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If there is one issue that all D2C e-commerce companies face, it is Return to Origin (RTO). According to GoKwik’s internal data, the Indian e-commerce industry witnesses an average RTO rate of about 20-25%. Depending on the industry, location, or the type of product these numbers can skyrocket to a staggering 40%.

RTO happens for a variety of reasons – customers who place Cash on Delivery (COD) orders may decline the package, bad faith actors may place fraudulent orders, buyers may offer incorrect details and the package or product may be damaged in transit. In all these scenarios, it becomes the brand’s responsibility to bear the costs to rectify the situation. Unfortunately, high RTO rates eat away business profit and impact the brand’s reputation. It is imperative that e-commerce companies – especially small to medium sized D2C businesses – find a way to cut down on RTO rates.

The trials and tribulations of RTO rates were explored at the D2C Carwaan – Surat Edition on August 9, 2024. This event, powered by ecommerce logistics and shipping company Fship, brought together the movers and shakers of the D2C startup ecosystem in Surat for an evening of insightful discussions and networking opportunities.

Participants attended a masterclass, explored the product showcases at the venue and gathered insights from the roundtable discussion on ‘The RTO Runaround – From impact to interventions’ . The panellists included Raju Kumar Sinha, Chief Business Officer, Fship; Mr. Utsav Agarwal, Co-Founder & CEO, Fabric Pandit; Adil Qadri, Founder & CEO, AdilQadri and Rimpy Juneja, Co-Founder, Fuaark and moderator Shubhangi Mishra, Writer, Brand Solutions, YourStory Media.

Watch over website hygiene

The discussion began by looking at the root causes of RTO. Sinha highlighted a few fundamental factors that can dissuade customers from accepting orders. To begin with, he advised D2C companies to pay attention to website hygiene. Ecommerce websites should be designed with care, and seamlessly incorporate all the elements required to run a successful D2C business. Sinha also paid particular attention to website content and images, stating that both needed to be compelling enough to excite the customer. Next, he highlighted the importance of founders understanding their product and finding the right audience. D2c marketing teams must carry out segmentation and audience filtration. Without these methods, RTO is inevitable. Finally, he spoke about the need to push prepaid orders. Currently, popular e-commerce platforms like Shopify feature a plethora of cash on delivery apps, instead of guiding customers to prepaid payment options.

“We know that there is less chance of an RTO with prepaid orders. While there are options in the market that offer partial cod options, merchants continue to focus entirely on COD, as RTOs kill their bottom line” said Sinha.

Is COD calling the answer?

Over the course of the discussion, all three founders agreed that RTOs were an inevitable part of the D2C journey. Juneja reminisced that before the prevalence of technology, companies would manually call customers to confirm COD orders before dispatching them. Qadri agreed and discussed the necessity of these calls.

While businesses are flocking towards newer and more advanced checkout solutions, founders should continue to employ methods like COD calling to understand the pain points that customers have faced in the process. Qadri recommended that founders should make these calls in the beginning, as it gives them unique access to customer insights.

Prepaid payments – a remedy for RTOs

All three panellists also emphasised the importance of prepaid orders as a remedy for high RTO rates. According to Juneja, Fuaark’s sales initially leaned towards COD orders, while prepaid orders took a backseat. When the company adopted a one page checkout solution, prepaid orders experienced a boost, increasing from 45% of sales to 62%. Eventually, the company was able to bring their RTO rate down from 14% to a coveted 8%. Juneja revealed that it was his goal to bring the RTO rate down, even further, to 5%. He shared that currently Fuaark opts for both technological and manual solutions today to keep RTO rates down, relying on both prepaid orders and COD calling.

The answer lies in data

In order to understand why customers return items, the team at Fabric Pandit decided to explore the underlying customer psychology that motivated these decisions. They discovered that a lack of trust was one of the primary causes of RTOs. According to Agarwal, “When brand trust increases, the customer will be more eager to receive the product. We started out like every other brand without the customer’s trust. To build trust, you have to improve visibility, either on social media, or engage directly with the customer as a founder.” Agarwal shared that COD calling also helped reinforce the trust between the brand and customer. However, the burden of maintaining a team to manage the calls became too much for the brand. That’s when Fabric Pandit’s team turned to data. Upon analysing the data, the team discovered the locations where the risk of RTO was high. Fabric Pandit began to impose COD fees in those specific areas and pushed incentives, like discounts for prepaid orders. These strategic decisions helped them cut down the brand’s RTO rates.

Choosing the right courier partner

Sinha pointed out a flaw in many D2C company shipping strategies – blindly trusting one courier partner and giving them priority over others. These courier partners may provide service to 10-12,000 pincodes. However, the numbers may tell a different story. Out of the 12,000 they may be able to provide excellent service to 8,500 pincodes, but the remaining pin codes may have had an extremely bad experience with the courier partner.

“Trust in the data. Aggregators like us (Fship) have built AI-based courier allocation engines, wherein we get the performance visibility of all the courier partners and then we recommend what courier partner you should use everytime you go and ship your orders. In this industry, courier performance is extremely dynamic” said Sinha.

Wrapping up

“It’s not rocket science. The one key way to reduce RTO is to increase your prepaid orders. Third party checkout apps, and the rise of UPI payments, helped us reduce our RTO orders.” said Qadri.

In regards to data, Qadri advised founders to focus on data and on Profit and Loss (PNL) from day 1. Founders should have – at minimum – a monthly report of these numbers. That was how Qadri’s brand was able to calculate their losses and begin to make changes. He also spoke about the inevitability of RTO. There will be returned orders because of genuine reasons. There will be problems from the customer’s side and mistakes made by the company or shipping partner.

The conversation covered different aspects of the issue. Panellists urged D2C founders to give checkout solutions time to work, and stressed that the initial costs of adopting checkout solutions would pay out in the long term. They also recommended that brands spread out their inventories across various warehouses in order to manage quick deliveries.