Skip to content

RTO cost calculator

The real cost of an RTO is the shipping both ways, COD fees, packaging, damaged stock, reprocessing and the ad spend that bought the order, all for a sale that never happened. Ad spend is often about half of it, which makes RTO a marketing problem as much as an operations one.

Per parcel.

Per returned parcel.

If your courier charges it.

Box, label, picking and packing.

Damaged, opened or out of season.

What the goods cost you.

Inspecting, repacking, restocking.

Ad spend ÷ all orders, returned ones included.

Orders paid in cash on delivery.

Share of COD orders that come back.

Orders paid online.

Share of prepaid orders that come back.

RTO cost a month
$3,832
Cost of one RTO
$24.25
Returned orders a month
158
Ad spend on orders that came back
$1,975
Connect your store and Shiprocket, and Tera Ads takes returns off profit in the month each order was placedFree for one business, no card needed.

The formula

  • Cost of one RTO = forward shipping + return shipping + COD fee + packaging + share you can't resell × product cost + reprocessing + ad spend per order
  • Returned orders = COD orders × COD RTO rate + prepaid orders × prepaid RTO rate
  • RTO cost a month = cost of one RTO × returned orders

Rates are shares between 0 and 1: 30% is 0.3.

Worked example

Shipping costs $3.50 each way, a failed COD delivery $1, packaging $1.50 and reprocessing $0.75.

One returned unit in ten can't be resold, and product cost is $15. Ads cost $12.50 per order placed.

Of 600 COD orders a month 25% come back, and of 400 prepaid orders 2%.

One RTO costs $24.25. With 158 returns a month, RTO costs $3,831.50, of which $1,975 is ad spend on orders that came back.

Questions

Why include ad spend?

Because you paid for the order whether it was delivered or not. Ad spend is often the biggest single line, and it's why campaigns that bring in high-RTO orders cost more than their ROAS suggests.

Where do I find these numbers?

Shipping and RTO charges from your courier or shipping app's invoices (in Shiprocket, the wallet statement), damage from your returns log, and ad spend per order from total ad spend divided by all orders placed.

What is a lower RTO rate worth?

Run the calculator again with a lower COD return rate. The difference is what you save each month, before counting the margin on orders that are now delivered instead of returned.

The full guide

What RTO Really Costs: A Line-by-Line Calculator for D2C BrandsRTO costs more than lost sales: freight both ways, packaging, damage, ad spend and COD fees. A line-by-line calculator with a worked example in rupees.

More free calculators