How to Reduce RTO in eCommerce: Tips and Best Practices

Introduction

Return to Origin (RTO) isn’t simply a one-time mishap for eCommerce companies, most of the time, it’s a constant battle. It is oft considered an inevitability when you’re offering online shopping options.

Think of all the effort that goes into order fulfillment and shipping. But, a single factor like—one missing digit from a customer’s contact information can turn the order from its intended destination back to its origin. That’s the horror of RTO in the ecommerce industry.

Depending on customer behavior, payment options offered, area serviceability, and the niche your brand operates in, RTO can shoot up to anywhere between 20-40%. 

We know the only way to succeed in the highly competitive times is to sell more and retain customers for long. But situations such as RTO can create a serious deficit in your bottom line, and for worse, in customer satisfaction.

In this article we’ll discuss the deficit caused by RTO, how it is calculated, and ways you can overcome these exceptional situations— not just with your sheer will, but solid strategy. Let’s begin.

What is Return to Origin?

In logistics, Return-to-Origin is a term reserved for online businesses. It indicates that a carrier has been unsuccessful in delivering an order to a customer. As a result, the courier partner sends the shipment back to the seller. 

In most cases, it’s brought back to the warehouse from where the order was first dispatched or any other address given by the merchant, like a retail outlet. The shipment undertakes a long return journey home, incurring the risk of damage and carrying a heavy fee for the seller. 

This isn’t reserved to high costs in shipping, carrier surcharges, and other financial strains. It snowballs into major logistical inefficiencies like inventory blockage, loss of merchandise due to damage, wastage in packaging, and negative environmental externality. 

How Customer Experience Impacts Return to Origin (RTO)

Customer expectations are getting redefined when it comes to successful delivery with cash-on-delivery (COD), last minute cancellation, free delivery, hassle-free return policy, and prompt refunds. They are empowered to make a choice of not accepting an order if they have reasons to do so. 

Often there are genuine concerns. Take for instance this case. 

Sushma (name changed) has ordered a shirt for her father’s father. She chose the product from a popular D2C brand that garnered a name during the festive sale season on a marketplace. 

Her only concern? She wanted the product to arrive before her father’s birthday. She was prepared to receive it on the promised estimated delivery date.

However, the order didn’t ship even after 5 days. Worried, she contacted customer service but was told to wait. Losing patience, Sushma tried to cancel the order, but it wasn’t processed. 

After 12 days, the shirt arrived. By then, she had lost all trust in the brand. Refusing to accept the delivery, the order was returned to the seller, resulting in an RTO.

This story isn’t an exception, but a reality of why shipments remain undelivered. Logistical problems, poor customer communication, and shipping exceptions contribute to loss of revenue and reputations. Enough of these lead to high RTO percentages But, before we delve into the impact of failed deliveries, let’s see what causes it. 

Multiple NDRs Result in Return to Origin (RTO)

Return-to-origin is usually the final blow on the nail, but first, merchants have to grapple with NDR (Non-Delivery Report). A NDR is a situation reported by the delivery agent when they are unable to reach the customer to deliver the parcel. 

COD amplifies the chances of shipment return and has a ripple effect on the other factors. For instance, customers who have pre-paid orders are more willing to wait for the arrival in case of late delivery. But, the same customers are prone to change their minds when it is a COD order. A recent research found that 62% of COD orders are returned compared to 38% of paid orders. So there remains a challenge ensuring most COD orders experience delivery success.

A report is registered every time your shipping carrier is unable to reach the buyer for three or more attempts, or they reject the order at the time of delivery. A series of consecutive NDRs results in an RTO.

NDRs also offer the opportunity to re-connect with customers and solve issues when a problem is first recorded. With automated and streamlined communication, you can get the right address or ensure a time when the recipient is available. 

How does RTO impact an eCommerce Business?

Businesses in the fashion, footwear, and jewelry verticals are highly susceptible to their parcels being rebounded without even reaching their customers. Or worse, from their customer doorsteps. 

However, every eCommerce niche is likely to encounter delivery failures. With every shipment returned, sellers have to grapple with the consequences for the next delivery, and their business operability in the long run. Here are of these impact:

1. Increased Operational Costs

Backhauling the undelivered package to the site of origin involves several operational and shipping costs. The most pertinent of this is the doubled shipping charges, including forward and reverse transit journey.  

This expense can vary depending on packaging fee, labor handling charges, fuel surcharge, etc. There are several other cost centers involved: 

Research done on the subject suggests that on average, you can lose 30% or more of your profit during RTOs.

2. Negative Cash Flow

Shipment failure on COD orders can bring in negative cash flow— when more money leaves your business than it stays in. You not only lose revenue when the delivery goes unsuccessful, but pay extra for the logistical expenses mentioned above. This can lead to a cash deficit. 

Negative cash flow has major consequences on your business. It limits your budget for investing, procuring supplies, fulfillment and warehousing activities, and shrinks your marketing budget. 

3. Inventory Management Issues

While a returned shipment is not an end of the product’s lifecycle, it certainly adds stress to already strained resources- warehouse space and inventory management. 

Let’s take an example here. If in a month, you sell 5000, you place a reorder from your supplier to keep your stock replenished. However, if you have 20% of failed deliveries, that’s 1000 orders back to your warehouse.

4. Customer Experience and Satisfaction

RTOs drastically erode customer satisfaction, especially if it is caused by delivery delays, fulfillment errors, or damaged packaging. But the worst of the reasons is fake delivery attempts. It wastes all the effort you put into customer acquisition since data shows 89% of shoppers’ prefer home delivery in countries like India. One bad delivery experience is enough to turn them to your competitor. 

5. Impact on Delivery Partner Relations

Your shipping carrier is answerable for instances like late or failed delivery and bounced back parcels. Since delivery partners also serve as your brand representative, their actions can negatively impact your relations with customers. 

The truth is, every shipping company has a list of serviceable areas but may not have the same expertise or proper fleet required to deliver across every pincode, especially in tier-2 and tier-3 areas.  So, a high percentage of RTO with a shipping partner will affect your association with them, irrespective of their excellent one-day or two-day delivery service in metro cities. 

6. Damage and Devaluation of Goods

Nearly 10-20% of shipments are damaged en route to the customer’s address and back to the warehouse. A number of factors are responsible for this, like harsh weather elements and mishandling during transit. Inefficient packaging, especially of fragile items, makes it more prone to incurring damage. 

Similarly, stuck shipments and returned items can lose their worth even when it is intact. Time sensitivity, like perishable products and trendy apparel have limited shelf life. When these are returned, and it is a lengthy process, they may become obsolete or less desirable by customers. Customers perceive them as less valuable, causing you to sell them at a discounted price or even discard them altogether. 

7. Impacts Profit Margins

RTOs impact profitability that have a ripple effect on all your future endeavors. The various fees and charges associated with it can eat into the profit margin of each sale. Repeat instances of parcels returned can significantly erode your overall bottom line. 

How To Calculate Return To Origin Rate?

There is a simple formula to calculate return to origin.

RTO Rate =            Number of RTO Orders         x 1000            

                     Total Number of Orders Dispatched 

Here is an example. If you ship 3000 orders per month and receive 900 orders back at your warehouse, you can calculate the RTO rate as=(900/3000) x 100 = 30%

Key strategies to reduce Return to Origin (RTO) in eCommerce

Now that we’ve diagnosed the problems and seen the consequences that even a single instance of return to origin can bring, let’s introduce to you effective solutions usually offered by an NDR Management system:

1. Address Verification

The first step in stopping RTO is to have an accurate delivery address. There are two reasons for this. 

One, customers can give a temporary address, like an office location, or university. These are not the best places for doorstep delivery given there may be restrictions or no recipient to accept the parcel. These will need address validation to ensure it is not an incomplete address.

Two, wrong geo-coordinates such as pincode results in the delivery agent to lose the right address. These can result in the carrier have the incorrect address leading to delivery issues and the first attempt being a failed delivery attempt.

When you ensure customers offer the correct address and phone number at checkout, you automatically prevent failed delivery.

2. Real-Time Order Tracking

For customers, it’s easier to forget their delivery dates if it isn’t arriving the same day. Even then, they may choose to step out right before a delivery partner reaches their door if they do not have the information of its arrival. This is why real-time order tracking is essential to streamline your supply chain in eCommerce. 

Be it through a tracking portal or notifications, you should keep your shoppers in the loop of their order journeys and inform them of certain milestones.

Alongside this, it’s important to offer estimated delivery dates or arrival times that help shoppers arrange their day’s schedule to accept the package. The best way to ensure real-time order monitoring is through automated traceability.  While your customer stays informed, you get alerts for stuck shipment, transit delays, etc. When you have the information, you can mitigate risks in time.

3. Clear Communication with Customers

The golden rule in eCommerce is to ensure excellent post-purchase communication. The ideal mode of communication is a multichannel one—SMS, email, IVRS, and WhatsApp, so your customers can contact however they prefer. 

Send them a clear timeline of when an order is about to arrive to keep up their anticipation. More importantly, offer them a way to connect with your customer support team in case they have queries. Or, they want to make changes, like update their contact details, or re-route the order to a different address. 

Data shows that in cross-border shipping, 48% of customers are concerned over longer delivery times and 49% are afraid of delivery frauds. Having a clear stream of communication with real-time tracking can help prevent potential RTOs. 

4. Offer Flexible Delivery Options

The only counter to delivery delays is flexible delivery methods. The rise of BOPIS (Buy-Online-Pickup-In Store), parcel locker, pick-up and drop-off networks provide flexible delivery choices to your customers. 

In a recent report, DHL found that 17% of European customers prefer parcel lockers while 34% of US online shoppers choose parcel or convenience stores over home delivery. When you give multiple delivery options to customers, you give them control, and they are less likely to return the shipment. 

But flexibility doesn’t only mean giving customers different ways to pick up their order, it can also choose a preferred time slot. Slot-based delivery and hyperlocal delivery are fast-paced. They provide customers the reliability that their orders will arrive right on the dot within a span of hours. 

5. Improve COD (Cash on Delivery) Processes

In South-East Asian countries like India, offering cash-on-delivery is non-negotiable as this is the most preferred mode of payment. However, we already know that COD has a high risk of rejections. So, improving COD processes is absolutely a must to do. In most cases, it is to nudge them towards prepaid payment. 

Here are a couple of ways you can do this:

• Offer them an easy COD to prepaid conversion option. You can embed it in your tracking page or send them a notification with the link. 

• Create a seamless way to make online payments, reduce the number of steps involved, and offer more digital payment options.

• Ask your delivery agents to accept digital payments and cards at the time of delivery if the customer is short of cash. 

• Set a restriction on COD orders, like a small fee at the time of checkout. This helps curb a change in customer intent.

6. Optimize Delivery Attempts

When an NDR crops up, you should leap into action to optimize delivery attempts and avoid unsuccessful delivery. Whenever your tracking control tower alerts you of shipping delays, inform your customer about it in real-time. Keeping them in the loop about potential late delivery can safeguard your order from being canceled. 

Have a system in place to trigger notifications to customers and ask for the right details in case you get a NDR alert. Ask for their missing details to coordinate with carriers for the next delivery attempt. If you wish to save time and make it a seamless process, have an automated NDR management tool do the work for you. 

Also, leverage your omnichannel system such as store pickups when an NDR is filed due to customer unavailability. More importantly, implement an OTP verification process to prevent fake delivery attempts. This leaves the worst impression on customers and without safety measures you risk losing them. Have real-time visibility of all NDR issues, their causes, and if required, consider changing your shipping partner. 

7. Implement Accurate Inventory Management

Nowadays, many eCommerce retailers offer open-box delivery. While this promotes delivery transparency, it also ships the package back to the seller if there are misplaced products. Optimizing inventory is crucial to minimize this.

Below are a couple of things you can do for that:

• Install an inventory tracking system to record every incoming merchandise, outbound shipments, and returns. 

• Set a system that checks for picking errors such as a barcode scanning to help pickers find mismatched SKU from the order. 

• Use a warehouse management system to properly store, count, and analyze inventory data. 

• Have the right storage infrastructure, and take help of automatic sorting centers to avoid manual dispatching errors. 

8. Improve Packaging and Labeling

Damages are one of the main reasons why products are returned by customers. In fact, data suggests that premier parcel delivery services like UPS and FedEx can’t avoid product damage in transit. So, the best recourse here is to strengthen packaging. 

Limiting empty space with dunnage, choosing the right box size, wrapping items with cushioning materials help absorb shock and keep them intact.  

Another best practice is to have accurate labeling. If you have fragile items, mention it in your shipping label. Labeling errors like missing tracking ID, incorrect destination address contributes to confusion and errors during delivery.  Finally, this leads to undelivered packages. Therefore, confirm all the details of your shipment before allocating it to the right carrier to carry out the delivery.

9. Customer Feedback

Sometimes customers are prone to impulse buying. They place orders by mistake, cancel orders for a better deal, and purchase the same product from a retail store. In such cases, they can refuse a delivery. 

Moreover, their unavailability and invalid details are common occurrences, causing RTOs to soar for your business. So, gathering customer feedback is the best resource for you to tackle these problems. 

Put in place multiple ways for customers to reach you and for you to communicate with them. This can include in-app forms, feedback forms, feedback widgets, customer interviews in and IVRS mode, etc. 

10. Rigorous Data Analysis

You can’t overcome high RTO% without critically analyzing, collating, and interpreting the causes and agents involved in RTO. Keep a watch over two broad categories: customer feedback and the performance of your shipping carriers.

This includes reports examining customer’s purchasing history and the reasons for canceling or returning a parcel to gauge customer intent and behavior. 

On the other hand, strictly monitoring logistical metrics can help you put in measures to identify and address RTO reasons. Examine your carrier's performance—number of failed deliveries or fake deliveries, proportion of stuck shipments, etc. Also keep an account of breach of SLA (Service Level Agreement) and non-adherance of EDDs to recategorize your delivery partners. 

Conclusion 

While RTO poses significant challenges to eCommerce businesses in the process of scaling up and retaining profits, it can be handled with the right plan. From optimizing customer-enabled problems to streamlining operations, each step mentioned in this article has been proven to reduce RTO rates. 

Remember, along with the right strategy, you also need technology to help automate the resolution process and help you regain customer loyalty. That’s why we highly recommend you invest in a shipping management solution.