While ecommerce is considered one of the best business models with low overhead (particularly when compared to traditional brick-and-mortar businesses), there is always a need to effectively manage the costs of doing business.
From shipping expenses to inventory storage, ecommerce business owners need to be aware of the latest strategies that can help minimize costs and maximize profits.
In this guide, we’ll examine some of the unique challenges of managing ecommerce costs, as well as some of the most up-to-date strategies to increase the profitability of your online business. Let’s get started!
What to expect with ecommerce expenses
If you’ve been running an ecommerce business for a while, you likely already understand your regular, month-to-month or week-to-week expenses. But to effectively manage and ultimately reduce costs, you need to fully understand how those costs are structured and, perhaps most importantly, how they can be restructured.
Beyond the most obvious expenses like product manufacture or acquisition and shipping costs, you’ll need to think about smaller – but still important – expenses like website maintenance, marketing, transaction fees and returns. Once you have a clearer understanding of all of your operating costs, you can see the big picture and form a more comprehensive cost-cutting strategy.
In the sections below, we’ll touch on some of the most important costs to consider when reevaluating how your business spends its money.
1. Inventory management
You always need to strike a delicate balance with your ecommerce inventory. If you overstock on items that aren’t selling, you run the risk of spending way too much on space or storage fees.
On the other end of the spectrum, if you don’t stock enough of your hottest items, you could end up losing customers who turn to other businesses to get what they want in a timely manner.
Leveraging inventory management tools is one of the best strategies to ensure that you know exactly what you have in stock, what’s selling, what’s not selling, and even predict what your inventory should look like in the future. Spending just a little bit extra on a comprehensive inventory management system could end up saving you a fortune and improving your sales numbers at the same time.
2. Efficient operations
There are so many daily tasks that you do as an ecommerce business owner. While you may have had to do many of these tasks manually a decade ago, automation has made it so much easier to run your business more efficiently.
Things like order processing, inventory management, and even tax calculations can now be done with quality software like ConnectBooks. By automating and streamlining these kinds of tasks, you have more time to focus on building your business because you’re spending less time on the menial tasks that used to take hours out of your workday.
3. Effective marketing
A big part of an ecommerce budget has to be dedicated to marketing. If you’re not finding the right target audience and putting your offerings in front of them, you’re just not going to be able to grow as a business. By analyzing your marketing ROI, you can analyze individual channel performance, narrow down the best strategies, and allocate additional resources to the marketing campaigns that yield the best results. To really get the most out of your marketing efforts, you’ll need to dig deep into your sales numbers and see where those sales are coming from.
4. Streamlined shipping
Whether you outsource your shipping or manage everything in-house, a huge chunk of your overhead goes to getting your products from storage directly to your customer’s doorsteps. Sure, it may be easy to just stick with the process you already have, you could be throwing thousands of dollars down the drain each and every month by simply ignoring the other options that are out there.
If you manage your own shipping and handling, you might find that you could save time and money by switching to a dropshipping model or outsourcing the process to a program like Amazon FBA. This is also a great way to reduce the costs and headaches associated with returns.
Alternatively, if you’re currently using an expensive third-party shipping provider, you might want to weigh the pros and cons of taking on the responsibility yourself, as it could be the more cost-effective option. It all depends on your unique business model.
5. Bookkeeping and accounting
Finally, it’s important to remember that most ecommerce businesses let money slip through the cracks because they simply don’t have a good understanding of their own finances and operational costs. When you invest in quality bookkeeping software, you give yourself the power to analyze the profitability of your business.
If you want to kick your bookkeeping up a notch and save time on manual data entry, you should strongly consider adding ConnectBooks to your arsenal of business tools. Not only can you integrate multiple selling channels with the click of a button, but you can also automatically create dozens of financial documents like P&L reports. This gives you enhanced insight into your operational costs, expenses, sales, inventory, and profitability — all in one place.
The Bottom Line?
There are a lot of different factors to consider when managing your costs and maximizing your profitability as an ecommerce business. You have to really understand where every dollar is going, and determine if some of your business expenses could be restructured to save money and boost profits. By evaluating your current costs and determining what changes could be made in the future, you’re already on track to improve the long-term viability of your online business!