What is Return to Origin in E-commerce?
The meaning of RTO in courier and e-commerce industry is a return to origin. This is a logistics term referring to the return of a shipment to the sender due to various reasons. It is a process where the undelivered shipments are returned to the sender’s warehouse or fulfillment center instead of delivering them to the intended recipient.
RTO occurs when the logistics provider or courier company fails to deliver the shipment to the customer for various reasons, such as an incorrect address, unavailability of the customer, or a rejected package. This process involves the delivery partner returning the undelivered package to the warehouse or fulfillment center, and the customer is refunded for the purchase.
Return to Origin – Why It Happens?
Although we know what RTO means in courier, we must understand why the problem arises. RTO happens beyond the seller’s or e-commerce platform’s control for several reasons. Some of the most common reasons for RTO include invalid user information, incorrect/invalid delivery address, customer not being available at the doorstep, customer intent, and fraudulent orders.
How Does RTO Impact Online Businesses?
RTO can have a significant impact on the profitability of online businesses. It can result in lost revenue, additional shipping costs, and reduced customer satisfaction. When a package is returned to the sender, it incurs additional costs such as shipping, handling, and inventory management. These costs can add up quickly and reduce the business’s profit margin.
Additionally, RTO can negatively impact the customer experience due to delayed shipments, lost trust, and lower customer satisfaction. Customers expect timely delivery and a hassle-free return process. If a package is sent back to the sender, it can result in an unpleasant experience for the customer.
Top Reasons For RTO
In e-commerce, return to origin (RTO) has become a significant challenge for online retailers. While it can occur for various reasons, some of the most common reasons for RTO include an invalid user, an incorrect/invalid delivery address, customer unavailability, fraudulent orders, and customer intent. Let’s closely look at each of these causes.
- Invalid user
One of the main reasons for RTO is an invalid user. This may occur if the user provides incorrect or incomplete personal information, such as their name, contact number, or email address. When the courier company tries to deliver the package to the given address, they may not find the customer, or the customer may not be available to receive the package. This can lead to the return of the package to the seller’s origin, resulting in RTO.
- Customer not available at the doorstep
Another reason for RTO is the customer’s unavailability at the doorstep. The courier company may be unable to deliver the package to the customer if they are unavailable at delivery time. This occurs despite the customer providing the correct delivery address and personal information.
- Customer intent
Sometimes, customers may intentionally refuse to accept the delivery of their package, which leads to RTO. Customers can change their minds about the purchase resulting in the package being returned. Wrong goods being delivered also results in RTO.
- Incorrect/Invalid delivery address
In some cases, customers may provide an incomplete or incorrect address when placing an order, leading to the courier company being unable to complete the delivery. This can also occur when the customer provides a non-existent address or an address that does not exist in the courier company’s database.
- Fraudulent order
Fraudulent orders constitute a significant cause of RTO. There can be instances where a customer places an order using fake personal information or a stolen credit card. When the courier company tries to deliver the package to the given address, they may not find the customer, leading to the return of the package to the seller’s origin.
How to Calculate RTO?
To calculate the RTO rate, you need to divide the total number of returned packages by the total number of shipped packages. For example, if you shipped 100 packages, of which 20 were returned, your RTO rate would be 20%.
The total number of returned packages generally consists of four parts: returns after delivery, orders not delivered, unaccepted orders, and canceled orders.
How Can You Reduce Return to Origin in E-commerce?
High RTO rates can significantly impact the profitability of an e-commerce business. When a product is returned to the seller, it results in a loss of revenue due to the additional shipping and handling costs incurred. Furthermore, it can also result in a damaged business reputation, leading to a loss of customers. Therefore, it is crucial for e-commerce businesses to reduce their RTO rates.
Here are four tips on how to reduce RTO rates in e-commerce:
Tip 1: Incentivizing online payments
Incentivizing customers to use online payment modes such as debit or credit cards can lead to a reduced rate of RTOs.
While being a popular mode of payment, COD orders are more likely to result in higher rates of RTO. This is because customers may not be available to receive the package or may change their minds about the purchase. E-commerce businesses can incentivize customers to use online payment modes by offering discounts, cashback, or other rewards. This can encourage customers to pay online and reduce the RTO rates caused by COD orders.
Tip 2: Make the online payment process easy
The online checkout process should be straightforward to understand. Customers should be able to make payments with a few clicks without navigating complex pages.
Many businesses integrate popular payment gateways into their platform to increase the customer’s ease of payment. Additionally, e-commerce businesses can offer various payment options to customers, such as wallets and net banking, to make the payment process more convenient.
Tip 3: Improve the accuracy of addresses
E-commerce businesses can reduce RTO rates by improving the accuracy of delivery addresses. One way to achieve this is by integrating address verification software into the e-commerce platform.
Address verification software checks the accuracy of delivery addresses in real time, ensuring that the correct address is provided before the product is shipped.
Tip 4: Analyzing the patterns of customer behavior
One of the main reasons for RTO is customer behavior. Customers may change their minds about a purchase or provide an incorrect address. To reduce RTO, businesses need to analyze customer behavioral patterns to identify the factors that contribute to RTO.
Data analytics tools help gain insights into buying habits, preferred payment methods, and delivery addresses. Through such tools, businesses can determine which products have the highest RTO rates and the reasons behind them. This can help e-commerce businesses to adjust their offerings, pricing, and delivery options to reduce RTO.
How does Cash on Delivery Lead to RTO Losses?
Cash on Delivery (COD) is a popular payment method in the e-commerce industry. As the name suggests, the customer pays the delivery agent for the order at delivery time. COD is an easy and secure option for customers who may be uncomfortable with online transactions or do not have access to online payment options. However, there are some downsides to using cash on delivery.
COD leads to significant RTO losses due to the lack of commitment from the customer. Since the customer has not paid for the order upfront, they may not feel obligated to accept the delivery when it arrives. The customer may refuse the delivery for various reasons like lack of funds, changed mind, or non-availability at the delivery address.
Customers can often place fraudulent orders without the intention of accepting the delivery or paying for the product. These customers may provide fake addresses, contact numbers, or even fake names, making it difficult for the delivery agent to complete the delivery. The e-commerce company bears the cost of the delivery and the return, leading to a loss.
Besides the lack of commitment and fraudulent orders, COD also leads to operational inefficiencies. COD orders are usually accompanied by higher return rates, which means the delivery agent may have to visit the same address multiple times, increasing operational costs for the e-commerce company. Moreover, COD requires the delivery agent to carry cash, which may sometimes make the agents a target for theft and robbery.
What are the Common Reasons of RTO in e-commerce?
Direct-to-consumer (D2C) businesses have gained significant popularity in recent years with the rise of e-commerce platforms and social media. These businesses cut out intermediaries and allow brands to sell their products directly to consumers. D2C businesses have the potential to streamline the supply chain, reduce costs, and enhance customer experience. However, they also face challenges, such as managing returns and reducing the return to origin (RTO) rates.
- Incorrect user information
Customers often provide incomplete or inaccurate information, such as wrong addresses, phone numbers, or email addresses. When the courier company is unable to reach the customer due to this incorrect information, it returns the product to the seller’s warehouse.
- The customer is unavailable to get the product
RTO in D2C businesses can occur when the customer is unavailable to receive the product. This may happen for various reasons, such as the customer not being at home, not having someone to receive the product on their behalf, or not being available during delivery hours.
- Fraudulent order
Another reason for RTO in D2C businesses is fraudulent orders. Fraudulent orders can occur when someone places an order using someone else’s identity or credit card details. The courier company is unable to deliver the product to the customer, and the product has to be returned to the seller’s warehouse.
- Wrong product delivered
The courier company may deliver the wrong product to the customer, leading to RTO. This can happen due to errors in the inventory management system or mislabeling of the products.
- Damaged items
Damaged items can lead to a high rate of ROI for a business. Products can get damaged during transportation due to mishandling, improper packaging, or extreme weather conditions.
Ways to Tackle the RTO Issue
Return to origin (RTO) is a major concern for businesses, especially in the e-commerce sector. RTO impacts businesses’ bottom line and affects customer satisfaction and brand reputation. Therefore, it is vital to tackle the RTO issue to ensure smooth operations and growth.
Marketing plays a crucial role in reducing RTO. Below are some ways businesses can leverage marketing to tackle the RTO issue.
- Educate customers
One of the main reasons for RTO is customer intent. Customers may not be aware of the return policies or may not fully understand the product before making the purchase.
Therefore, it is important to educate customers about the product features, return policies, and other details before purchasing. Businesses can use various marketing channels such as email marketing, social media, and website banners to educate customers about the product and return policies.
- Personalize marketing
Personalization is an effective marketing strategy that can help businesses reduce RTO. By personalizing marketing messages, businesses can create a better connection with customers and increase their chances of making a purchase. Targeted messages can help customers understand the product better and increase their confidence in making a purchase.
- Provide accurate product information
Businesses should ensure that the product information on their website is up-to-date and accurate. Providing accurate product information can help customers make informed purchase decisions, reduce the chances of product returns, and improve customer satisfaction.
Operational strategies are also crucial in reducing RTO. Here are some ways that businesses can optimize their operations to tackle the RTO issue.
- Improve customer service
Customers may return products for various reasons, such as incorrect size, color, or fit. Therefore, businesses should have a robust customer service system to help customers resolve their issues quickly and efficiently.
There should be multiple channels for customers to reach out to, such as email, phone, chat, and social media, along with a dedicated customer service team that can promptly handle customer queries and complaints.
- Optimize inventory management
Overstocking or understocking can lead to delays in order fulfillment, which can increase the chances of RTO. Thus, inventory management becomes crucial in managing RTO. Optimizing inventory management can help businesses fulfill orders quickly and reduce RTO.
- Streamline order fulfillment
Streamlining order fulfillment is also vital in reducing RTO. Businesses should ensure that they have an efficient order fulfillment process that can handle large volumes of orders. Automating the order fulfillment process using technology such as barcode scanning, automated picking, and packing can lead to lower RTO.
Shipping plays a major role in e-commerce, and even tiny mistakes can lead to huge losses. Therefore, paying special attention to the shipping process is essential to reduce the RTO rate.
- Partnering with reliable courier services
Customers expect their orders to be delivered on time, and any delay can lead to frustration and dissatisfaction, ultimately resulting in RTO. Therefore, partnering with reliable courier services can help to avoid such issues.
When choosing a logistics partner, consider their delivery time and their past performance record. You can check customer reviews and ratings to understand their reliability. Partnering with a courier service that has a good track record can help to ensure timely delivery, thus reducing the chances of RTO.
- Offer multiple shipping options
Customers expect convenience when it comes to online shopping, and offering multiple shipping options can help to improve their shopping experience. By offering different shipping options, customers can choose the option that suits them best, which can help reduce the chances of RTO.
- Using effective packaging
Effective packaging is another important factor to consider when it comes to shipping. The packaging should be strong and durable to ensure that the product is delivered safely without any damage. Poor packaging can result in damaged products, which can lead to RTO.
- Real-time tracking
Customers expect to be informed about the status of their orders, and providing real-time tracking can help improve their shopping experience. This can help to reduce the chances of RTO as customers will be aware of the delivery status and can take necessary actions if required.
Why is Reducing RTO Important?
Reducing RTO (return to origin) is an essential aspect of any e-commerce business that wants to succeed. Here are some key reasons why reducing RTO should be a priority for e-commerce businesses:
1. Calculate the actual number of products sold:
One of the primary reasons why reducing RTO is crucial is that it allows businesses to accurately calculate the number of products that are sold. If a significant portion of the products sold is returned, it can skew sales data, making it difficult to track which products are selling well and which are not.
Reducing RTO helps businesses to better understand their customers and their needs. It enables them to optimize their product offerings to cater to their target audience. This, in turn, can lead to increased sales, improved customer satisfaction, and higher revenue.
2. Profit margins calculation:
Reducing RTO can also help businesses calculate their profit margin more accurately. When a product is returned, the business incurs additional costs, such as shipping fees and restocking fees, which can eat into the profit margin. By minimizing the number of returns, businesses can ensure that they can make the most profit possible.
3. Fine-tune your execution:
By analyzing the reasons why products are being returned, businesses can identify areas where they need to improve. For instance, if a significant portion of the returns is due to damaged items, the business may need to improve its packaging and shipping processes to ensure that products arrive in good condition.
4. Estimate shipping charges:
Finally, reducing RTO can help businesses estimate shipping charges more accurately. When a product is returned, the business incurs additional shipping costs, which can add up quickly. If the RTO of a business is low, the company can better estimate its shipping charges, which can help optimize the shipping processes and reduce costs.