Learn how to Cut back Ecommerce Overhead
We are well into the digital age and e-commerce businesses are more common than ever. There are an estimated 12 to 14 million online stores worldwide – and these numbers are increasing every day.
The popularity of online stores makes sense. With just a few hundred dollars, you can have a fully functional online business.
While online stores tend to be less expensive, the e-commerce effort can add up quickly. As a business owner, you should always look for ways to cut costs.
Where do you start
Which costs can you do without and which ones do you need?
How can you make sure you are not holding back the growth of your business?
That's what this article is about. Let's take a look at the most effective ways to reduce the cost of your online store.
What are ecommerce overheads?
Overhead is an accounting term that relates to most business expenses.
Investopedia declares,
Overhead costs refer to the ongoing business costs that are not directly associated with creating a product or service.
Many people mistake their operating costs for overheads. However, these are not the same.
How to tell the difference:
Operating costs are any costs that help you run day-to-day business operations. For an e-commerce business, this includes the materials, labor, production, packaging, shipping, marketing, and other related costs that you purchase.
On the other hand, overheads are running costs that you incur regardless of whether you are producing or selling something. For an ecommerce store, this includes insurance, software, web hosting fees, employee and management salaries, etc.
This graphic helps break it down a bit further:
Before you can cut those expenses, you need to break them down into different categories to understand what can and cannot be cut.
You can break your ecommerce overhead into three different categories:
1. Fixed Overhead
As the name suggests, these costs are fixed and cannot be changed. For example, the warehouse rent that you pay every month.
2nd variable Overhead
This refers to expenses that vary from month to month, e.g. B. an electricity bill. The electricity bill may be higher at certain times of the year (such as winter or summer) and lower at other times. There is no fixed monthly payment.
3. Semi-variable Overhead
Semi-variable costs mean that part of the payment is fixed, while the other part can depend on your activities. For example, your email marketing platform may charge a basic monthly fee and then an additional fee based on how many emails you send or how many contacts you have.
To reduce your ecommerce overhead, focus on your variable and semi-variable costs, as these are the expenses that can be reduced with a little planning and strategy.
Predict ecommerce overhead costs and set a budget
It is difficult to cut costs if you are not careful about your expenses. Unfortunately, that usually happens. These costs add up quickly without most businesses realizing it.
To get you started, you need to first predict your costs.
How to get started:
1. List all of your company's overhead costs
This includes the cost of rent, utilities, software, salaries and other related costs, regardless of whether you are producing or selling something.
2. Divide these into fixed, variable and semi-variable costs
Once you have a good understanding of all of your overheads, now is the time to break them down into three categories: fixed, variable, and semi-variable.
This is an essential step in understanding what you can and cannot reduce.
For example, if you have a website for your business, you can choose to pay a specific fixed monthly or annual web hosting fee.
On the other hand, charges like an electricity bill depend on your business activities from month to month.
3. Understand your problem areas
Often times, it's not major transactions, but rather smaller, hidden costs that can hurt your ROI.
Understanding where every penny goes will make it much easier to see what to address.
Look for expenses that you don't use, like software or even storage. Be aware of areas that could be cut back without impacting your budget, such as: B. a cheaper but equally effective hosting platform.
4. Create a budget
Creating a budget is an essential part of any business. This will help you understand what costs your business will incur and where you can make savings.
When creating your budget, divide your expenses into different categories (fixed, variable and semi-variable) so that you can see the specific costs.
Focus on your annual e-commerce overheads rather than looking at them month-to-month as this will give you a clearer idea of the bigger picture.
How to Reduce Ecommerce Overhead Costs
The e-commerce space enables business owners to reach more customers regardless of geographic location. This can translate into higher profits as your customer base isn't limited to your city.
However, your overhead costs can slowly waste profits – sometimes without your realizing it.
Here's how to reduce your overhead to maximize profit.
1. Re-evaluate your packaging
Packaging costs are easy to overlook as they are often inexpensive compared to other costs. Unfortunately, the cost of these materials can add up quickly over time.
To keep costs down, pack your most popular items in perfectly sized packages. So make sure you don't waste money.
Package less popular products in large boxes and use the right amount of material (and not too much) to ensure your packages arrive safely at no unnecessary additional cost.
2. Freight charges
Most online sellers source products from different countries around the world.
The following factors can affect how much you spend moving your goods:
- whether you use air freight or ship your products
- how heavy your packaging is
- the dimensions of the packaging
- from where you transport your goods
- Have your supplier or a third party label the goods
- inch
In general, shipping your products is much cheaper than air freight.
Aim for bulk orders instead of ordering in small quantities. This can help you save on supplier and transport costs.
3. Pay more attention to your current customers
Studies show that it is cheaper to retain one customer than to acquire a new one.
There is a lead generation cost to a potential new customer trying to show them how impressive your product or service is. However, your current customers already know this because they have previously bought from you.
While growing your brand and attracting new customers is important, you should focus more on your existing customers to keep costs down.
You can send coupons, offer discounts, and keep in touch regularly via weekly or monthly email newsletters.
You can also stay in touch through your company blog and connect through social media channels.
4. Focus on your top tier products
Shipping and storing your products in a warehouse costs a lot. One way to lower these costs is to reduce the number of products you offer.
At first glance, this may not make sense – the more products and variety you offer, the better?
The reality is that not every product will be popular with your customers. Some products are of course more powerful than others.
Instead of shipping and storing everything (and paying for products that your customers don't particularly like), take care of your popular products.
What do your customers love? What's flying off the shelves and what's taking forever to sell?
There's no point in keeping a product in stock when it's going to take months to sell.
Instead, focus on the products that are already doing well and cut down on those that don't. This can also give you more budget to test new products.
Understanding these numbers will also help you plan your future orders better.
You will get a clearer understanding of which products to order in bulk and which ones you don't need at all.
5. Take advantage of every discount
Almost every bill you have is likely to offer a discount. These discounts can be seasonal or available all year round.
For example, Bluehost charges $ 7.95 per month for a 12 month hosting plan but only charges $ 5.95 per month for a 36 month plan.
Pay attention to the discounts available and use them to lower your overheads. For an online store, these discounts can include:
- Web hosting fees (yearly or monthly)
- Bulk orders from suppliers
- Seasonal and / or holiday discounts
- Clearance discounts
- Co-advertising credits
- Discounts for early payment from suppliers
These discounts may seem small, but they can cut your ecommerce overheads drastically.
Main Benefits of Focusing on Overhead Reduction
There are many reasons why it makes sense to focus on reducing your overheads. These are just a few:
1. Higher ROI
The reality is that people do business to make money. As mentioned earlier, your variable and semi-variable costs can add up quickly, which of course affects your profits.
By keeping track of your overhead, you can see where you're wasting money to improve profits and ROI.
2. Transfer profits to other areas
Especially in the last few years it has become more and more difficult to stand out in the e-commerce space.
While e-commerce has great advantages, e.g. For example, the ability to connect and get in touch with your market online has also increased competition within niche markets.
In order to increase sales and grow your business further, you need to invest capital in marketing so that you can grab your audience's attention in the crowded virtual world.
Of course, online marketing can be expensive.
If you cut down on your ecommerce overhead, you may have extra cash to spend on your online marketing, which will ultimately help your business grow.
Tracking of overheads
After following the steps above, you can start cutting down on major overheads.
At first glance, the reduction doesn't seem like much. You may even be questioning the point of reducing your ecommerce overhead.
Note that reducing overhead costs will make a difference in the long run.
While you might not see that much of a difference in the first few months, looking at your ledger books at the end of the year you will likely see significant gains.
To get a clearer picture of your ecommerce overhead and see how much you've saved, there are some critical KPIs that you need to track:
- Gross profit
- average margins
- Stocks
- general work effectiveness
- ROI
- Difference in cost
Conclusion
Running an online business enables you to connect with your audience and build a successful platform from anywhere in the world.
However, overhead costs that run out of control can make these benefits difficult to take advantage of.
Understanding your overhead costs can improve your profits and help you better serve your customers.
What does it really cost to keep your business up and running? Focus on areas where you can make savings that will greatly improve your profits.
Do you run an ecommerce business? How can you keep your overheads to a minimum?
See How my agency can drive Firmly Traffic volumes on your website
- SEO – Unlock tons of SEO traffic. See real results.
- Content Marketing – Our team creates epic content that is shared, links accessed and visitors drawn.
- Paid media – effective paid strategies with a clear ROI.
Book a call