generous returns policies are important for customer satisfaction, it is important for company profitability to make returns barriers high, and be tough in enforcing them”

Only when you understand the major impact of RTOs at a granular level can you implement effective mitigation strategies in your business?

How to reduce RTO: Strategies and Examples

Wondering how to reduce RTO in eCommerce?

Below are some of the less explored yet accessible ways to reduce RTO for your eCommerce business, along with examples:

Improve product descriptions

Setting the right expectations for your customers is paramount to reducing RTO. If customers get something other than what they expected, there is a high chance they will return it. A concise but detailed product description can go a long way in helping you inform your customers about exactly what they are purchasing.

Always try to include complete information about your products:

Features
Specifications
Dimensions (in multiple units)
Materials used in manufacturing
The value that your product adds

Take a look at the following listing on Amazon.

The product title is detailed, informing customers about the product’s dimensions, material and texture, and use case (in this case, the rug is intended for living rooms and bedrooms).

Further down, the more detailed description conveys the major features. It highlights its positives and additional eco-friendly nature that some customers might be concerned about. This is what an ideal description should look like—to the point, concise, and optimised.

Verifying customer details and accuracy

You need to verify your customer details on two levels:

Check for accuracy in contact and delivery details so the product reaches the right customer
Verify customers who are interested in your product

To address the first issue, you must minimise contact and delivery details errors since incorrect addresses or phone numbers increase the likelihood of failed deliveries. Check the character length of the address, landmark info, and pin code details. If there is any misalignment, ask the customer to correct it through an automated process.

Secondly, to determine if a genuine customer has placed an order, verifying their phone number or email via OTPs or verification calls before they can place an order is essential. You may call customers to confirm if they want the order for COD orders.

Other ways to identify if the customer placed a genuine order include:

Looking for their email address online
Verifying that the billing and shipping address match each other
Reviewing high-value orders

Optimising COD process

Cash-on-delivery (COD) is a great way to incentivise more purchases. However, you must put some mechanisms in place that prevent or at least discourage customers from accepting such orders when they arrive at their doorstep.

While the average return rate for all eCommerce orders is around 17.6%, it could reach 25-40% for COD orders. Reasons can include non-genuine buyers, customers second-guessing their purchase, lack of cash, or not being home to pay.

What can you do? Here are some quick tips:

Incentivise pre-paid purchases by offering cashback and discounts on pre-paid orders only. Conversely, you can levy extra COD charges that encourage pre-maid mode.

On Amazon, for instance, you can’t use your Amazon Pay balance when conducting a COD purchase (the Amazon Pay Balance option greyed out)

Keep online payment options like UPI and e-wallets open at all times for COD transactions. This lets customers pre-pay anytime before delivery, even after choosing COD

Call customers to manually confirm their order through an IVR, as Flipkart does. Moreover, you can also verify if the customer is at their residence with a call or message before the product is shipped to them

Keep track of problematic buyers who return purchases very often. Act accordingly to determine if it’s a risky address or pin code. For instance, Shopee has a strict policy where a lot of failed order payments on COD lead to the buyer being permanently banned from placing COD orders

Disable COD for high-value or large-order purchases

Optimised checkout process with a trusted payment gateway

COD orders are at high risk of RTO. Therefore, disabling COD and encouraging customers to pay through digital payment methods is a smarter option for high-value orders.

But why do many users still prefer offline payment modes like COD? Online checkout experiences are long and exhausting. 73% of online shoppers leave their carts because of the long checkout process.

But things can get much simpler if you use a fast-checkout solution like Nimbbl on your site. Compatible with all major eCommerce platforms, such as Shopify, Wix, WooCommerce, and so on, Nimbbl optimises your checkout process, eliminates unnecessary steps, and empowers you to complete the entire process with just a click.

With Nimbbl’s one-click checkout solution, the flow of checkout is simple:

A user needs to submit their contact number on the checkout page
Nimbbl features all the personalised payment methods they are eligible for
The user selects one and completes the checkout

There is no hassle of waiting for OTPs or remembering your UPI ID, checkout completes within seconds and order is placed right away.

When the checkout process is this simple, users are more likely to opt for online checkout instead of COD, which means more genuine and reliable purchases and fewer possibilities for RTO.

Packaging and labeling tips

Packaging serves a dual purpose: it is aesthetically pleasing and protects your product from damage during shipment.

If you are receiving many complaints and RTOs due to broken or damaged goods, it’s time to review your delivery packaging.

This is especially important if you deal with fragile or perishable items. Ensure tamper-proof packaging and invest in higher-quality packaging materials and appropriate cushioning. Also, clear instructions and labels should be incorporated into the package to better handle the product during transit and shipment.

Be sure to wrap relevant products in bubble wrap before placing them in cartons. This adds extra protection in case something goes wrong during transit.

Amazon does a great job at this, and customers also care about it.

Use technology to identify customers that are at RTO risk

Return frauds are all over the place. In 2023, 54% of retail executives stated that their biggest challenge was reducing fraudulent returns. Moreover, Amazon sellers often complain about paying shipping fees multiple times due to problematic customers returning their products. So, your job includes sniffing out these problematic delinquents and safeguarding your business from them.

One way out is to create a database of your customers and segment them according to potential RTO risk. Parameters can include:

Credit score: A customer’s credit score is pivotal. Lower scores correlate with a higher risk of default

Purchase behavior: Customer purchase patterns provide insights into risk, such as frequent returns or high-value transactions
Demographics: Certain demographics, like younger customers or frequent movers, may signal higher risk

You can easily do this with customer data management apps like Amplitude.

Some software even has built-in AI functionality that can make the segmentation process a breeze from available customer data. Using this sorted database, you can set up workflows that automatically accept or reject orders or convert COD orders into pre-paired ones based on their transaction history and the risk involved.

Customer support training

Picture this: a customer buys a product that arrives in 5 days. But what if they have second thoughts and wonder if they want the product?

If they change their mind and attempt to cancel the purchase, a robust customer support system can save the day (and your product from being returned). This is because efficient customer care can respectfully deter customers from cancelling their purchases under all circumstances.

For instance, if a customer changes their mind, customer support can stress that the product has already been dispatched and will soon reach them. Alternatively, if there’s a delay in delivery, your customer support team should be ready to handle disgruntled customers. They must also accommodate customers who have a special request.

Train your customer support reps to be easily accessible, have great communication and soft skills, be proficient on multiple channels(email, social media, messaging, calls, etc.), and be proactive rather than reactive. For instance, Zara gives customers the option to contact them through multiple channels, as we can see here:

Source: Zara

Policies should also be set to encourage customer satisfaction. For instance, you can give customers a special coupon for not cancelling delayed or problematic orders while continually assuring them they’re being heard.

Some free courses provide your reps with a good deal of CS knowledge. Trailhead by Salesforce provides excellent practical skills in customer support.

Partner with logistics brands

Quick and accurate shipping meets customer expectations, reduces customer anxiety and the chances of buyer dissonance, minimises missed or failed delivery attempts, and enhances overall customer satisfaction.

You can achieve this by partnering with reliable logistics brands that get your product to your customers efficiently and accurately. This helps reduce RTO rates by preventing customer annoyance due to late or missed deliveries and reducing customers’ window to cancel their orders before arrival. You can also choose logistic partners based on their performance in particular states or cities. This ensures that you get the best services in all locations.

Partnering with an efficient logistics partner will ensure you have the best safeguards against RTO enabled at all times.

RTO data analysis to identify trends, most loyal customers, and potential risks

If you can identify the major causes of RTOs and potentially risky delivery locations or addresses, you can take remedial measures to address these problems and reduce your RTO rates.

A good way to measure RTO metrics for products you sell is to Create a database that encompasses important details like reasons for return, the location from which the product is returned, and other key metrics.

Some metrics that you might want to track include:

Return rate: Percentage of sold units returned by customers
Reasons for returns: Helps categorise products by RTO causes like defects, wrong items, buyer’s remorse, etc.
Return cost: Total cost associated with the returns
Return time: Average time taken to return the product to source after delivery
Return to Origin rate: Percentage of returned items that are sent back to the original manufacturer or supplier
Post-return customer satisfaction: Feedback from customers who have initiated returns to help streamline the return process
The resale value of returned items: Track percentages of items that can be resold and the cost you need to put back into things like repackaging

Note that one of the significant problems with traditional methods for RTO data management is that it relies solely on carriers to provide updates in bulk at the end of the day. This means an entire day is lost before you can respond to issues that arise at the start of the working day.

A good solution could be to implement a system that helps you obtain these Non-Delivery Reports (NDRs) in real-time so that you can immediately respond to the issue.

Segregate the NDRs based on the causes behind them to make them more manageable when resolving or analysing problematic trends. You can use AI-powered systems like Tableau or cloud-based analysis apps like OriginPro to identify the main reasons behind most of your RTOs and address them.

These could range from damaged products due to poor packaging and address errors to deliveries in delinquent-heavy localities that need further customer verification. Some NDR management systems, like ClickPost, detect fake deliveries, protecting you from potential fraud.

Collaboration with suppliers and manufacturers

Cooperate with your suppliers and manufacturers to ensure a stable and sustainable supply chain that allows you to receive products on time so that you can make timely deliveries.

You can also collaborate with manufacturers to refurbish damaged goods instead of replacing them to reduce your RTO expenses. Analyse trends to see if customers face a common issue with a particular product, prompting them to return it.

Bring it up with your suppliers and manufacturers to sort out the defect immediately. A good relationship with your supplier also means they might accept returns on damaged goods with less persuasion.

You can also indirectly reduce your RTO chances and costs by implementing the following:

Ensuring stricter quality control measures by collaborating with manufacturers
Creating a feedback loop by sharing customer concerns and grievances allows for continuous product improvement
Sharing sales data and demand forecasts with suppliers to prevent over or understocking-of goods
Implementing JIT (Just In Time) inventory practices to reduce holding costs
Real-time supply chain tracking system to ensure order fulfilment
Implementing a robust reverse logistics system to process returns, refurbishing, and reselling initiatives quickly

Legal aspects of managing RTO

E-commerce is regulated in India based on the following laws:

The Information Technology Act, 2000 (“IT Act”)
Consumer Protection Act, 2019 (CPA 2019)
Consumer Protection (E-Commerce) Rules, 2020
The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019
Contract Act 1872
The Payment and Settlement Systems Act, 2007 (PSS Act) and the Settlement System Regulations, 2008

While processing returns, you need to comply with laws associated with consumer protection. The law contains an unambiguous provision allowing every customer to return the purchased goods within 7 days after the delivery.

The law also does not require the presence of defects or inconsistency in goods quality. The customer is not even obligated to inform you about the reason behind the return. So, when processing returns, note that you do not infringe on your customers’ rights since it can lead to other significant legal issues.

Leverage customer reviews to build trust

Integrate genuine customer reviews on the product page to convey more in-depth product quality and usage details. Customer reviews and testimonials are vital in e-commerce, offering social proof and fostering trust.

By featuring user-generated content, such as photos and videos of customers using your products, you can add authenticity and credibility to your brand. Amazon allows customers to upload pictures or videos of products that arrived at them in their reviews, making things more transparent and fostering trust.

By responding to reviews and addressing feedback, you also demonstrate that you value customer opinions, further enhancing trust and loyalty.

Conclusion

RTOs are inevitable, and you can always keep them to zero. However, you can follow these best practices to maintain a minimal RTO rate for your eCommerce store.

One of the most underrated yet effective strategies is to reduce the length of your checkout cycle so customers don’t get tired of a long process and end up clicking on ‘COD’ only to return an item.

Want to explore Nimbbl more and its fast checkout solution?

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FAQs

What is the RTO rate for eCommerce in India?

The average RTO rate in the Indian eCommerce industry is approximately 20-25%. Still, it can rise to nearly 40% depending on factors such as the brand’s industry, the states, cities, and pin codes it serves, the types of products it sells, and more.

Can I offer incentives or discounts to customers for providing accurate delivery information and reducing RTO?

Yes, you can give customers discounts when they complete certain milestones to verify their details. For instance, you can offer a 5% discount or a reduced delivery charge if the customer inputs a nearby landmark or provides their email ID, phone number, and address. Customers willing to do that are most likely interested in making a purchase.

What is the complete RTO for dropshipping?

RTO stands for “return to origin” when dropshipping. It occurs when an order is either returned by the customer or remains undelivered, resulting in its return to the original warehouse from which it was dispatched.

What is Return to Origin (RTO) and How to Reduce it? A Complete Guide