1. What is the RTO Formula?

The RTO (Return To Owner) formula estimates the return to owner in dropshipping businesses. It calculates the ratio of total costs (COGS + overhead) to sales revenue, providing insight into business profitability.

2. How Does the Calculator Work?

The calculator uses the RTO formula:

Where:

• \( COGS \) — Cost of goods sold ($)
• \( OH \) — Overhead costs ($)
• \( S \) — Sales revenue ($)

Explanation: The equation calculates what portion of sales revenue is consumed by the total costs of running the business, indicating the return that remains for the owner.

3. Importance of RTO Calculation

Details: RTO calculation is crucial for dropshipping businesses to understand profitability, optimize pricing strategies, and make informed financial decisions about cost management and business growth.

4. Using the Calculator

Tips: Enter COGS and overhead in dollars, sales revenue in dollars. All values must be valid (positive numbers, sales > 0).

5. Frequently Asked Questions (FAQ)

Q1: What does RTO represent in dropshipping?
A: RTO represents the cost-to-revenue ratio, showing what percentage of sales is consumed by business costs before owner profit.

Q2: What is a good RTO value?
A: Lower RTO values indicate better profitability. Ideally, RTO should be less than 1, meaning costs are lower than revenue.

Q3: How often should RTO be calculated?
A: RTO should be calculated regularly (monthly or quarterly) to monitor business performance and identify trends.

Q4: What costs are included in overhead?
A: Overhead includes all operating expenses like marketing, platform fees, software subscriptions, and administrative costs.

Q5: How can I improve my RTO?
A: Improve RTO by reducing COGS through better supplier negotiations, optimizing overhead costs, or increasing sales prices.