For consumers and retailers alike, eCommerce used to be the more affordable option compared to brick-and-mortar stores. But between Amazon, competition within eCommerce, and the fight from brick-and-mortar stores—which can match online prices 72 percent of the time—online stores need to find new ways to cut costs to stay afloat.
The most recent news affecting online merchants is the Supreme Court's South Dakota v. Wayfair, Inc. ruling, which opens the gates for each state to effectively collect their sales tax from vendors all over the world.
The first step is picking the right eCommerce platform to run your business efficiently. Once you've done that, it's time to consider alternate ways of trimming down expenses to save money while running your online store.
1. Reduce Product Returns
One of the most fundamental rules of commerce goes like this: Keep products in customers' hands and profits in yours.
When a product is returned, it's not just a cut-and-dry undoing of the sale. More likely, you'll eat the cost of shipping, plus labor for bringing the item back and forth from storage, and the nickels and dimes of packaging. Then there's the cost of checking to see whether the product is damaged and the possibility that you can no longer sell it as "new." All that, and you have one more customer who's not coming back.
Reducing product returns is a surefire way to cut costs, but how do you do it?
Make sure buyers know what they're getting before they buy.
Elaborate on your product page descriptions and add multiple photos from different angles so buyers have a more accurate idea of what they're getting. Product videos are even better: They give shoppers a realistic sense of what the product looks like in action.
For clothing companies, a common reason for returns is garments not fitting well. You can reduce that by providing accurate size charts easily accessible from the product page. It's extra helpful if sizing charts include additional measurements, such as a hip and waist measurement for a shirt in addition to chest and length, to help people understand how it'll fit their body shape. You can also include photos using models of different shapes and sizes, with a footnote that says some details about the model. — Danny, CEO and Founder of LemonStand
Extend the time frame for returns.
Although it may sound counter-intuitive, extending the allowed time frame for returns can also reduce return rates. Economists attribute it to the endowment effect—the longer the customer "owns" the product, the stronger their attachment to it.
Longer return policies also relieve the pressure to return as soon as possible, giving customers more time to change their minds and decide to keep the product.
Avoid high-risk customers.
You might be tempted to have the broadest reach possible for your store, but one of the most effective ways to reduce returns is to isolate the customers that pose the highest risk—and stop marketing to them. With a little extra effort looking through previous sales data, you can identify the customer segments with the most returns.
In fact, Zapier can compile that data for you. For example, Zapier can automatically send all data about returns in Stripe or PayPal to a spreadsheet or other app of your choosing. Then you're just a pivot table away from isolating your customers with the highest return rates.
Maybe you notice that most returns come from Facebook referrals. If that's the case, it might be time to slow down on your Facebook advertising. You can get even more granular than that too. Pay attention to the reasons for returns: If someone returns something because they don't like the style, don't send them promotions for products with that same style—they might be tempted to buy again, only to return it.
As long as you have a more educated approach to who's returning your products and why, you'll be better prepared to avoid problematic situations before they arise.
On your return form, be sure you always ask for a reason for the return. You never know what kind of information you'll get from that data, whether it's patterns or overlooked deficiencies in your product.
2. Negotiate with Suppliers
If your store is big enough to sustain high-tier bulk shipments from suppliers, try improving your negotiation skills. A silver tongue is worth its weight in gold.
The two main points of interest for your suppliers are payment times and order sizes. If you can accommodate them more in those areas, they'll be more likely to accommodate you in prices.
Working out an early payment or prepayment discount isn't uncommon with suppliers, especially if you have established a relationship with them. The typical "early bird" discount ranges from around 2-5 percent, but depending on your relationship, you might be able to work out an even better deal.
If your supplier offers fixed price breaks (i.e., preset discounts if your order surpasses a specific amount of money or quantity of products), you could save money just by upping your order amount and buying in bulk. To further cut costs, you could even attempt to negotiate a freight-free deal: Discuss how much you'd have to buy for your supplier to waive the freight fee altogether. That's one less expense you have to pay, as long as you can move the extra merchandise.
Effectively managing your supplier relationships is essential to long-term eCommerce success. Be sure to read terms and contracts thoroughly and ask questions as they arise. You may be able to negotiate free shipping, a discount, or other deals with suppliers by offering to pay upfront or due to a longstanding history with the company. Suppliers want you to be successful because your success contributes to their success. Communicate about your needs and don't be afraid to ask for better terms. — Becky, Managing Editor of eComEngine
One warning: When considering these tactics, be sure to determine if you'll pay too much for storing extra goods. Depending on your warehouse arrangements, storing the number of products necessary for bulk discounts may actually cost more than the discount. Crunch the numbers or reevaluate your storage options to find a way to make it work.
3. Negotiate Lower Credit Card Processing Fees
While you're still pumped up from negotiating with your suppliers, why not give your credit card processor a call, too?
While some fees—like charges handed down from Visa, MasterCard, and the rest—are non-negotiable, fees related to your processor can be bent a little, or even nixed completely. Annual fees, statement (or online reporting) fees, and set-up fees are all determined by the processor, which means they can be negotiated.
Just like with your suppliers, the longer you've been doing business together, the more open-minded they'll be to providing discounts. Just like you, processors want to keep their most loyal customers happy, so don't be afraid to throw around the weight of your contract length.
If your processor is unresponsive, it may be time to switch companies. Do your research to see what fees other companies can offer; even if you don't switch, you can use competitors' fees to leverage better prices with your current processor. Of course, double check for any termination fees on your current contract before making the final call.
If you have a custom site for your store, you can even choose a new shopping cart platform with better fees. Platforms like BigCommerce offer packages that don't charge transaction fees at all, and switching over could save you on hosting as well—yet another way to cut costs.
Another strategy is simply to minimize the number of credit card sales you make. Enable other payment methods like PayPal, Stripe, ApplePay, or Venmo to circumvent credit card transactions altogether. Again, be sure to do your research beforehand—for example, PayPal's refund policy isn't kind on sellers.
4. Spend Marketing Funds More Effectively
As an eCommerce business, you want to play up one of your natural strengths: the fact that you're online. Funneling your marketing budget into digital methods is clearly the best choice, but you still need to know which avenues will help you most.
Calculating the return on investment (ROI) for each of your campaigns determines the best ways to spend your money, with no guesswork. Here's the basic formula:
net profit from investment ÷ total investment x 100
From there, compare the ROI percentages and allocate more money to the high performers. Keep in mind some avenues take more time to produce a profit than others, but in general, this is a great method for comparing all your ventures on equal ground.
While you're comparing ROIs of paid campaigns like PPC or social media ads, you can also experiment with less expensive digital marketing tactics already known for their effectiveness:
Social media marketing
Blog posts that target specific SEO keywords
Influencer marketing (by providing them a free sample)
Whichever channels you try, be sure you keep an eye on the ROI to decide if it's worth pursuing again.
5. Cut Inventory Costs with Promotional Campaigns
To paraphrase some classic business advice, "sometimes you have to lose money to make money." Offering sales, coupon codes, seasonal deals, and other such promotional campaigns can do more than drum up business if you're in a rut. When used strategically, they can cut inventory costs.
To make unpopular items more sellable, target them with promotional campaigns like discounts, two-for-ones, or as a free gift with more desirable purchases. If you have some stubborn products that are taking up space in your warehouse, unload them fast—that's a direct way to cut inventory storage costs.
With warehouses implementing stricter storage requirements, online retailers should make inventory management a significant focus to reduce penalties and added costs. Our customers find that bundling slow-moving items with relevant, best-selling products is a great way to reduce stale inventory. Not only is it great for your shoppers' experience, but it helps you cut storage costs and stay in the black. — Nick, CEO of ecomdash
Of course, promotions are also a great way to bring in new customers and remind previous customers that you're still around. Just be sure that you're thoughtful in your promotions:
When you're doing a promotional campaign, it's tempting to throw a really wide net, but I've had more luck going with targeted, niche promotions that are a good match for my audience. Instead of casting a wide net for entrepreneurs, for example, I'll advertise with newsletters that have a large readership among freelancers (and often hone in on specific industries: freelance writers, designers, etc.). Their readership is often smaller, but I've tested it, and I get better results from spending $50-100 to sponsor a few separate newsletters that are more targeted, than spending more money sponsoring one huge newsletter. — Michelle Nickolaisen, owner of The Freelancer Planner
Bottom line: Promotional campaigns let you cut costs and grow your business—it's a win-win situation.
6. Use More Efficient Packaging
In eCommerce, one of the most overlooked costs is delivery packaging.
If your packaging is too big or too heavy, you can immediately cut costs by trimming it down. One size does not fit all for shipping packages: You always want to use the smallest and lightest packaging available that will still protect the goods inside. If you can use a padded envelope, you should use a padded envelope. Here are a few specific tips when it comes to packaging:
Use as little protective cushioning as possible: One layer of bubble wrap is enough for most non-fragile items. Not only will you have to buy less cushioning, but you'll also save on shipping weight and be able to use smaller boxes.
When you can, you should buy shipping materials in bulk from a packaging store like The Packaging Company. Take advantage of price breaks at higher quantities. After all, packaging materials are easy to store, and, unlike products, they don't expire or go out of style. You could use cardboard boxes from 10 years ago and customers wouldn't mind.
Try eco-friendly packaging. Eco-friendly packaging is lighter than most other types of packaging, and so reduces shipping costs, even if it's a bit more expensive to buy. In addition to cutting shipping costs, you can boost sales by identifying yourself as a green brand. Consumers today consider eco-friendliness to be a top priority when deciding where to buy, with a majority of shoppers willing to pay extra for green products and brands. Those numbers increase the younger the shoppers are, so this is a business trend that's going to keep growing with time.
7. Automate Your Business
Time is money, so if you want to cut costs, cut wasted time. By automating tasks, you free up your and your team's time, so you can use it for more profitable items. Zapier can handle the busy work for you, so you have extra time for the work that really matters.
Using Zaps—automated workflows that connect two or more apps—you can automate your most common tasks. Here some common workflows you might want to let a robot handle for you:
Automatically add every new customer's contact info into your email marketing tool.
Automatically log all of your sales into your accounting software.
Automatically track all your sales data into a spreadsheet.
Automatically take action for abandoned cart events.
Automatically post new products to social media platforms.
Automatically create sales receipts.
When you no longer have to worry about the minutiae of running an eCommerce business, you can focus on big-picture strategies.
Don't see the workflow you're looking for? Create your own.
eCommerce's share of the retail market is growing, slowly but steadily. And with new technology like Augmented Reality favoring eCommerce, its growth is bound to accelerate. But that doesn't mean you shouldn't do what you can to cut costs on the regular. Making a few adjustments now will pay off down the road.