7 Actionable Ways E-Commerce Store Owners Can Reduce Costs

A successful e-commerce store can turn a simple idea into a 7 figure success story almost overnight. But for every Cinderella story, there are thousands of merchants just looking make an honest living. 

Selling online has turned almost every industry into a global marketplace.  While potential profits are bigger than ever before, competition is higher than it has ever been.

While top-line numbers can look great, at the end of the day, it’s all about how much profit your store is bringing in.

To help increase that bottom line number, we compiled a list of ways that store owners can cut costs, today.  Listed below are seven actionable ways that e-commerce store owners can reduce their operating expenses and increase their bottom line.

Listed below are seven actionable ways that e-commerce store owners can reduce their operating expenses and increase their revenue online.Click To Tweet

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Transaction Fees

Renegotiating Payment Processing Fees

Payment processing fees are the fees that are paid to the processors for all credit and debit transactions.  Basically, for every single order that a customer places on your website, someone else is getting a cut of the sale.  If your online store gets a lot of sales, that small percentage can really add up!  To make matters worse, credit card processors have all sorts of different fees that you could be hit with.  Here are the most popular:

  • The Interchange: The issuing bank gets paid a certain percentage from each sale.

  • Mark-Up Fee: The merchant bank takes a cut by charging you a fee that varies by industry, amount of sale, monthly processing volume, etc.

  • Assessment Fee: The credit card company ( Visa, MasterCard, etc.)  also charges a fee.

  • Transaction Processing Fee: A fee is charged by the payment processor, who could also be your merchant bank, each time you process a new transaction.

Many e-commerce companies don’t even consider renegotiating their payment processing costs because they don’t believe it’s possible. Most think that payment costs are set in stone, when in fact they are not. However, even just a small reduction in your fee percentage can lead to a significant amount of savings over the course of a year.

Renegotiating payment processing fees is one of our favorite ways for merchants to reduce their operating costs.  If done successfully, it’s is a perfect way to save money.  There isn’t any risk that is associated with changing vendors.  The savings start as soon as you get your next order and last into perpetuity.

If you can’t re-negotiate a rate with your current processor, it might be time to consider a new processor all together.  We compiled a little information on some others for you to consider below.

The Best Credit Card Processors For Your E-Commerce Store

There are hundreds of credit card processors on the market.  Trying to choose the best one for your business isn’t easy. 

To make this decision a little more manageable, the Business News Daily choose the best six processors for six different categories.  If you want to dive deeper into their research, you can read it here.

Say your e-commerce store sells one million in a year. Each transaction is for 100 dollars. Say your store had a total of 10,000 transactions. If your company negotiates your rates from 3.5 percent to 2.7 percent, this negotiation would save your company around $8,000.

Product Packaging 

Minimizing Product Packaging

Some companies do not realize that carriers not only charge for the weight of the package but also the dimensional weight. The dimensional weight is the length, width, and height in relation to its weight.

There are multiple ways a company can minimize their packaging to reduce their dimensional weight: 

  • Use the smallest package possible. Carriers charge for dimensional weight; this includes the width, length, height.

  • Use lightweight materials for the packaging to cut down on the extra package weight fees.

  • Use different shapes to reduce the dimensional weight for packaging.

  • Remove excess materials that fill space in the packaging. Any extra material in the package will increase the weight.

Shipping Labels

For many e-commerce store owners, shipping labels are a complete after-thought.   However, if you are shipping in high volume, all of that sticky paper can really add up!  The most popular size shipping label in the world are 4×6 labels.

In fact, we wrote a little article detailing just how much companies can save buying their labels from a manufacturer, like us.

Buying labels from a manufacturer is a lot cheaper than buying them at retail rates from a middle-man.

If you are currently printing your labels with an inkjet printer, or even worse, are just taping a piece of paper to your box, we highly recommend you consider purchasing a thermal label printer.

Thermal printing is by far the most affordable, quick, and efficient way to print labels in bulk.

Packaging Materials

Whenever possible, e-commerce store owners should source their product packaging materials from low-cost vendors.  Buying from middlemen, such as Uline, might be convenient, but it is not cost-effective.  Your best bet to save money is to source these materials with plenty of lead time, straight from the manufacturer.

  • Negotiate a bulk discount with your provider

  • Prioritize packaging products that you use the most

  • Reuse and recycle all the materials that you can

  • Use inexpensive packaging for products that do not need to be shipped in a box

  • Find a box that can be resized multiple ways

Consumers today are all about environmentally aware companies, and if you make an effort to go green, customers will notice. Not only is it a great way to help the environment, but it is also a great way to gain new customers by advertising your environmentally friendly packaging. In fact, a survey conducted by the Recycled Paperboard Alliance found that 60% of customers are more likely to buy products from a company that uses recycled packaging.

Green packaging is using materials or manufacturing methods to have less of an impact on energy consumption and the environment. You can reduce the amount of packaging used, the number of harmful materials used, packaging costs, and can increase the use of reusable materials.

Paper and cardboard are easily recyclable, biodegradable, and are very common. Cornstarch packaging has little impact on the environment and is perfect for anything with limited use. Bubble-wrap is also another cheap and eco-friendly option.

Shipping Costs

Free Shipping

Customers love free shipping; thanks to Amazon. When online shoppers see a high shipping cost, it tends to turn a guaranteed sale into an abandoned basket. 

A survey conducted by AlixPartners showed that 36% of people were put off buying something because of the delivery costs. This was the second most important reason that online shoppers chose not to check out, the first being that they needed to see or try the item before purchasing it.

Unfortunately, the answer isn’t just as simple as offering free shipping on every order. 

Shipping costs, especially “free shipping”decreases profit margins for companies.  Instead of just offering free shipping on every order, e-commerce companies should look into optimizing their shipping methods.  Finding the right balance between preserving profits and avoiding abandoned shopping carts is essential. 

 

If done correctly, implementing free shipping methods based upon order size can work as an upsell mechanism and increase average order size. Click To Tweet

If your business can’t offer free shipping on everything, try to offer it for specific products or at certain times. Here are a few options to explore:

  • Domestic vs. International – Free shipping for domestic orders and paid shipping for international orders

  • Threshold – Free shipping for orders over a certain price 

  • Items – Free shipping for a minimum amount of items bought

  • Seasonal – Free shipping for holidays like Christmas or Black Friday

  • Membership Programs – Amazon uses a loyalty program technique to offer free shipping. Members can pay for Amazon Prime, and in return, Amazon offers them free shipping.

Free shipping is a huge deciding factor when consumers are shopping online, so it is more beneficial to offer free shipping, even if you have to raise the prices of your products to accommodate for it.

Negotiate Rates with your Carriers

E-commerce companies should look to negotiate with their carriers because even they hate to lose customers. Most carriers are willing to negotiate as long as you make a case that is compelling enough.  

Shopping around for different rates will help to make sure you are getting the best price possible. When you figure out who is giving you the best rates for the services that you need, this is when you ask another carrier if they can give you a better price.

“Batch Process”

Batch processing is a great way to make your shipping operations more efficient.  Instead of printing out orders and labels individually, a company should process all of the orders in a batch to save money and time.  This is also essential if your company drops off your packages to the post office, UPS, or FedEx.  Going multiple times a day instead of once a day is a real efficiency killer. 

Many e-commerce operations make use of software, like ShipWorks, which helps to automate the batch processing of orders.

Use Google Analytics to Identify What Marketing Channels are Bringing in Revenue

A properly installed Google Analytics tracking script gives e-commerce store owners all of the proper information to make intelligent and data-driven decisions.  If your organization is engaging in any paid advertising, such as Google Adwords, Email Marketing, or Search Engine Optimization, it is very easy to determine the effectiveness of your campaigns.

Once you know which marketing channels are profitable and which aren’t, it’s easy to decide to cull the bad campaigns or make some drastic changes to improve performance.

One channel that we were able to reduce bad spend significantly was our Google Adwords Advertising.  We detailed a couple of strategies that we used to do that below.

PPC- Optimize Google Adwords Campaigns

Negative Keywords – Proper use of negative keywords is the easiest way to trim bad spending from your ad budget.  This can be especially true if your organization is utilizing any broad match keyword-targeted campaigns.  For a great breakdown on negative keywords, check out PPC Hero’s guide here.

  • An e-commerce company should make better use of negative keywords match types.

  • Using bid modifiers for device types and days of the week or hours of the day

  • Focus on ad budgeting on top performance ad campaigns and ad groups

Bid Modifiers – Another way to reduce your ad spending is knowing the proper utilization of bid modifiers.  Bid modifiers give the advertiser (you) the ability to reduce (or increase) how much you are willing to spend based upon specific criteria. These criteria could include hours of the day, days of the week, location, and device type.

For example, if your company sells business to business, you most likely don’t want to be spending as much on a particular keyword on a Saturday evening as you would want to pay for that same keyword on a Tuesday afternoon.  Through bid modifiers, you can specify a specific percentage of your normal bid that you would want to spend when an auction meets those specific criteria.

Returns

Product returns can be a real profit killer for any company.  Between the time that customer service agents spend processing the return and the funds that are returned, a lot of money can be lost.

While having a reasonable return policy is expected by most shoppers, we don’t all have to be LL Bean.

There are too many ways that a store owner can reduce the amount of money that is lost or wasted on customer returns.

Keeping Products “Sold”

Customers may return goods for a variety of reasons.  For example, if they purchased some complex electronics, they might have had some issues configuring it.  Another example could be if the customer bought some clothing and it didn’t quite fit.  Don’t lose all hope. There may be a good reason behind the return.

This is where excellent customer service training becomes so important.  If your customer service representatives are well educated and versed on your product, there is a stronger chance that they can address the problems that your customers have and keep the product sold.

Clear & Transparent Return Policy

Return policies are very crucial for e-commerce companies because they have to be strategic when trying to avoid the loss of profitability. Your return policy should be reasonable and easy to read. According to a survey done by comScore and UPS, 63% of American consumers will check the return policy before purchasing something, and 48% of consumers will shop with retailers that offer easy returns.

Return management touches multiple parts of the company like customer service, supply chain management an, inventory. The company should make sure that all of these operations mesh together to provide a seamless return experience.

An e-commerce company should have an appealing return policy that will benefit the customers without driving down their profit. Return policies should be written clearly and should be easy to find on your website.

Customers should be able to go to the return policy page from the home page and from the product page.  The return policy page should also have contact information for any customers who may have questions.

Know the Different Kind of “Returners”

  • The Wardrober: Wears the clothes that they bought once and returns them

  • The “Try It On” Consumer: Orders clothes online with the mindset of trying them on at home and have no intentions of keeping the clothes

  • The Fitting Roomer: Buys different sizes to try on to see which size is best for them and then return the rest of the products they bought

Have Great Customer Service

To help these “returners”, e-commerce companies should make sure they have excellent customer service. Always include the best quality picture of the product.

One bad review can reach hundreds of current and potential customers, so it’s important to always be on your A-game. However, mistakes do happen and when they do you must quickly approach the situation.

Offering customer service 24/7 via phone, email and live chat is a great way to help reduce returns because customers have the option to talk to someone who can help them with their issue.

Customers have busy schedules and different comfort levels, so it is essential to keep your customer support options open. For example, phone calls are great for social customers who have time on their hands, but live chat may be better suited for a shy customer who is trying to solve a problem quickly.

Take advantage of all the different channels that a customer can reach you through and make it convenient for them to do so. Contact options should be easy for someone to find.

Try setting up a free Google Voice number. Google Voice will allow you to record a voicemail for customers when you are unavailable and will give you the option to call customers back from your personal phone when you are available. Google Voice also allows you to block your number so you can use your personal phone as a business phone.

Fantastic customer service is a great way to build awareness and customers. Take Chick-fil-a for example. Chick-fil-a exceeds in customer service, and their employees are known for going the extra mile to fulfill a customer’s needs. As a result, they are famously known for their customer service, and many people come back to their restaurant because of it.

Inventory Management

Dead Stock

Eliminating dead stock is an easy way to recover costs quickly. This includes those products that have not sold in the last year, are becoming out of season, obsolete and hard to sell.  Storing inventory costs money.  Eliminating these products will lower your storage costs.

An easy way for a company to get rid of these products is by offering them at a discounted rate.  This discount rate should be aggressive enough to liquidate your inventory, think 50% or more off.

A great place to liquidate this sort of inventory is Amazon or eBay.  If there is already a market for your product on one of those marketplaces and the current selling price is higher than what you are willing to liquidate for, you could on load your dead inventory quite quickly.

Drop Shipping If You Are Not a Manufacturer

Drop shipping is when a company does not keep in stock the products that they sell.  Instead, when they receive an order, they buy the goods from a third party (likely a manufacturer or wholesaler) and have them blind ship it to their customer.  This method completely removes the need to store and stock any inventory.  

While drop shipping can be an easy way to reduce costs, it will almost certainly reduce margins.  After all, someone else is doing all of the hard work of storing, picking, packing, and shipping the sale. If this is a path you might consider, we would recommend you consider all of the pros and cons of drop shipping.

Focus on Existing Customers

Finding new customers is way more costly than it is to keep your existing customers.  Companies have a better return on investment. E-commerce companies will think that getting more customers is the logical thing to do, but in the end, it costs them more money and decreases companies profits.

The probability that a new customer purchases something from your website is at 20% while the probability for current customers is 60% – 70%.

Current customers tend to spend more money the next time that they make a purchase. The best way for e-commerce companies to increase their profit is by showing the existing customers that their products are of high value.

This circles back to maintaining excellent customer service. There is no faster way to lose a customer then providing terrible customer service. Customers have several different options to choose from so focus on convincing them why they should choose you.

A great way to keep customers is by providing a personalized experience for them. This can become more difficult as the size of your company grows, but it is still possible.

Keep notes and data on all of your customers. That way you can look back at the past experiences, good or bad, that the customer has had with you. Use those past experiences to your advantage and better the customer experience every time you talk to them again.