Calculations Reference

Complete reference for RTO calculation formulas and financial metrics

Overview

The RTO Profit Simulator uses two primary calculation functions to analyze financial impact and simulate savings scenarios. All calculations are implemented in src/utils/calculations.js.

calculateMetrics()

Calculates comprehensive financial metrics based on business inputs.

Function Signature

calculateMetrics(data, isAnnual = false)

data · object · required

Business input data containing:

• monthlyOrders (number): Total orders per month
• averageOrderValue (number): Average order value in INR
• codPercentage (number): Percentage of COD orders (0-100)
• rtoPercentage (number): Percentage of RTO orders (0-100)
• forwardShippingCost (number): Forward shipping cost per order
• returnShippingCost (number): Return shipping cost per RTO
• productCost (number): Product cost per order

isAnnual · boolean · default: "false"

Whether to calculate annual projections (multiplies monthly values by 12)

Return Values

totalRevenue · number

Total revenue if all orders were successful

Formula: monthlyOrders × averageOrderValue × multiplier

Where multiplier is 12 for annual view, 1 for monthly view.

codOrders · number

Number of Cash on Delivery orders

Formula: Math.round(monthlyOrders × (codPercentage / 100)) × multiplier

rtoOrders · number

Number of Return to Origin orders

Formula: Math.round(codOrders × (rtoPercentage / 100)) × multiplier

totalRtoLoss · number

Total financial loss due to RTO orders

Formula: rtoOrders × (forwardShippingCost + returnShippingCost + productCost) × multiplier

This represents the complete loss per RTO order including:

• Forward shipping costs (already spent)
• Return shipping costs (recovery expense)
• Product cost (inventory blocked or lost)

netRealizedRevenue · number

Actual revenue realized from delivered orders

Formula: (prepaidOrders + deliveredCodOrders) × averageOrderValue × multiplier

Where:

• prepaidOrders = monthlyOrders - codOrders
• deliveredCodOrders = codOrders - rtoOrders

netProfitAfterRto · number

Net profit after accounting for RTO losses

Formula: netRealizedRevenue - totalRtoLoss

breakEvenRtoPercentage · number

Maximum sustainable RTO percentage before losses exceed profits

Formula: (profitPerSuccessfulOrder / (profitPerSuccessfulOrder + lossPerRtoOrder)) × 100

Where:

• profitPerSuccessfulOrder = averageOrderValue - productCost - forwardShippingCost
• lossPerRtoOrder = productCost + forwardShippingCost + returnShippingCost

Calculation Steps

The function performs calculations in the following order:

1. Order Distribution

   const codOrders = Math.round(monthlyOrders * (codPercentage / 100))
   const prepaidOrders = monthlyOrders - codOrders
   

2. RTO Impact

   const rtoOrders = Math.round(codOrders * (rtoPercentage / 100))
   const deliveredCodOrders = codOrders - rtoOrders
   

3. Loss Calculation

   const rtoLossPerOrder = forwardShippingCost + returnShippingCost + productCost
   const totalRtoLoss = rtoOrders * rtoLossPerOrder
   

4. Revenue Realization

   const netRealizedRevenue = (prepaidOrders + deliveredCodOrders) * averageOrderValue
   

5. Profit Calculation

   const netProfitAfterRto = netRealizedRevenue - totalRtoLoss
   

6. Break-Even Analysis

   const profitPerSuccessfulOrder = averageOrderValue - productCost - forwardShippingCost
   const lossPerRtoOrder = productCost + forwardShippingCost + returnShippingCost
   const breakEvenRtoPercentage = (profitPerSuccessfulOrder / (profitPerSuccessfulOrder + lossPerRtoOrder)) * 100
   

Example Calculation

Given the default business inputs:

const data = {
  monthlyOrders: 10000,
  averageOrderValue: 1500,
  codPercentage: 60,
  rtoPercentage: 30,
  forwardShippingCost: 60,
  returnShippingCost: 60,
  productCost: 500
}

const metrics = calculateMetrics(data, false)

Step-by-step calculation:

1. Total Revenue: 10,000 × 1,500 = ₹15,000,000
2. COD Orders: 10,000 × 0.60 = 6,000
3. Prepaid Orders: 10,000 - 6,000 = 4,000
4. RTO Orders: 6,000 × 0.30 = 1,800
5. Delivered COD Orders: 6,000 - 1,800 = 4,200
6. RTO Loss per Order: 60 + 60 + 500 = ₹620
7. Total RTO Loss: 1,800 × 620 = ₹1,116,000
8. Net Realized Revenue: (4,000 + 4,200) × 1,500 = ₹12,300,000
9. Net Profit: 12,300,000 - 1,116,000 = ₹11,184,000
10. Profit per Success: 1,500 - 500 - 60 = ₹940
11. Loss per RTO: 500 + 60 + 60 = ₹620
12. Break-Even RTO%: (940 / (940 + 620)) × 100 = 60.3%

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calculateSavings()

Calculates potential savings from reducing RTO percentage.

Function Signature

calculateSavings(data, reductionPercent, isAnnual = false)

data · object · required

Same business input data structure as calculateMetrics()

reductionPercent · number · required

Absolute percentage points to reduce RTO by (e.g., 5 reduces 30% to 25%)

isAnnual · boolean · default: "false"

Whether to calculate annual projections

Return Values

savedOrders · number

Number of orders saved from RTO

Formula: originalRtoOrders - newRtoOrders

profitImprovement · number

Additional profit gained from RTO reduction

Formula: newNetProfit - originalNetProfit

Implementation Logic

The function uses absolute reduction (not relative):

const newRtoPercentage = Math.max(0, data.rtoPercentage - reductionPercent)

const originalMetrics = calculateMetrics(data, isAnnual)
const newMetrics = calculateMetrics({ ...data, rtoPercentage: newRtoPercentage }, isAnnual)

return {
  savedOrders: originalMetrics.rtoOrders - newMetrics.rtoOrders,
  profitImprovement: newMetrics.netProfitAfterRto - originalMetrics.netProfitAfterRto
}

Example Usage

Scenario: Reduce RTO from 30% to 25% (5% reduction)

const savings = calculateSavings(data, 5, false)
// savedOrders: 300 orders
// profitImprovement: ₹186,000

Calculation breakdown:

• Original RTO orders: 1,800
• New RTO orders (25%): 1,500
• Orders saved: 300
• Each saved order prevents ₹620 loss
• Profit improvement: 300 × 620 = ₹186,000

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Break-Even RTO Formula Explained

The break-even RTO percentage is the critical threshold where your business neither makes nor loses money.

Mathematical Derivation

Let:

• P = Profit per successful delivery
• L = Loss per RTO order
• R = RTO percentage (break-even point)
• C = Number of COD orders

At break-even:

Total Profit = Total Loss
C × (1 - R) × P = C × R × L
(1 - R) × P = R × L
P - R×P = R×L
P = R×P + R×L
P = R(P + L)
R = P / (P + L)

As a percentage:

Break-Even RTO% = [P / (P + L)] × 100

Practical Interpretation

If your current RTO% > Break-Even RTO%:

• You’re losing more money on RTOs than making on deliveries
• Every additional RTO pushes you into net loss
• Immediate intervention required

If your current RTO% < Break-Even RTO%:

• Your business is still profitable despite RTOs
• You have buffer room for growth
• Focus on optimization to increase margins

Example

With default values:

• Profit per delivery: ₹940
• Loss per RTO: ₹620
• Break-even: 940 / (940 + 620) = 0.603 = 60.3%

This means:

• At 60.3% RTO rate, you break even
• At 30% RTO (current), you’re still profitable
• You have ~30% buffer before critical losses

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Usage in Application

The calculations are used throughout the application:

In App.jsx:

import { calculateMetrics } from './utils/calculations'

const metrics = calculateMetrics(data, isAnnual)

In SimulationSection.jsx:

import { calculateSavings } from '../utils/calculations'

const currentSavings = calculateSavings(data, sliderValue, isAnnual)

In VisualAnalytics.jsx:

const projectedMetrics = calculateMetrics(reducedData)

All components receive either data (user inputs) or metrics (calculated outputs) as props to display financial insights.