How to price a product so it survives returns

The usual method is cost plus a markup. Buy at 90, sell at 199, feel good about a 55% margin. On a marketplace where a meaningful share of orders come back, that number is fiction, and the gap between it and reality is where sellers quietly lose money for months.

Why cost-plus fails here

Cost-plus assumes every order you ship is an order you get paid for. Marketplace selling breaks that assumption in three ways at once:

• Returns. The order was delivered, the customer sent it back. You paid to ship it out and usually to ship it back.
• RTO. The order never reached the customer and came back to you. No revenue at all, but the shipping already happened.
• Damage. Some returned stock cannot be sold again. That unit is a total write-off, not a restock.

Advertising and packaging make it worse, because you pay those on every order, including the ones that come back. A return does not refund your ad spend.

The number that actually matters

Your real unit economics are per attempted order, not per delivered order. Written out, the profit on a batch is:

profit = (delivered x settlement)
       - (delivered + damaged) x cost price
       - (all orders x ad cost)
       - (all orders x packaging)
       - (returns x return cost)
       - (RTO orders x RTO cost)

Note which lines are multiplied by all orders rather than delivered ones. That asymmetry is the whole problem. Revenue scales with deliveries; several costs scale with attempts.

A worked example

Take a product costing 90, settling at 189, with 25 of ad spend and 5 of packaging per order. Assume 9% returns and 12% RTO — illustrative figures, not a claim about your category.

Cost-plus says you make 99 per order. The real figure, once 21% of orders come back and returns cost you to handle, is closer to 33. That is a third of what the naive calculation promised, and it is the number your bank balance will agree with.

Raise RTO from 12% to 20% and the same product stops being worth selling. Not because anything about the product changed, but because the delivery rate did.

How to set the price

1. Start from your delivery rate, not your cost. If 79 of every 100 orders stick, only those 79 pay for all 100 attempts.
2. Load ad and packaging cost across every attempt. Divide your monthly ad spend by orders placed, not orders delivered.
3. Price against break-even, then add margin. Work out the settlement at which profit is exactly zero, and treat that as your floor.
4. Re-check monthly. Return and RTO rates drift with season, category, and how prepaid-heavy your orders are.

Prepaid versus COD

The single biggest lever on RTO is usually payment method. Prepaid orders are already paid for, so they are far less likely to be refused at the door. If your category allows nudging buyers toward prepaid, that often moves margin more than any price change.

The profit calculator runs this arithmetic live. Put in your real cost, settlement, and return rates, and it will show you profit per order and where each rupee of revenue actually goes.