Every online retailer wants to lower its operating costs. But it shouldn’t be carried out without careful consideration. The profitability of the company may suffer if you continue cutting operating expenses without considering the demands of your industry and the state of the market.
Allow me to explain. Assume you cut back on salary expenses. A detrimental impact on staff morale, a decline in productivity, and a resulting drop in profitability are potential outcomes.
Nevertheless, there are more nuanced approaches to cut operating expenses that might improve revenue.
- Consider remote working
- Lower product returns
- Lower your inventory costs
- Negotiate better terms with suppliers
- Negotiate better transaction fees
- Use your marketing budget more effectively
- Leverage automation
- Use more sustainable packaging
- Focus on quality service
- Consider dropshipping
- Outsource non-critical functions
Consider remote working
Make use of digital change and give remote work some thought. Numerous online retailers have chosen to employ remote workers. One is Tortuga, which offers duffel bags and backpacks for travel.
The amount of money that can be saved on utility and maintenance bills is one of the primary causes of this. Particularly in large cities and heavily populated commercial districts, office space is not inexpensive. In Manhattan, the cost of an office space, even for four workers, might reach $650.
Employers can save so much money by implementing a hybrid strategy that allows for two or three days of remote work per week. By combining office space, utilities, and office supplies, a hybrid model can result in annual savings for each business of up to $11,000.
However, if you are unable to meet your staff in person, how can you guarantee productivity? Tortuga claims that conventional communication platforms like Slack work well. They even employ conventional means of communication.
For example, Tortuga claims the team sends sample material by postal mail when they need to make bags. Thus, the factory sends the sample to the product manager. After noting what works and what doesn’t, the manager forwards the sample to a different team member using a conventional technique. There are therefore several samples being shipped to various locations throughout the world at any given moment.
Since I’ve worked from home before, I can attest to the advantages that come with it, such lower travel costs and more time for personal activities. You gain extra points as an employer if you provide these to prospective workers. You can then hire more skilled workers, which will increase profitability.
Furthermore, it has been demonstrated that working remotely boosts productivity. According to a survey, 56% of workers concur that working remotely reduces their number of absences. Furthermore, 50% of workers concur that working from home reduces the number of sick days they take.
Not that you should live completely remote, mind you. You may decide, like Tortuga, to only permit remote labor for certain facets of your company. As we’ve already seen, in order to provide team members with the necessary sample bag material, certain Tortuga employees must physically report to the workplace.
Lower product returns
You stand to lose a lot when clients return defective goods or goods that don’t fit their needs because you’ll already have to pay for labor and shipment, and you might even have to fix the damaged goods.
Selling the returned item as new is even more difficult, and there’s a chance the buyer won’t come back to your store to make another purchase.
Operating costs may be significantly reduced if you could lower the rate of product returns. To start, make sure your product pages have enough information, including photographs taken from various perspectives, to provide customers more realistic and trustworthy impressions of what they are purchasing.
For example, you can post pictures of models using or wearing products that vary in size and shape.
To help clients see how the product appears in use, you may also post product videos. Make sure you include a scale or size chart with guidelines on measurements if you are selling measurable products, such as clothing or furniture.
For a variety of products, including clothing, footwear, rings, necklaces, and bracelets, among others, Amazon utilizes the following sizing chart:
Adding more time to the return period is another strategy to lower product returns. Customers tend to develop a stronger attachment to a product the longer they “own” it, according to the endowment effect.
While an extended return policy might be detrimental, many consumers might experience less pressure to return items right away, allowing them the flexibility to change their minds.
Reducing product returns can also be achieved by identifying the consumer categories in your sales data that have the greatest return rates and excluding them from your marketing campaigns.
All product returns made through PayPal and Stripe can have their data retrieved using a service like Zapier. After the data has been spooled using an app of your choice or a spreadsheet, you may sort it to identify the clients with the best return rates.
For instance, you may observe that things sold through Facebook or Instagram referrals account for the majority of returns. Additionally, you can gather details about the cause behind a product’s return using the return form.
With reduced return rates, these strategies will help you identify which client categories to stay away from and what kinds of products to avoid marketing to specific customers.
Lower your inventory costs
To lower your operational expenses for your eCommerce, be sure to regularly inspect your inventory. By doing this, you may compare the demand for your products with your inventory to make sure you aren’t keeping more than you need to reduce storage expenses.
To cut down on extra storage space, think about getting rid of extra inventory by, for example, selling it for less and providing coupons and special offers during certain seasons.
For speedy sales, you may also combine slower-moving merchandise with more pertinent, top-selling things.
By giving your unpopular products as gifts with more desirable ones, you can also get people to buy your unpopular products.
In addition to assisting you in getting rid of outdated inventory, promotions will draw attention to your newer, more enticing products and boost sales.
Negotiate better terms with suppliers
Offering to purchase in bulk in exchange for lower product costs is one of the strongest negotiating strategies you can employ with suppliers.
If you can build a cooperative relationship with your suppliers, you may be able to negotiate reductions of up to five percent or more.
Also, you can bargain for set price cuts, which are free freight or shipment for purchases totaling a certain amount. For example, if you are eligible for a freight-free offer on orders totaling $1,500 or more, you can plan to buy things up to this amount, which will lower your operational expenses for your eCommerce business.
If providing free shipping for every item is not feasible, you can utilize one of the following methods to offer discounted shipping for certain products or on particular days:
- Domestic vs. foreign shipping: local couriered items are shipped for free, while overseas orders must pay for postage.
- Upon reaching a specific threshold, orders qualify for free shipment.
- Items: Free delivery is offered when a minimum number of items are purchased.
- Seasonal: Offers free shipping on select items on Black Friday and Christmas.
- Membership schemes – a membership-based scheme that entitles participants to free shipping on eligible items.
The Canadian fashion brand Suzy Shier provides free shipping on regular orders that total $99 or more and have a delivery window of three to ten business days. Free shipping also applies to items that may be picked up in-store during the same delivery window.
When working with suppliers, make sure you are utilizing their offers to save even more money by carefully reading the terms and conditions of the contract. Increased operational efficiency leads to increased business success, which in turn benefits the supplier.
It’s important to keep in mind that stocking too many items can cost you more money in storage fees than the savings and other advantages that suppliers provide for large purchases.
Negotiate better transaction fees
Merchants pay credit card processors and other payment platforms transaction fees, which are similar to payment processing fees, for debit and credit card transactions.
Every transaction or purchase a customer makes on your website incurs a modest cost when you sell things on eCommerce systems like Shopify.
There may be additional fees associated with processing credit card payments, which add up to hefty sums for all transactions finished within a certain time frame. Additionally, produce PDF invoices for each purchase you make, and give these to your customers at all times.
The following summarizes some of the processing fees for credit or debit cards that you should be prepared to pay:
- The interchange: A portion of each sale that the issuing bank charges
- Mark-up fee: An expense imposed by the bank of the merchant based on factors such as monthly processing volume or the volume of sales. The charge is changing depending on the industry.
- Charged by the credit card issuer (Visa, MasterCard, etc.) is an assessment fee.
- Transaction processing fee: A fee assessed by PayPal or the merchant’s bank, the entity that processes payments.
Even if it might not be possible to renegotiate some of the fees, you can still contact your bank to find out how they would want to see the fees adjusted. You may significantly lower your eCommerce operational costs by making even a tiny cut.
If you are processing a lot of transactions, you can also move suppliers by choosing one with better rates. Prior to switching to a new payment processor, always take into account other factors, such as the most convenient or widely available payment mechanism.
We have included the top credit card processors along with their prices for your convenience:
Use your marketing budget more effectively
Owners of eCommerce businesses have a variety of online marketing and promotion channels at their disposal.
It is vital to ascertain the benefits of selecting a particular channel over another.
The following formula can be used to determine return on investment (ROI):
You can see which marketing channels yield better returns than others by looking at the results. Paid advertising, such as pay-per-click (PPC), Google ads, and social media marketing, is not always necessary.
Alternatively, you may use content marketing techniques like search engine optimization (SEO) to direct readers to your product pages through a blog post.
In order to sell your items, you may also set up a referral scheme or give influencers free samples. Though they might not be free, some strategies can nevertheless be more affordable and successful.
Use of platforms with comparatively high return on investment is the plan.
Automation is a terrific method to cut down on human error, manual labor, and processing times while increasing productivity, efficiency, and business continuity. It’s also a great approach to lower your eCommerce operational costs.
You may leverage the automated workflows that business automation platforms like Zapier and Integromat offer to automate tasks like entering sales data into accounting software, adding customer contacts to email marketing campaigns, responding to abandoned cart events, and more.
By clearing some time off your calendar, this technique allows you and your team to focus on more important business-related tasks and tactics, such as welcoming new clients. It’s also a terrific method to save money on hiring costs—particularly when you’re first starting off.
By engaging virtual assistants, you may also automate business operations related to eCommerce. employing a virtual assistant is significantly less expensive than employing a permanent employee because they work for you on an hourly or fixed pay per month, while regular, full-time employees may cost you more in minimum wages and other employment perks.
Automating routine tasks and services gives you more time to focus on projects that add value, which boosts profits and reduces operating expenses.
Use more sustainable packaging
Adopting the proper size of packaging boxes for ordered products will help you save down on your eCommerce running expenses.
Use lightweight, form-fitting packing with at least one layer of bubble wrap for everything but fragile items. The goal is to reduce the weight of the box being shipped because more freight costs would be incurred for larger and heavier packages.
Your shipping expenses would be significantly lower if you utilize eco-friendly packaging because these shipping boxes are composed of lightweight materials.
Paper and cardboard are readily recyclable, biodegradable, and readily available, making them environmentally favorable materials. Bubble-wrap is ecologically friendly and reasonably priced.
Additionally, eco-friendly packaging will help you position your company as a green brand, drawing in new clients and increasing revenue. Recyclable and environmentally friendly packaging is vital to more than two out of every three customers, according to research conducted by the Environment + Energy Leader.
While 74% of consumers are willing to pay more for environmentally friendly packaging, about 60% of consumers are less likely to buy products in hazardous packaging.
With these details in place, it is evident that you may charge more if you choose environmentally friendly packaging, even while keeping expenses down by using less expensive materials for packing.
Reusable packaging has previously been embraced by companies like Asos and Calvin Klein, thus it’s currently popular among eCommerce companies looking to cut expenses.
Focus on quality service
By providing outstanding customer service to your current clientele, you may lower the significant expenses associated with bringing in new ones, therefore saving money on your eCommerce running expenses.
Elasticpath’s research indicates that the cost of getting a new client is five times higher than that of keeping a current one, and 89% of businesses say that providing excellent customer service is a critical factor in fostering customer loyalty and retention.
Apart from reducing expenses, prioritizing high-quality service enhances profits as the likelihood of closing a deal with a current client is 60–70%, as opposed to 5–20% with a new lead.
Selling high-quality goods can help you keep consumers longer by reducing the amount of returns, refunds, and churn.
In addition, you can establish enduring relationships with your clients by providing individualized services that win their trust and loyalty.
Acting as a middleman between a product’s source and the buyer is known as dropshipping, and it doesn’t always need storing or retaining the things for sale.
The products sold by the eCommerce store engaged in drop shipping are not retained by the store.
Dropshipping operates by building a visually appealing funnel—a website or landing page, for example—that collects consumer orders, routes them to the supplier, and ships the items.
In order to distribute products directly to customers, drop shippers purchase products from manufacturers or wholesalers.
As the drop shipper, it will be your responsibility to promote your company and guarantee outstanding eCommerce customer service, such as prompt and high-quality product delivery as per the order.
Dropshippers also pay less in running expenses for their eCommerce businesses because they don’t own the products they sell and don’t manage a warehouse to hold the inventory. For this reason, compared to a conventional brick-and-mortar business, there are fewer overhead costs.
Use this guide to gain additional insight into managing a dropshipping business.
Outsource non-critical functions
Similar to automation, outsourcing services to a reputable, outside service provider will lower your operational expenses for eCommerce.
If you are able to outsource services such as these, you will have more time to focus on your main business operations.
- Ressources humaines (HR)
- Payroll handling
- Customer support
Because you won’t need a full-time employee to complete the outsourced duties, outsourcing will allow you to save operational costs. However, you will be passing along the cost of purchasing and maintaining the required hardware and software to a third-party business.
eCommerce companies need to maintain their competitiveness or else they risk going out of business. Maintaining low running costs is crucial to a healthy, self-regulating, and expanding firm and to competing with online retailers such as Amazon.
Having said that, there are a number of approaches to cutting your eCommerce running costs, such as creating plans to minimize product returns and inventory expenses, negotiating better terms with suppliers, and negotiating more favorable transaction fees.
However, if you are looking for an ecommerce development company, that can help you manage your store, then you should check out Appic Softwares. We have an experienced team of developers that can assist you with your requirements.
Moreover, you can even hire dedicated developers from us at a very competitive price and help you manage your operational costs. So, what are you waiting for?