To measure true profit per order, take net revenue from orders that stayed sold, subtract product cost, commission, shipping, packaging, reverse and RTO charges and write-offs for unsellable returns across all dispatched orders, then divide by orders dispatched. Calculate it by SKU and by month, using settlement reports and your seller agreement, not the delivered-order margin shown on dashboards.
Why headline margin overstates your profit
Most seller dashboards show margin on delivered orders. That hides a basic fact: every dispatched order costs money, whether or not it stays sold. Forward shipping, packaging and handling are spent on orders that later come back. Returned stock can arrive damaged, incomplete or not at all.
If you measure profit only on kept orders, a category with heavy returns can look healthy while the business loses cash. The fix is to measure on dispatched orders and push all return-related costs into the calculation.
The formula for true profit per order
Use this structure:
True profit per dispatched order = (net revenue from kept orders − all costs on all dispatched orders) ÷ orders dispatched
Net revenue means the amount that belongs to you after removing GST and any refunds. Confirm how GST and tax collected at source appear in your settlement with your tax adviser, and do not hard-code any rate into your model.
Costs to include for every dispatched order
- Product cost (COGS) of kept units, plus the cost of units that are written off.
- Marketplace commission and fixed fees as per your seller agreement or rate card, including any that are not refunded on returns.
- Forward shipping and fulfilment fees on all dispatched orders.
- Reverse shipping on customer returns.
- RTO charges on undelivered orders that come back.
- Packaging and handling, including repacking of returned units.
- Write-offs for returns that are damaged, wrong, missing or not received back.
- Ad spend, if you want profit after marketing.
Treat returns and RTO as separate problems
Customer returns and RTO have different causes and different fixes. Returns usually point to size, fit, quality or listing accuracy. RTO usually points to address quality, cash-on-delivery refusals or delivery failures.
- Tag each order as kept, customer return or RTO.
- Within returns and RTO, tag the stock outcome: resaleable, damaged, or not received.
- Calculate the return rate and RTO rate by SKU, size, pincode cluster and payment mode.
- Check whether the fees charged on these orders match the terms you agreed.
Without the second tag, you cannot tell a recoverable loss from an ordinary one.
Where to get the data
Build the model from documents, not estimates. Use the settlement report for payouts, deductions and adjustments, the order and returns reports for status, and the seller agreement or rate card for the fee terms. Fee structures and policies change, so confirm the latest terms with your marketplace account manager before you rely on an old rate.
Match each order across these three sources. Gaps between what was settled and what should have been settled are where money leaks.
Turn the numbers into recovery and action
Once you see profit per order by SKU, act on it. Fix listings with high return rates, review COD handling for high-RTO areas, and raise claims for returns that never reached you or came back damaged, within the claim window in your agreement.
Doing this by hand in spreadsheets gets slow at volume. MarketplaceMetrics by Fundle reconciles marketplace sales and settlements, checks commissions and fees against agreed terms, and tracks returns and recovery cases. Myntra Excel reports are reviewed today; other marketplaces are in scope discussion.
Worked example
Illustrative example (all figures are illustrative, not real rates or results). A brand dispatches 100 orders at ₹1,000 net revenue each. Product cost is ₹400 per unit. Outcomes: 70 kept, 20 customer returns, 10 RTO. Of the returned and RTO units, 7 are damaged or not received and written off.
- Revenue from 70 kept orders: ₹70,000
- Product cost of kept units: ₹28,000
- Commission on kept orders (assumed ₹150 each): ₹10,500
- Forward shipping on 100 orders (assumed ₹60 each): ₹6,000
- Reverse shipping on 20 returns (assumed ₹80 each): ₹1,600
- RTO charges on 10 orders (assumed ₹80 each): ₹800
- Packaging on 100 orders (assumed ₹20 each): ₹2,000
- Write-off of 7 units at ₹400: ₹2,800
Total costs: ₹51,700. Profit: ₹70,000 − ₹51,700 = ₹18,300, or ₹183 per dispatched order. A naive view (₹1,000 − ₹400 − ₹150 − ₹60 − ₹20 = ₹370 per order) suggests ₹37,000, which overstates profit by ₹18,700.
Questions and answers
What is the difference between a return and RTO?
A customer return happens after delivery, when the buyer sends the product back. RTO (return to origin) happens when the order is not delivered and comes back to you. Costs, causes and recovery claims differ, so track them separately.
Should I calculate profit per delivered order or per dispatched order?
Per dispatched order gives the truer picture, because shipping, packaging and handling are spent on all dispatched orders, including those that return. You can also show per kept order as a secondary view, but do not use it alone.
Are marketplace fees refunded when an order is returned?
It depends on the marketplace, fee type and your agreement. Some fees may be reversed and others retained. Check your seller agreement, rate card and settlement report, and confirm the latest terms with your account manager.
How often should I review profit after returns and RTO?
Review monthly at minimum, by SKU and by marketplace, and weekly during sale periods when returns spike. Returns can arrive after the settlement cycle, so revisit older months to catch late adjustments and open recovery claims.