Reducing eCommerce operating expenses is vital because it allows you to optimize your profitability margins. In this article, we’ll discuss the top 8 ways to keep your operating expenses under control.
Main types of eCommerce operating expenses
Operating expenses are expenses that a business incurs through regular business operations. In other words, these are the costs related to a business’ day-to-day activities to trade, including the cost of resources the organization uses to maintain its existence.
An eCommerce business regularly has these common types of operating costs:
- Website building and hosting
- Platform payments
- Permits and licenses
- Returns and refunds
- Equipment and asset maintenance
- Inventory costs
- Marketing and advertising
- Subscription services
- Transactional costs
- Insurances & taxes
8 ways to reduce your eCommerce operating expenses
1. Reduce product returns
30% of shoppers purchase more products than they need with the mind that they will make a return. The main reasons for this are as followed:
- 23%: Wrong item
- 23%: Damages
- 22%: Differences from the product description or portrayed online
When customers return your products, you stand to lose a lot. Besides the shipping costs and labor, you have to pay repairing costs for damages. Thus, if you reduce returns, you might decrease your eCommerce operating costs.
Here are some things you can do to reduce the rate of product returns.
Help customers understand clearly about the item
If customers know exactly the product they are going to buy, they will choose a more suitable one with them, then the ability to return the product will lower. You can provide adequate information on the product pages, with images and videos from different shapes and angles, or provide detailed scale or sizing charts if you can. For instance, if your products are clothes, let’s provide detailed information such as material and sizes, as well as images or a video with a model wearing the item in different colors and angles.
Control every process to assure your products’ quality, from manufacturing, packaging to shipping, so that your customers won’t return your item due to faulty or damages.
Segment customers with the highest rate of returns
Let’s have a look at your sales data and find out which segment of customers has a higher rate of returns. With these customers, you can try other suitable marketing approaches, or avoid them.
Have a clear and transparent return policy
A clear and reasonable return policy may help you reduce the number of returns. Make sure the return policy is appealing to customers but not costing.
Have a great customer service
A 24/7 customer service to immediately provide information customers require or deal with their issues may decrease the returns. Moreover, it will increase customer experience, then they will come back to you in the future or won’t tell others what negatively affects your business.
2. Reduce shipping fees
Shipping fees are among the main costs of every eCommerce business. The higher the shipping costs are, the bigger your operating costs become. Therefore, if you can lower your shipping costs, you may save a lot of money.
Let’s look at some tips which can decrease your shipping fees.
Negotiate with carriers
You can negotiate rates with shipping carriers as they virtually change their prices based on volume: higher volume, lower price. Try to negotiate with them to have a better bargain.
Look for discounted supplies
Big carriers usually offer discounts or free packaging suppliers. Hence, you should consider doing business with these companies.
Use packages that are given by your carriers
Using your carriers’ packages is not a bad idea to reduce shipping costs because if you use your boxes, they regularly charge a higher dimensional fee.
Use third-party insurance
Opting for insurance from a third party instead of from the shipping carriers is often cheaper, so you can save an amount of money.
Choose hybrid services
Some shipping companies offer hybrid services which include picking up the packages and shipping to the post office closest to the destination at a lower cost. Despite a small amount of money, it may help to reduce your operating costs and improve profitability.
Opt for poly mailers
If your goods are non-fragile, you can use poly mailers instead of boxes to reduce cost as this material is cheaper.
Choose prepaid shipping
In case you have money that needn’t be used for other purposes, you can use it to pay for the shipping in advance. Carriers often offer a discount for prepayment.
3. Lower transaction costs
Transactions fees are fees relating to your payment process you have to pay to the credit card processors and other payment platforms for debit and credit card transactions. There are some common credit or debit card processing fees such as the interchange, mark-up fee, assessment fee, transaction processing fee, etc. Transaction fees achieve a considerable portion of your operating costs. So you should try to reduce this type of fee.
Negotiate with processors
You can negotiate with your credit card processors on annual fees, statement fees, or setup fees. Even a small reduction can go a long way in reducing your eCommerce operating expenses. Moreover, establishing a long relationship with them will enhance your ability to get discounts or reductions. If you fail to negotiate with your processors, consider a new partner.
4. Decrease inventory costs
Inventory costs are a common concern of every business, whether it’s brick-and-mortar stores or online stores. That is the reason why all businesses always focus on inventory management and consider it as an essential activity. If you want to reduce your operating costs, you may decrease your inventory costs.
Here are some ways you can save money on inventory.
Storing out-of-season products costs money. You can offer them at a discounted rate, offer coupons, or seasonal deals to sell them. About 50% or more off is aggressive enough to liquidate them. You can also bundle slow-moving products with more best-selling items. Offering unpopular items as a gift to more desirable items is very attractive. These promotions not only help you get rid of old inventory but also attract customers to newer, more appealing products.
Oversee routine inventory checks
To lower your eCommerce operating costs, let’s tally inventory regularly. Inventory counting allows you to determine which products can be offered to the customers at a discount, and which products need to be replaced.
Dropshipping if you are not a manufacturer
Instead of keeping in-stock products, when receiving an order, you can buy the goods from the manufacturer or wholesaler and have them blind ship to your customers. So, you needn’t store and stock any inventory.
Streamline supply chain management
Incorporate supply chain management measures such as Just In Time Inventory, integrated supply chain methods, or vendor-managed inventory are some of the ways you can streamline your supply chain process and earn above-average return on investment.
When your capital doesn’t allow you to order in bulk, or you just want to place an order that is not too large as well as save your money, you can allow backorders. A backorder can help decrease your inventory costs by cutting carrying costs and saving warehouse space.
If you are using BigCommerce, BackOrder may be the solution you are looking for.
5. Use efficient packaging
Packaging efficiently is one of the best ways to reduce costs. Virtually, eCommerce vendors purchase and pack with the most affordable option. This usually means utilizing oversized boxes and extra packing material. The use of more packing supplies or unsuitable packing are causes of wasting, as you have to pay more but it’s not necessary. However, there are several ways you can properly ship your products without breaking your budget.
Use protective cushioning as little as possible
Just use a large layer of bubble wrap in case your product is fragile. Saving on protective cushioning will help you pay less, as well as lower shipping weight, and enable you to use smaller boxes.
Try eco-friendly packaging
Although eco-friendly materials may be more expensive, they are lighter, then the costs of shipping you reduce are much more than the amount you paid. Moreover, most consumers today are interested in environmental issues. They pay attention to companies that highly appreciate environmental protection. It is not only a great way to help the environment, but it also helps gain new customers. In addition, you can reduce packaging costs by reusing packing. Consider paper and cardboard which are easily recyclable and biodegradable.
Buy shipping materials in bulk
A large order of these materials will help you save an amount of money due to discounts from suppliers. Thus, take advantage of this chance to reduce your operating costs.
6. Adopt automation
Another great way to reduce your operating expenses is to automate your business activities. Automation helps minimize human errors, manual work, and process completion times. Leverage automation allows you to optimize your procedure, from administrative activities to customer services or marketing, etc. Automation not only saves your time but also helps your team concentrate on more critical tasks.
With a lot of modern and effective technology solutions today, you can easily lower your operating expenses. Business automation tools like Atom8 come with automated workflows, which allow you to automate your business tasks such as orders categorization, customer management, store data management, or publishing contents and products on the website, etc. One of the must-know examples of Atom8’s workflow automation is customer segmentation based on location, which not only helps merchants simplify the segmentation process, but also brings back a better result.
7. Outsource business functions
Outsourcing services to a professional provider will help decrease operating costs because you will not need a permanent employee to perform the outsource tasks, you will also be extending the costs of buying and maintaining the necessary hardware and software to a third party.
There’s little doubt that outsourcing can save you a considerable amount of money, especially when your business has a small scale or does not specialize in the field. Moreover, if there are many suppliers on the marketplace, you may pay fewer costs. Some commonly outsourced functions in a business are marketing, advertising, IT, bookkeeping, logistics, HR, or customer service.
The opportunities for outsourcing depend on the size of the business, type of product, sales model, and other factors, thus what works for one retailer may not work all the time.
8. Utilize marketing budget effectively
Marketing budgets achieve a large portion of the total operating expenses of every eCommerce business. Marketing campaigns are indispensable, but utilizing them effectively is the best strategy for both increasing sales and saving on operational costs.
To spend your marketing funds more effectively, you can:
Use marketing metrics
You can use metrics to track your marketing budget in real-time. Take time to review those reports, altering your marketing methods so that you are only spending money on the campaigns that give you the best return.
Consider less expensive marketing tactics
You should choose other effective but cheaper marketing options in your marketing campaigns. For example, social media marketing, blog, referral programs, etc.
Every eCommerce business needs to reduce operating expenses as much as possible. Cutting costs and boosting sales can supply you with extra cash flow during the business periods. Our 8 ways for reducing operating expenses may be useful suggestions that you can apply to your business.