Where Your Profit Is Actually Leaking (And You Don't Know It Yet)

Returns are typically recorded in the P&L as a revenue reduction. What is rarely tracked separately is the full cost of each return: the reverse logistics cost (₹80₹150 per return depending on courier and geography), the quality check and repackaging cost for returned goods (₹30₹80 per item for apparel and personal care categories), the inventory write-off rate for returned goods that cannot be resold as new (typically 1525% of returns in personal care, 1020% in apparel), and the customer service cost for return-related interactions.For a brand with 20% return rate on 2,000 monthly orders, the full cost of returns is not the revenue reduction shown in the P&L. It is the revenue reduction plus approximately ₹200₹300 per return in handling, logistics, and write-off costs totalling ₹80,000₹1.2 lakh per month in costs that are either not tracked or distributed across multiple P&L line items rather than appearing as a single 'cost of returns' figure. The brands that control return leakage are the ones that track this full cost by SKU and by channel, identify the specific products and customer segments with the highest return costs, and make product, packaging, and targeting decisions based on return-adjusted margin rather than gross margin.

As documented in the settlement reconciliation article, D2C brands operating across multiple marketplaces are systematically owed money they do not know they are owed. Commission rate misapplication where the marketplace charges the wrong rate category is the most common source, followed by return deductions for goods never actually received back at the warehouse, and duplicate TDS deductions applied at both the transaction and summary level. Across a brand doing ₹50 lakh monthly GMV across Amazon, Flipkart, and Myntra, unreconciled discrepancies typically run to ₹50,000₹1.5 lakh per quarter money that is simply left in the marketplace's account because nobody ran the reconciliation at complete coverage.The fix is systematic, complete reconciliation not the 20% sampling review that most finance teams perform under time pressure, but full transaction-level joining of OMS records against settlement reports, run automatically on a daily basis. At ₹50 lakh monthly GMV, the recoverable amount from a full reconciliation programme typically pays for the implementation cost within the first quarter.

Logistics costs in Indian ecommerce are not a single fixed rate per order. They vary by weight, by dimension, by distance zone, by courier partner, by service level, and by whether the shipment is forward or reverse. Most ecommerce brands set their courier pricing assumption at the beginning of the year and do not update it as their order mix (average order weight, mix of metro versus non-metro delivery, product category distribution) changes. When the order mix shifts as it inevitably does with new product launches, new marketing channels, or new geographic expansion the actual logistics cost per order diverges from the assumed logistics cost per unit economics model.The specific analysis that surfaces this leakage: a monthly reconciliation of actual logistics cost per order against the logistics cost assumption in the unit economics model, segmented by product category, delivery zone, and courier partner. Brands running this analysis typically discover two or three combinations of product category and delivery zone that are significantly loss-making at current courier rates delivery of a low-value, high-weight product to a Tier 3 city at a rate that was calibrated for a lighter product to a metro is the most common example.

As documented in the supply chain article, inventory carrying cost runs at 2030% of inventory value annually. For a brand with ₹40 lakh average inventory including ₹8 lakh of dead or slow stock (20% of inventory with no movement in 90 days), the annual carrying cost of that dead stock is ₹1.6₹2.4 lakh money being spent every year to warehouse, insure, and fund goods that are not generating any revenue. This cost never appears as a single line item. It is distributed across rent, interest, and eventually a write-off that is recorded as a one-time event rather than an ongoing cost.The fix is not a one-time write-off event. It is a systematic dead stock identification and liquidation process monthly inventory age analysis by SKU, an automatic trigger for clearance pricing when a SKU crosses 60 days without movement, and a hard policy on maximum inventory days-of-cover for each category. Brands that implement this process consistently report an initial painful write-off event followed by 1525% lower average inventory levels that free working capital and reduce carrying costs permanently.