Table of contents

  • Reducing overheads on your online store
  • Table of contents
  • Summary
  • Introduction
  • 7 effective ways to reduce your overheads
  • Fuel your online store’s growth with MarketFinance
  • Frequently asked questions (FAQs)

Summary

The digital economy has been steadily growing for years. However, thanks to Covid-19, consumers are shopping online more than ever. To cash in on this e-commerce boom, a growing number of retailers have begun selling goods online. This guide outlines seven simple ways your online store can reduce its overheads without lowering its standards, to help you deal with this increasing competition. Your business can make smart financial choices and stop wasting money needlessly by implementing these small changes. This guide concludes by answering some frequently asked questions to deal with any specific queries.

Introduction

Selling online is becoming an increasingly popular option for entrepreneurs. Not only are e-commerce stores more affordable than their brick-and-mortar counterparts, but they can also be accessed by customers all over the world. However, while the profit-making potential of online retail has never been higher, research suggests that 90% of e-commerce businesses fail within their first 120 days. So, as global competition increases and tech behemoths like Amazon continue to deliver unparalleled convenience, smaller online stores need to do whatever they can to stay in the game.

Aside from bringing in more profits, cutting overheads is the next best thing your e-commerce business can do to remain viable. So, from rethinking your product packaging to renegotiating terms with your supplier, this guide outlines seven simple ways to reduce your online store's running costs.

Read on if you’re looking to cut down e-commerce costs without cutting corners.

7 effective ways to reduce your overheads

1. Rethink your product packaging

If your business sells products, the packaging you use is important. It protects goods in transit, displays relevant information, and even serves as a useful marketing tool. However, while packaging is indispensable to every product-centric enterprise, it can be a massive cost for small stores. In fact, research suggests the packaging costs can make up 10% - 40% of a product's retail price. Therefore, one of the best ways your business can trim down on necessary expenses is by rethinking packaging design.

One obvious way to cut packaging costs is by minimising its use. By getting rid of unnecessary materials and reducing the length, width and weight of packaging, your company can reduce its expenditure and wastage at the same time. Crucially, decreasing the package size can also considerably reduce postage costs, a huge cost for online businesses.

Another way your e-commerce store can trim down on packaging expenses is by reconsidering packaging materials. Even if you’ve been using the same product packaging for a long time, it may be wise to shop around different vendors to try and find the best deal possible. Alternatively, if you want to stay loyal to your current provider, you could try to negotiate a better price or request a discount on bulk orders.

Using these different methods, your e-commerce business could almost instantaneously reduce costs. Also, as consumers become increasingly socially and environmentally conscious, scaling back your packaging or substituting it for more eco-friendly materials can also be an effective way to appeal to new audiences.

2. Eliminate your dead stock

Even the most successful retail businesses occasionally have trouble shifting their goods. Unfortunately, companies have to pay to store each unsold item when dead stock accumulates. This can be a big inconvenience for e-commerce stores, especially those retailing niche or seasonal products. Therefore, to cut down on unnecessary storage costs, it's advisable to get rid of dead stock when possible.

The easiest and most economical way to eliminate dead stock is to sell it at discount prices. This way, your business can draw in revenue from goods that would otherwise be collecting dust. If you choose to sell these products through your original site, an end of season sale could be a good way to clear stock before the next season begins.

Alternatively, if you don’t want to sell dead stock items through your normal e-commerce site, you could use online marketplaces like eBay or Amazon. However, the price cut should be notable enough to liquidate your entire stock. This means that 5-10% reductions probably won’t go far enough.

To avoid selling your unsold stock at discounted prices; however, you should manage your inventory effectively. By utilising inventory management systems, you can identify which goods are selling well and which may not warrant a restock. This can help you stay on top of your inventory needs and prevent the issue of deadstock before it arises.

3. Prioritise customer service

Just because your e-commerce business doesn't interact with buyers directly doesn't mean customer service shouldn't be a top priority. Providing your customers with an excellent online experience is one of the best ways to retain customers and encourage repeat purchases. Since looking after existing customers is much less costly than attracting new buyers, this is a valuable investment of your time. Also, by keeping lines of communication open, your team can quell potentially costly issues before they arise.

An effective way to provide the best buying experience possible is to offer friendly, round the clock customer service. There's nothing more annoying than having a query about a product and not reaching a member of the team. Therefore, by opening up phone, email or live chat options, customers can resolve their issues quickly, using a method that suits them.

Another way to deliver premium customer service is to personalise your shopper's experience. While this may sound complicated, it doesn't need to be. Your business can recommend specific content based on their demographics and personal purchase history by utilising basic data analytics. This can dramatically improve their shopping experience and increase their chances of coming back to the site.

4. Reduce product returns

Whether you like it or not, processing returns is essential for every retail business. Returns present a fair share of concerns for brick-and-mortar stores. However, due to the costs of shipping, handling processing and higher e-commerce return rates, the practice disproportionately impacts online stores. To minimise this burden, online stores should do everything in their power to keep products in their customer's hands. Here are a few ways this can be possible.

One way returns can be reduced is by advertising all your products correctly. According to Chargeback, the third most common reason for returns is false or misleading product descriptions. Not only does this burden businesses by using up the time, money and resources for the company, but it also inconveniences the customer and weakens their trust in the brand.

To avoid this from happening, we recommend that you provide detailed page descriptions and lots of high-quality photos and useful sizing charts if they are relevant to your product. Not only will this keep returns to a minimum, but it will also help your customers stay informed about their purchases.

Another way to reduce returns is by identifying high-risk customers. Whether someone returns a dress after wearing it once or orders ten different shirts to try on, certain customers can be more problematic than others. While no business should refuse returns, business owners can use savvy tactics to discourage this from happening.

For instance, by harnessing consumer data, businesses can determine which customer segments are responsible for the highest amount of returns and market to them less. You can dissuade high-risk customers and prevent issues before they arise by retargeting your marketing efforts.

Finally, another tactic to keep your products in the hands of your customers is to extend your time frame on returns. Due to the 'endowment effect', individuals become more attached to products the longer they keep hold of them. Therefore, by lengthening this process, customers are more likely to grow fond of their purchases and keep them.

However, your company's return policy should be crystal clear for customers who choose to take back their items, and the process should be as seamless as possible. This will improve customer satisfaction and keep buyers coming back to your store.

5. Consider dropshipping

Dropshipping refers to a type of order fulfilment where a store doesn't keep hold of the products it sells. Instead, the stock is stored, handled and shipped by a third-party supplier and the retailer purchases inventory when necessary. If your business is serious about cutting overheads, it might be wise to consider this fulfilment method.

If you're in the process of launching your startup, dropshipping can help you get it off the ground for little or no upfront cost. This is because you don't have to cover the stock price or pay to keep it in a warehouse. Even for businesses that are already off the ground and running, dropshipping can save you the money involved with storing goods, packaging and delivering orders, tracking inventory, handling returns and managing stock levels. Since these costs can massively hamper the growth of businesses, it's no surprise that businesses are adopting this method in droves.

However, while the benefits of dropshipping are clear, business owners using the model can't personalise their packaging, add custom notes or coupons, or quality check products before they are shipped off. Therefore, if you enjoy controlling physical inventory, this fulfilment method may not be suitable for you.

6. Renegotiate terms with your suppliers

If you have a positive working relationship with your suppliers, it may be worth negotiating a better deal. While this may initially sound daunting, stock is one of a company's biggest expenses. Therefore, establishing a better price could help you save massive savings in the long run.

There are many different ways you can go about trying to secure a better deal. If you can pay for your stock early, you could ask for an 'early discount'. Also known as a 'prompt payment discount,' this could help you save around 2-6% from orders. Alternatively, you could ask for a deduction on bulk orders if you can buy more stock from them. This could help you anywhere from 10% to 50%, depending on the size of the order.

If you've been trading with your supplier for a long time or share an especially close relationship, it could be worth exploring the possibility of other deals too. However, before you step forward with an offer, you must consider the numbers carefully to make sure that you can fulfil your side of the deal. What's more, offering too low a price may insult your supplier. So, to maintain good relations, don't suggest a figure that's considerably below asking price.

7. Lower your payment processing fees

Finally, another effective way to cut the overheads of your e-commerce store is to try to reduce the costs associated with payment processing. Every time a customer places on your site, a payment processor receives a slice of the revenue. While this fee might not look massive per sale, it can bleed your online store dry over time. By trying to establish a better deal with your card processor, there's a good chance you could save a lot of money in the long run⁠—especially if your business relies solely on credit and debit card payments.

If your fee is set in stone, it may be worth shopping around different card processors. Navigating the credit card processor market can feel a little like the wild wild west. So before you make this switch, we recommend doing as much research as possible to avoid being lumped with lots of extra fees. Alternatively, if you want to move away from the payment processors, you can explore other payment methods like ApplePay, Venmo, and PayPal. Not only are these secure, trusted payment options, they’re also some of the more convenient options for customers.

Fuel your online store’s growth with MarketFinance

As the e-commerce market continues to bloom, It's never been a more exciting time to sell online. Your online store can trim down expenses without losing its competitive edge by following the cost-cutting tips we've highlighted above. If your e-commerce business needs little extra support, MarketFinance might be able to help.

MarketFinance offers a range of flexible businesses that have been excluded from traditional lenders. Whether you're looking to free tied up invoices or access working capital whenever you need it, we have a cash flow solution for you. You can learn more here for more information on our services and eligibility criteria.

Frequently asked questions (FAQs)

What is an e-commerce business?

An e-commerce business is any venture that buys or sells goods or services over the internet. The three main types of e-commerce businesses include business-to-business (B2B) websites such as Shopify or Mailchimp, business to customer (B2C) websites like Amazon or Nike, and customer to customer (C2C) websites like eBay or Etsy.

How can online businesses reduce costs?

If an online business is looking to reduce its outgoings, it can take many courses of action. For instance, it can rethink the use of its current packaging and make cost-saving adjustments where necessary, sell its dead stock at discounted rates to save money on storage, and reduce the number of product returns. If it would fit with its business model, it could consider dropshipping. Moreover, business owners could renegotiate terms with their suppliers and card processors to secure a better deal.

What are the main overheads of an e-commerce business?

Compared to brick-and-mortar businesses, e-commerce stores have much fewer overheads to worry about. However, this doesn’t mean they don’t have any to worry about. The main overheads of e-commerce businesses include fixed costs like rent for office or factory space, weekly or monthly payroll, and equipment. Overheads also include variable costs such as delivery, shipment charges, packaging costs, card processing fees, marketing, and supplier costs.

Why is it important to reduce overheads?

The overarching aim of every business is to remain profitable. Therefore, a business owner's goal should be to keep overheads as low as possible, especially when struggling to rake in consistent revenues. By reducing their monthly expenses, business owners can increase their monthly cash flow. This helps them cover their basic outgoings, purchase more supplies if necessary, improve the quality of their product or service, invest in their company's future growth, and have spare cash reserves in case of any possible bumps down the road.

How can businesses reduce their packaging costs?

One obvious way to cut costs associated with packaging is by minimising its use. By getting rid of unnecessary materials and reducing the length, width and weight of packaging, your company can reduce its expenditures and wastage at the same time. Another way your e-commerce store can trim down on packaging expenses is by reconsidering your packaging materials. Finally, companies can also reduce their packaging costs by negotiating a better price with their current supplier.

How can online stores reduce product returns?

Returns are unavoidable; it's advised to keep them to a minimum when possible. One way returns can be reduced is by advertising all your products correctly. The third most common reason for returns is false or misleading product descriptions. To avoid this from happening, we recommend providing detailed page descriptions and lots of high-quality photos and useful sizing charts. Your business can also reduce returns by identifying high-risk customers, advertising to them less, and extending your time frame on returns.

Why should online stores get rid of their deadstock?

Even the most successful retail businesses occasionally have trouble shifting their goods. Unfortunately, businesses have to pay to store each unsold item when dead stock accumulates. This can be a big inconvenience for e-commerce stores, especially those retailing niche or seasonal products. Therefore, to cut down on unnecessary storage costs, it's advised to get rid of dead stock when possible.