The e-commerce market is a rosy platform with a lot of qualified leads and traffic sources as well. Courtesy of the broad variety of online marketing tools, like social media advertising, and SEO (search engine optimization). Businesses are now able to draw large numbers of visitors to their websites.
However, increasing operational costs including shipping expenses, hosting fees, supply and logistics costs, marketing costs, and transaction fees can implicate your profit margins.
Whereas the online marketplace possesses the potential to reap massive profits compared to the standard brick-and-mortar store, competition from other online traders, like Amazon, can impact your store’s earnings.
That better explains why most e-commerce store proprietors opt to lower their online operating costs to amass competitive advantages and earn more sales and the consequent profits.
Are you wondering where to start from? Worry no more.
This post will let you know the 9 best ways e-commerce reduces operating costs to help you keep your online business afloat and productive.
9 Best Ways Ecommerce Reduce Operational Costs
Lowering your e-commerce operating costs is helpful because it enables you to retain a self-regulating, healthy, and growing business, without the anxiety of losing your buyers to the competition or forced close down.
Here are the 9 ways to keep your operating costs checked:
Minimizing product returns
Whenever consumers return defective products or goods that don’t meet their requirements, you’re likely to lose a fortune because you will have already paid for labor, and shipping costs, and you could still be required to rectify the damaged products.
It is almost impossible to sell the returned products as you would have sold them if they were okay. Also, there is a possibility that the customer might not come back to make another purchase from your store.
If you can curb the rate of product returns, you can save more on operating costs. To achieve this, start by providing adequate information on your product pages, including images from different angles, to provide customers with more reliable and accurate ideas about what they are buying.
For example, you can publish photos with models of different shapes and sizes wearing or using the products.
You can as well publish product videos to give customers a better idea of what the product looks like when in use. In case you are selling measurable items such as furniture or clothing, make sure you provide a scale or sizing chart with a guide on the measurements.
Amazon uses a size chart for different products, such as clothes, shoes, rings, necklaces, and bangles, among others:
Another way to curtail product returns is by extending the return period. According to the endowment effect, consumers begin to develop a stronger attachment to a product, the longer they “own” it.
Although an extended return policy may be counterproductive, many customers might feel less stress to return goods as soon as possible, offering them the allowance to change their minds.
You can additionally lower product returns by analyzing your sales data to determine the customer segments with the highest rate of returns and isolating them in your marketing campaigns.
You can utilize a tool such as Zapier to obtain data on all commodity returns through PayPal and Stripe as well. The information can be combined through a spreadsheet or a favorite app, then you can portion it to separate customers with the greatest rates of returns.
For example, you might discover that most returns are for commodities sold through Facebook or Instagram referrals. You can similarly utilize the return form to obtain information about the justification for returning a product.
These tricks will give you a reasonable idea of which consumer segments to evade and the commodities not to be supplied to specific customers to reduce the return rates.
Minimizing your inventory costs
Be sure to carry out periodic stock checks to lessen your eCommerce operating costs. This allows you to tally your commodities with the demand to make sure you aren’t hoarding too many items in stock to unnecessarily increase your storage costs.
Ponder eliminating excess merchandise to reduce the extra storage space, by, for instance, selling them at a discount and providing coupons and seasonal sales.
You also can wrap slower-moving commodities with more appropriate, best-selling products for quick sales.
You additionally can persuade customers to purchase your unloved products by giving them as a gift to more preferable products.
Promotions will not only enable you to get rid of old stock but will also entice consumers to newer, more appealing products, resulting in increased sales.
Bargaining better terms with suppliers
Among the best negotiation tricks, you can utilize with suppliers is offering to buy larger quantities in exchange for discounted commodity prices.
Strive at establishing a mutually helpful relationship with your suppliers, and you could earn discounts varying from 2 to 5 percent.
Additionally, you can negotiate for free shipping services for orders amounting to a certain figure, a concept called fixed price breaks. For example, if you qualify for a free-shipping deal if you order commodities worth $2000 and over, you can plan to buy products worth this amount, lowering your eCommerce operating costs.
In case it isn’t practical to offer free shipping on all the commodities, you could utilize any of the below alternatives to extend subsidized shipping costs on particular products or special occasions:
Domestic vs. International: Free shipping for commodities couriered locally and paid to vessels for international orders.
Threshold: Free shipping for orders over a given price.
Items: Free shipping for a minimum quantity of items bought.
Seasonal: Free shipping during holiday seasons such as Christmas and Black Friday.
Membership programs: A subscription-based strategy, where members qualify for free shipping for befitting products.
When trading with suppliers, you also have to read the terms and conditions of the contract to make sure you are benefiting from the supplier’s bargains for increased cost preservations. Your operational efficiency contributes significantly to the success of your business.
Ensure you assess the storage costs to avert stocking a lot of products, that their storage costs will surpass the discounts and additional benefits offered by suppliers on bulk bargains.
Bargaining for better transaction fees
Transaction fees refer to the payment processing fees, which traders pay to the credit card processors for debit and credit card transactions.
When trading products on eCommerce platforms such as Shopify, you pay a small fee for every transaction or purchase conducted by a consumer on your site.
While processing payments via credit cards, you could similarly incur extra charges, which can total up to high charges for all transactions done in a provided period.
Here’s a breakdown of some of the credit or debit card processing charges you should expect:
The interchange: A percentage charged by the issuing bank for every sale
Mark-up fee: A fee charged by the merchant’s bank based on the amount of sale or monthly processing volume, and so on. The charge depends on the industry of operation.
Assessment fee: A charge levied by the credit card company, i.e., Visa, MasterCard, and so on.
Transaction processing fee: A fee charged by the payment processor, like the merchant’s bank or PayPal.
Although it might be impossible to re-negotiate some of the fees, you can however confront your bank as the merchant to get their position on revising the fees. Even a minor deduction can go a long way in lessening your eCommerce operating costs.
You can further change vendors by switching to one with more acceptable rates, especially if you are processing several transactions. Often assess other factors such as the payment model that is the most convenient or accessible by most customers before changing to a new payment processor.
Utilizing your marketing budget more effectively
E-Commerce traders have several avenues they can utilize to market and promote their products as well, online.
Nonetheless, it is important to determine the returns you will accrue from using one channel as opposed to the other.
The formula for coming up with a return on investment (ROI) is:
Net profit from investment over Total investment times one hundred.
The outcomes will let you know which marketing avenues have higher returns compared to the others. You don’t necessarily have to utilize paid campaigns such as Google Ads, pay-per-click (PPC), or social media campaigns.
Rather, you also can leverage content marketing strategies such as search engine optimization by running a blog post tied to your product pages.
You can also devise a referral program or give free samples to influencers to promote your products. Some tricks may be at a fee, but cheaper and more effective.
The intention is to utilize platforms that give rise to high ROI.
Leveraging automation
Another incredible way to lower your eCommerce operating costs is to automate your company activities to curb human error, manual work, and process fulfillment times while improving productivity, efficiency, and continuity of the business.
Business automation tools such as Integromat and Zapier come with automated workflows, which you can utilize to automate procedures such as adding consumers’ contacts into your email marketing tool, listing sales into the accounting software, handling abandoned cart events, and so on.
This practice helps free up your schedule, enabling you and your time to concentrate on more crucial business activities and strategies like onboarding new customers. It is also a great way to cut down on employee costs, especially if you are only starting up.
You can also automate eCommerce business processes by hiring virtual assistants. Unlike regular, full-time workers who might cost you more in minimum wages and other employment benefits, a virtual assistant will only charge you an hourly or fixed rate per month, which is way cheaper than hiring a permanent employee.
When you automate basic services and functions, you end up with more time to concentrate on value-creating efforts, leading to increased revenues and lower operating costs.
Utilizing Bearable Packaging
Lessen your eCommerce operating costs by using the right size of packaging boxes for ordered products.
Apart from the fragile items, use light and fitting packaging, with at least one layer of bubble wrap. The idea is to cut down on shipping weight, because the larger and heavier the package is, the more the freight charges will be.
Eco-friendly packaging will go a long way in lowering your shipping costs because such shipping boxes are made of light material.
Paper and cardboard are environmentally friendly because they are easily recyclable, biodegradable, and easy to get. Bubble -wrap is equally affordable and eco-friendly.
Eco-friendly packaging will moreover promote your business as a green brand, enticing even more consumers and increasing your sales. According to research by the Environment + Energy Leader, over two out of three customers find recyclable, environmentally friendly packaging crucial.
Nearly 60 percent of customers are less inclined to purchase products in destructive packaging, while 74 percent of the customers are ready to pay more for sustainable packaging.
Given these facts, it’s evident that you can without doubt charge more if you are utilizing eco-friendly packaging, while still decreasing costs by using inexpensive packaging materials.
Trademarks such as Calvin Klein and Asos have already embraced recyclable packaging, making it a new trend for eCommerce businesses striving to reduce their operating costs.
Emphasizing Quality Service
You can lessen your eCommerce operating costs by providing exceptional service to your existing buyers, which assists in reducing the high costs of attracting new ones.
Research by Elasticpath indicates that getting a new customer is 5 times more expensive as compared to retaining an existing one, while 89 percent of businesses report that customer service is a key variable in driving customer retention and loyalty.
To add to cost-cutting, concentrating on quality service assists in boosting your revenues, because the likelihood of making a sale from an existing customer is 60-70 percent, as opposed to the 5-20 percent from a new prospect.
One way of maintaining customers is by offering them high-quality products, resulting in lower rates of returns, refunds.
You similarly can increase your customers’ trust and loyalty by giving personalized services to create long-term relationships.
Considering Dropshipping
The dropshipping theory includes working as an intermediary between the supplier of a certain commodity and the customer, without necessarily storing or holding the products on sale.
The e-commerce shop doing the dropshipping business does not keep the goods it offers.
Dropshipping works through establishing an outstanding funnel, like a website or a landing page for generating sales leads, accepting orders from customers, and dispatching the orders to the supplier for shipment.
The drop shipper purchases products from the manufacturers or wholesalers for direct shipping to the customer.
As the drop shipper, you take charge of your business promotion and ensure outstanding e-commerce customer service, like the timely delivery of quality products as ordered.
In addition, drop shippers incur the least e-commerce operating costs because they don’t possess the products they sell, nor do they run nor maintain a warehouse to keep the goods. As a result, there are least overhead expenses as compared to the traditional brick-and-mortar business.
Outsourcing Non-Critical Functions
Outsourcing services to a competent, third-party service provider will help lessen your e-commerce operating costs similarly to automation.
You will find more time to focus on your main business tasks if you can outsource services such as:
- Human resource
- Payroll processing
- Bookkeeping
- Customer service
- Information Technology
Outsourcing will allow you to reduce operating costs because you won’t need a full-time worker to conduct the outsourced duties. Additionally, you will be passing down the costs of purchasing and maintaining the necessary hardware and software to the third-party company.
How does Ecommerce reduce operational costs?
E-commerce can also cut down on transaction costs by simplifying supply-chain management and distribution. If a shop widens its product selection online, more orders can be ferried from the wholesale or warehouse directly to the buyer. The shop can now serve lucrative niche markets
What costs are associated with e-commerce?
The following are the costs linked to e-commerce:
- Utilities
- Permits and licenses
- Shipping
- Platform payments
- Returns and refunds
- Equipment and asset maintenance
- Inventory management.
How much does it cost to build an eCommerce website from scratch?
Normally, an e-commerce site cost may vary from $1,000 to $1,000,000, or even more. However, the lowest e-commerce website budget for custom growth is roughly $60,000 per platform.
What Are the 3 Types of E-commerce?
Here are the types:
Business-to-Business
Business-to-business (B2B) is the process of selling from one business to another online, (wholesale)
Business-to-Consumer
Presently, most e-commerce is B2C, because it’s simple for businesses to target particular consumers online. Businesses can place their products online, enabling the consumer to buy the products in the comfort of their home, saving them some precious time.
Consumer-to-Consumer
Do you recall the clothes you bought? You didn’t find the time to send them back to the retailer to return, so where did they go? At the back of your wardrobe, and you never put it on.
What is the importance of creating an e-commerce site for a business owner?
Currently, people have limited time to go to physical stores, to buy commodities. Hence, they prefer browsing and shopping online. Creating an e-commerce site for your business will consequently enable you to take advantage of this market base and ensure that your customers are informed.
How can I choose the best platform for my e-commerce business website?
Before investing in your e-commerce web development, you have to assess some fundamentals. Which can enable you to select the best platform. Forever consider the products that you are marketing. A handful of e-commerce platforms can deal with stock tracking and several product alternatives while some will not. You should also bear in mind the payment gateways, design options, site security, integration with additional tools, features, and pricing before starting.
What are the main activities of e-commerce sites?
E-commerce sites enable online shoppers to safely buy from online stores. And also assists in collecting and utilizing demographic data from different channels. As a result, enhancing the customer service
How should I promote my e-commerce site?
Currently, there are several ways to promote your e-commerce store. The first one is promoting the site to all the potential customers. This will greatly enable you to broaden your customer base. You should ensure that you include your website address In all adverts done by your company. In addition, you should register your site with the search engines and optimize it as this will help your site’s traffic.
What can I do to turn my e-commerce store browsers into buyers?
Establish a more sales-oriented site as opposed to a marketing one. Enable your site visitors to immediately see your products, instead of setting them behind many marketing copies. Create a page that displays the terms and conditions because it will give a professional look. Provide your contact information and clearly explain your return policies, security, encryption techniques as well as payment options.
How do I create an impressive e-commerce website?
The glamour of a site is in its operation and how user-friendly it can be. Make sure that your site is fast, simple to use, professional-looking, and attractive. In addition, ensure that you can satisfy the orders as promptly as possible. In case you are not able to offer the service, ensure that your customer is informed about it through email.
What are the security risks involved with e-commerce sites?
E-commerce store owners should often bear in mind the three dimensions of security. Which are integrity, confidentiality, and availability. Traders should formulate a favorable strategy that can make the site and transactions secure. They should also include encryption techniques for every data transaction, to prevent any possible hacking activities.
Conclusion
E-commerce companies must stay competitive or else they will possibly get out of business. To work alongside online dealers such as Amazon and to sustain a self-regulating, healthy, and thriving business, it is important to lower your operating costs.
This said, there are several ways to reduce your e-commerce operating costs, including developing strategies to lower product returns and inventory costs, negotiating better terms with suppliers, and negotiating better transaction fees.
You should also make good use of your marketing budget while leveraging automation, outsourcing, sustainable packaging, and dropshipping. Remember to focus on offering high-quality services for increased customer retention and reduced customer acquisition costs.
