How to Optimize Your eCommerce Operating Costs
Operating costs refer to all the expenses required to run a business successfully. With costs rising across many industries, some businesses have found it difficult to increase profits while maintaining competitive prices.
For eCommerce business owners, increasing operational costs such as shipping expenses, hosting fees, maintenance costs, marketing costs, and other operational expenses can affect profit margins. Therefore, while developing ways of generating more revenue is crucial, it is equally important to reduce operating costs.
To gain an advantage in a competitive eCommerce market, you need to implement consistent cost-cutting strategies without reducing the quality of your service. Here are six ways to consistently minimize the operational costs for your eCommerce business.
1. Automate Repetitive Tasks
Most day-to-day tasks, when done manually, can consume an excessive amount of time and funds. Luckily, technology offers much help in this area. You can optimize your business processes through automation while cutting operating costs.
You can automate repetitive and time-consuming tasks through certain software programs. For example, you can automatically collect, analyze, and segment customer information through customer intelligence systems to boost customer relationships and marketing campaigns.
Technology offers increased efficiency, which is important in reducing business costs. Automation software can handle more tasks faster than a human with fewer mistakes. The increased productivity and efficiency offered by automation frees up your eCommerce operating costs.
For example, instead of having to hire more staff to perform certain tasks such as sending emails, meeting reminders, and supplier onboarding, you can automate these tasks with autoresponders and other similar tools. You can automate processes such as email marketing to automatically trigger emails instead of sending them manually.
Here’s an example of an automated email process using Active Campaign:
As technology advances, more automation software will enter the market. For example, AI chatbots are revolutionizing customer support departments. You definitely want to keep an eye on these trends and adopt some of these technologies to cut your operating costs.
2. Ditch the Office and Go Remote
Setting up and running a physical office usually incurs certain costs. You can go remote to reduce some of these operating expenses for your eCommerce business. Many companies allow their employees to work remotely as a way to reduce their operating costs.
According to a study by Global Workspace Analytics, companies can make an extra $11000 profit per employee that works remotely.
In another interesting poll by the same organization, nearly 6 out of 10 employers consider cost savings as a significant benefit of remote work.
Since an eCommerce business does not usually require much face-to-face interaction with customers, working remotely is a good option for cutting running costs. Also, technology allows for remote work to be done efficiently.
You can use platforms like Slack, Zoom, and Google Meet to conduct your business operations smoothly with a remote team. Below is an example of a Slack channel.
On-site work involves costs, such as rent, office supply, power, and office equipment. There are also other costs, such as cleaning services and food. All these costs can be eliminated by adopting remote work.
With more people opting for remote work, going remote will also provide the opportunity to employ top-quality employees at a reasonable price.
Adopting a hybrid remote work system can be helpful if your eCommerce business requires a level of on-site work. This allows you to cut operating costs while ensuring every employee has the perfect environment to execute their duties.
3. Hire Virtual Assistants
Hiring virtual assistants is another effective way to reduce operating costs. A virtual assistant works remotely to provide administrative services, business development services, and other services to clients or consumers.
Since virtual assistants work remotely and independently, you do not need to pay a regular monthly salary. Instead, virtual assistants will get paid based on the amount of time they work. The salary will be based on an agreement on the work hours per week or month, meaning you’ll only pay when they’re required.
Therefore, contracting virtual assistants helps to reduce operating costs as it is cheaper than hiring a full-time in-house assistant. To hire a full-time employee, you’d need to spend money on recruitment and training.
Also, with an in-house assistant, you’d need to spend money on office space, utility costs, equipment, and additional benefits. A virtual assistant eliminates all these expenses.
4. Obtain Quotes from Different Vendors
When running an eCommerce business, choosing the first vendor you come across is not always a good decision. If you don’t shop around, you might end up overpaying for goods and services, leading to an increase in operating costs.
One of the ways to reduce the operating costs for your eCommerce business is to minimize how much you pay for products and services. That’s why you need to shop around.
Before purchasing essential goods and services, ensure you obtain quotes from different vendors. By shopping around, you can find lesser-known products or vendors that can be a better match at an affordable price. Plus, lesser-known vendors might be willing to reduce their prices in order to land a customer.
In addition, obtaining quotes from different vendors helps to give you an idea of the market price of goods and services. Knowing this will help you negotiate a better price from the vendors you want to work with.
To reduce operating costs, you can also set up a bidding system for vendors you work with regularly to see who is willing to offer the best prices.
While obtaining quotes from different vendors, you can also get lower prices in exchange for exclusivity or a long-term relationship. Moreover, you can ask around for discounts from different vendors for buying in bulk.
For example, when you buy custom New Era hats in bulk for your store’s marketing campaigns, most vendors will be willing to extend various discounts for the large orders. And if you become a repeat customer, they’ll likely provide even better prices.
5. Outsource Noncore Functions
As an eCommerce business owner, there are certain non-core tasks you may need to do. This can result in you and your workers being overburdened, reducing efficiency and quality. It can also introduce additional expenses for your business.
Outsource a specialist to perform such non-core functions. For example, you can outsource IT support and certain eCommerce marketing functions.
Hiring a full-time marketing specialist and creating an entire marketing department can drain your funds quickly. That’s why you should consider outsourcing your marketing to a specialist who works on a per-project basis.
Delegating non-core functions can save you money in the long run. This is because the specialist or expert you hire can focus solely on the task and generate better results, giving a good return on investment. Plus, it’s way cheaper than recruiting and maintaining an in-house marketing department.
This will also help to free up more time to focus on core aspects of your business operations. This poll conducted by Deloitte shows cost reduction as the most popular reason companies outsource.
Also, instead of paying in-house staff for tasks that do not need to be performed frequently, you can outsource them to freelancers. There are many freelancers who will be willing to work on a per-project basis for certain tasks. This will help drive efficiency and productivity as there will be more room to perform core tasks efficiently.
When you outsource noncore functions, you will not need to spend on recruitment, training programs for employees, office equipment, and other expenses for these functions. Also, outsourcing noncore functions ensures that the tasks can be performed faster, leading to faster results which can accelerate your growth.
6. Pay Your Bills and Invoices on Time
Lastly, to minimize your operating costs consistently, ensure you pay your bills and invoices on time. Late payments may result in penalties which can hurt your balance sheets.
For example, if you have taken out a loan for your eCommerce business, late payments can increase your interest expenses.
Also, some vendors may offer discounts for early payments. These little discounts can compound to save a significant amount of money in the long run.
Paying bills and invoices on time also helps in building a good relationship with your suppliers and service providers.
Maintaining a good credit record can be vital to getting better offers, as well.
To ensure your bills and invoices are paid on time, you can use an automated bill payment system. This saves time and allows you to pay the necessary bills from a single place.
As your eCommerce business grows, it is essential to minimize your operational costs. You should take a look at your business expenses and how they affect your profits. The points discussed above are all effective means of reducing your operating costs consistently.
These include automating repetitive tasks, going remote, hiring virtual assistants, and getting quotes from different vendors. Also, you can outsource non-core functions and pay bills and invoices on time to keep your business costs low. Every amount saved can be reinvested into your business, helping you go a long way.
About the author:
Mark Harsley is the founder of Acme Hat Company. Acme sells custom caps to eCommerce store owners, businesses, and other folk. Mark spends his weekends enjoying life with his family.