This is the third post of our series of bookkeeping guides for e-commerce businesses. The first post offers a comprehensive bookkeeping guide for e-commerce businesses and has key information to get you started. The next post in our series on e-commerce businesses covers KPIs every e-commerce business should track.
There is no denying the fact that running an eCommerce business can be expensive. Many different costs can significantly affect your bottom line, such as rent, processing fees, subscription charges, excess inventory, and many, many more. While many of these expenses are unavoidable, some can be negotiated or significantly reduced, allowing you to free up valuable capital and optimize your overall cash flow.
Fewer expenses mean that your business can:
- Pay off debt
- Invest more money into advertising and marketing
- Focus on expansion
- Upgrade technology
- Hire new employees
- Have more cash on hand for future initiatives
1. Outsource, outsource, outsource!
The benefits of outsourcing are far-reaching. Many companies avoid outsourcing, assuming that they will lose control and face communication issues. However, outsourcing can save you considerably both in money and time in the long run.
Consider outsourcing any task that prevents you from focusing entirely on your business goals. Activities such as bookkeeping, website design and development, social media marketing, content creation, paid advertising, data entry, and order fulfilment can easily be outsourced to professionals who can get the job done faster and with more precision.
Outsourcing a task like bookkeeping or accounting means that you are putting your important financial well-being into the hands of trained experts who will work with you as a part of your team. You didn't start your business to become a bookkeeper, so why focus your time on these tedious tasks? Let the experts handle this while you focus on growing your business.
2. Negotiate your payment processing fees
Payment processing fees are the fees that are charged every time a customer purchases from your eCommerce site using their debit or credit card. While these fees are usually relatively small, they can add up over time as your sales increase.
Many businesses assume that these fees are non-negotiable; however, this isn't the case. Speaking with your financial and lending institutions about the markup, assessment, transaction, and interchange fees can result in lower charges. Even a slight reduction in these fees can result in substantial savings over time.
3. Create a budget, and stick to it!
Creating a budget is vital to the health and longevity of your business. Budgets help you create a long-term growth plan, reveal how much revenue you'll need to hire more employees, show when the right time is to invest in new opportunities and determine how much your company spends on expenses.
Creating a budget will allow you to see exactly what your company costs are and highlight areas where you could save money and reduce your overall expenses. Having a good handle on your business' KPIs will greatly assist in creating a realistic budget forecast. Many bookkeeping tools will help build the data you need to prepare a helpful budget forecast.
4. Minimize your packaging
Using as little packaging as possible benefits the environment and helps reduce costs. Using inexpensive packaging that is as lightweight as possible will minimize purchase costs and keep shipping costs lower as well. Here are some tactics to reduce packaging costs:
- Simplify Packaging: Choose simpler, more cost-effective packaging materials that still protect your products. This can include using lighter materials or reducing the size and layers of packaging used.
- Buy in Bulk: Businesses often get better rates when purchasing packaging materials in bulk. This strategy can significantly lower per-unit costs, reducing expenses in the long run.
- Optimize Packaging Design: Choose a packaging design that fits products more closely, reducing the need for additional packing materials such as bubble wrap or packing peanuts. In some instances, that could reduce the overall package size and contribute to lower shipping costs
- Negotiate with Suppliers: Don’t hesitate to negotiate better terms with your packaging suppliers. As you grow and order more, leverage your increasing order sizes for discounts or improved terms.
5. Reduce freight fees
Transporting the goods that you source to sell through your eCommerce business can be an expensive endeavour. Finding ways to cut these freight fees will help you reduce the cost of these goods and increase your bottom line.
How you choose to ship your products, where your products ship from, the weight and size of the packaging, and customs charges all affect your shipping expenses.
Finding ways to decrease these expenses can help you cut costs. Look into placing larger bulk orders, choosing the most inexpensive shipping options, and ordering from suppliers that are as close to home as possible.
6. Increase customer retention
Many business owners don't realize that paying particular attention to their current customers can save them a lot of money in the future. Growing your customer base is essential, but retaining the customers you already have and promoting repeat business can help reduce your overall expenses.
Obtaining new customers can be an expensive venture. Advertising and marketing programs designed to drive further potential clients to your business can be costly. Retaining your old customers is virtually costless.
To encourage your current customer base to make more frequent purchases, you can engage in activities like email campaigns, special offers, or coupons, or through social media.
7. Focus on your top-selling products
It's no secret that having excess inventory on hand can be expensive. Storing products that aren't performing well can cost your business. To correctly manage your expenses, identify the most profitable and top-performing products to improve your profitability and ROI. At the same time, reducing the number of products you carry and eliminating the ones that perform poorly can lower your storage costs and free up cash on hand for other, more viable products.
For many eCommerce businesses, the main focus quickly becomes expanding the company and increasing profits; however, profits mean nothing if your expenses are out of control. Looking at all your operating costs and overhead expenses, and reducing them will help your business be more profitable in the long run.
At Enkel, we know that one of the best ways to increase profitability and reduce expenses is through accurate and thorough bookkeeping practices. Our bookkeeping services can give your business the upper hand, and all it takes is the click of your mouse to connect with one of our trained professionals.
