Running an online store can be profoundly gratifying and financially rewarding. Whether you do it as a side hustle, a hobby, or your primary career, being able to pay bills using income from your business feels good.
E-commerce offers a perfect tool for business owners since it attracts a good number of customers. Unfortunately, your eCommerce store also has lots of bills. These include credit card fees, hosting fees, shipping costs, gross margins, and marketing costs.
If not managed, these bills may end up costing more than what the store is generating.
In this article I have put together 15 steps to reduce operating expenses for your eCommerce store that you should build into your monthly process in a systematic way.
Table of Contents
- 1 The Challenges
- 2 The Solutions
- 3 Hiring Virtual Assistants
- 4 Streamlining Your Supply Chain and Distribution
- 5 Doing Routine Inventory Checks
- 6 Eliminating Excess Inventory
- 7 Automating Tasks
- 8 Outsourcing Services
- 9 Negotiating Prices from Vendors
- 10 Pay Bills on Time
- 11 Cancelling Unnecessary Services
- 12 Go Green
- 13 Shop Around for Equipment
- 14 Reduce Your Returns
- 15 Reduce Your Packaging Costs
- 16 Learn to work remotely and Travel Less
- 17 Focus on Customer Retention
- 18 Conclusion
The rising costs and competition have made it difficult for most online eCommerce business owners to increase profits while maintaining competitive prices. Unfortunately, most of them focus on generating more revenue, ignoring the expenses incurred in running the business.
In fact, reducing eCommerce operating costs is a vital aspect when it comes to running a healthy, self-sufficient, and growing enterprise. Our philosophy is always to maintain profit, even when growing your customer base.
The good thing is that eCommerce business owners can cut operational costs of business by implementing several methods.
This should become a part of your monthly schedule – pull out your profit-loss statement (or start using one if you aren’t yet) and go through line item by line item to see what waste is present and what you can cut.
Below are some critical tips one can use to reduce operating costs on his/her e-commerce business.
Hiring Virtual Assistants
Hiring virtual assistants will cut down the operating costs of your business significantly. How? Paying a virtual assistant will cost your business less money compared to hiring a full-time employee. A virtual assistant won’t require most of the benefits that full-time employees need.
Getting your business a good virtual assistant will make the difference between running a productive or a non-productive store. By outsourcing non-core tasks and administrative tasks to a virtual assistant, business owners can free up their time to focus on expanding the business.
Streamlining Your Supply Chain and Distribution
Streamlining the supply chain and distribution process in your business is another effective way of reducing operational costs.
How does this work?
You can streamline the supply chain by incorporating supply chain management practices such as Just in Time Inventory (stocking only the required products), vendor-managed inventory, and integrating all the supply chain methods.
These are among the best methods e-commerce companies can use to reduce the operating costs and get a higher return on investment.
Doing Routine Inventory Checks
Doing routine inventory checks also reduces eCommerce operational costs. Inventory tallying allows E-commerce business owners to determine which products are fast-moving, which products can be sold to consumers at a discount, and the number of products that need replacement.
By combining your inventory count with the number of sales, eCommerce business owners can use sales patterns to avoid overstocking goods that are not fast-moving.
Eliminating Excess Inventory
As simple as it sounds, eliminating excess merchandise from your business will substantially reduce your operation costs. Storing lots of merchandise and inventory takes up lots of space, that incurs storage costs. Reducing excess merchandise will help in cutting down storage costs.
You can get rid of unwanted merchandise using several methods. These methods include offering merchandise to your customers at discounted prices or bundling them with fast selling products.
You can also donate the inventory to charity, which will also give you a tax write off.
Most day-to-day tasks in businesses can be automated using some essential services. The more you automate these tasks, the more time and resources you’ll save yourself. Automation also frees up time, allowing you to focus on growing your niche or reducing the number of hours you are paying your staff.
For instance, when it comes to accounting, you can find an affordable service that will take care of your store’s taxes, payroll, and other accounting expenses. This will not only save your valuable resources and time but also help you avoid accounting headaches and frustration.
Also, ensure that your preferred software integrates with a good accounting software like Xero or QuickBooks. This will make it easier to keep track of your accounting tasks.
You can also use an automated marketing service for your social media accounts and email campaigns. Automated marketing services will allow you to schedule messages and posts in bulk ahead of time, giving you time to focus or running other errands.
While outsourcing services and tasks may seem like increasing expenses, outsourcing these services may end up being cheaper compared to employing staff to do them.
Most outsourcing tasks can be done remotely, which eliminates the need for an office with full-time employees. This makes outsourcing cheaper in the long run.
- Most online businesses outsource their customer service and human resources departments. For eCommerce stores, having an in-house customer service or HR department is not worth the expense.
- You can also outsource most marketing services to cut back on operating expenses: many e-commerce stores outsource website development, content marketing, and online advertising services.
- IT is also another area you should consider outsourcing. Most online stores don’t need IT personnel around at all times. You can outsource these services and contact your service provider whenever necessary.
- Recruiting new employees can also be done by a third-party. A third party can help you narrow down to a potential candidate for any opening that you need to fill. This will save your time and resources.
Negotiating Prices from Vendors
In business, there’s always room for negotiation. Unfortunately, most online business owners don’t know about this. When dealing with suppliers or vendors, always get bids from different sellers, and compare them. This will give you a rough idea of the price of the products.
Also, try to negotiate higher quantities at lower rates. If you buy a large amount of the same product from the same vendor, they’ll undoubtedly reduce the buying price or get rid of some additional fees.
Also, be careful when it comes to your inventory. Most online store owners have problems when it comes to maintaining their inventory levels. Making bulk orders can sometimes create a surplus of slow-moving products, which ends up increasing your operation and storage costs in the long run.
Pay Bills on Time
This is a general rule in our daily lives, and there’s no exception when it comes to retail businesses. Most vendors don’t like late payments. That’s why most of them offer discounts on early invoice payments.
Even though these discounts might seem small, these amounts can add up to big figures in the long run. Additionally, paying bills in a timely manner will help you avoid penalties, surcharges, and late fees
There can also be significant savings by paying for services annually instead of monthly. SAAS apps and subrscription can often by up to 40-50% discounts for paying in advance – this gives you a discount and
Cancelling Unnecessary Services
This is also something that applies to our daily lives. Trimming the fat on subscription services is very important as an E-commerce business owner; it’s easy to forget that you’re paying for something that you rarely use or need.
Nowadays, subscription services are very popular, and many businesses have subscribed to them despite not needing them. Cut down streaming services, software subscriptions, business applications, and automated marketing services that you rarely use.
This will reduce your expenses significantly.
Lowering the carbon print isn’t only the right thing to do; it will also save your business money. Although the impact may not be realized immediately, the value is significant in the long run. Going green starts with analyzing your appliances and equipment. If you’re shopping for new appliances in the market, go for items that are energy efficient. These items include light bulbs, screens, air conditioners, and display lighting. Most of these appliances use electricity, and going for energy-efficient appliances will cut down energy costs in your warehouse.
Also, go paperless in your documentation and accounting practices. Most online business operations can be digitalized, so ensure you promote more paperless operations. You can do this by sending digital receipts, which will cut down the printing costs. Digital receipts will save on ink cartridges and printer maintenance expenses.
You can also Put up bigger windows in your warehouses to increase the amount of summer sunlight. This will reduce electricity costs since you won’t need overhead lights when your storage room has enough natural light. Also, encourage employees to turn off computers and other appliances when not in use. Focusing on making your online business more eco-friendly will go a long way in terms of reducing expenses.
Shop Around for Equipment
When it comes to office equipment, it’s not a must you purchase new equipment, unless you’re looking for energy-efficient efficient equipment. You can always take the time and look for used appliances that are still in mint condition.
For example, you can find incredible espresso machines or computers that are not that old. These appliances will still get the job done and save you loads of money. You can also shop for used laptops, tablets, POS machines, etc.
Reduce Your Returns
Do you know that returns are also part of your operational expenses? Returns cut down your profit margins, particularly if you can’t re-sell the products.
As an e-commerce business owner, you should know how to deal with returns efficiently – you don’t want to be wasting additional time and resources on arguing with customers. Build a returns policy you are comfortable with and stick to it.
The best way to avoid having too many returns is to make everything extremely clear – clear dimensions, features, benefits, colors, styles, fit, and form.
You will also get different return rates depending on your sales channel. Amazon and eBay experience much higher return rates than you will find on your Shopify store.
Some people will also return your product if it takes too long to arrive. For example, if you sell products that are given as gifts, and it doesn’t arrive in time for their event, then the customer might be forced to buy another gift and return yours. Make sure your shipping times are clear and you meet them.
The final way to reduce return rates is by having a high quality product. If you drop ship from China then you will experience a substantially higher return rate than a bespoke, custom product.
Reduce Your Packaging Costs
The expenses incurred when packaging goods can raise your expenses with an extraordinary margin. As an eCommerce store, most of your goods will need appropriate packaging before being shipped to your clients. If you use big or heavy packaging, you’ll end up spending more than necessary.
The cost of packaging can be reduced by getting rid of unnecessary cushioning for non-fragile products. Also, try buying your packaging materials in bulk, or opt for lighter eco-friendly packaging. This will also save your shipping costs since most companies charge the shipment based on weight.
Learn to work remotely and Travel Less
The Covid 19 pandemic has made working remotely the new norm for all types of businesses. As an online store owner, this shouldn’t be hard for you. Avoid making unnecessary business trips and take advantage of video conferencing apps and software.
You can also manage your business data remotely using a cloud POS system, eliminating the need to meet all your employees physically on a daily basis. All you need is a stable internet connection, and you’ll be able to run your online business from the comfort of your couch.
This will save your time and resources spent on commuting.
Focus on Customer Retention
It will always cost you more trying to gain new customers compared to retaining your existing customers. Gaining new leads needs a lot of resources and marketing efforts, while you only need to do the following to retain existing customers:
- Provide Stellar Customer Service- You should build trust in your existing customers by making them believe that you have their best concerns at heart. By doing this, your existing customers will more likely continue transacting with you.
- Offering Discounts and Offers — Offering discounts and offers to existing customers is also very powerful when it comes to retaining customers. Most of the time, existing customers may feel neglected when they realize that only new customers enjoy deals and offers while they pay more for the same service/product. In fact, this trend of offering deals to new customers may result in existing customers shopping elsewhere, where they can get to enjoy new customer discount deals.
- Taking Customer Complaints Very Seriously – Studies show that about 95% of dissatisfied customers rarely complain. As a result, e-commerce business owners should be on the look for complaints and ensure that the problem is not reciprocated. This is because one person may represent over 20+ people with the same problem.
Doing these three things will give you return customers, who will boost your sales while minimizing the marketing and new lead generation costs.
With so many silent and unknown operation costs in your e-commerce business, focusing on these 15 tips will save your online business large sums when it comes to operating costs. Zapier has an interesting article showing some other ideas to reduce operating expenses.
It doesn’t matter whether you’re generating more sales; incurring high e-commerce operating costs is counter-productive.
That’s why you need to work on increasing sales while reducing e-commerce operating costs.