How to reduce ecommerce business costs & boost profit margins

Get more digital commerce tips

Tactics to help you streamline and grow your business.

The one goal that almost all online businesses have in common is to turn a profit.

Now while the success of this goal is influenced by multiple different factors – some of these in your control and others not – one of the biggest areas impacting your bottom line is in fact your business costs.

Here’s the thing.

Despite often being viewed as ‘set in stone’, the costs associated with running an online business don’t have to be entirely out of your control.

At least not all of them.

In fact, there are a number of ways you can increase your profitability simply by reducing your outgoing expenses, several of which have been covered below.

Do keep in mind that the purpose of this article isn’t to outline every potential cost incurred by an online business, instead it focuses on some of the often-overlooked areas that you might be able to save money on.

Ecommerce delivery and fulfillment

Delivery is such as a fundamental part of your online business operations, yet it is one area that many retailers don’t consider when thinking about how to cut back on costs.

Reduce delivery costs by making use of multiple couriers

Each courier service will typically specialize in shipping goods of a certain size, weight or quantity, meaning that they will be more cost-effective for certain products than others.

Royal Mail, for instance, offer better value to retailers dispatching smaller and lighter-weight goods, as opposed to those selling heavier items.

On the flip side, it may be more cost-effective for sellers of heavier goods to use a provider such as DHL.

But what if you sell both types of products?

Well, ideally you should be using a combination of delivery services.

That said, it’s not just the size and weight of your products that matter though.

If you offer multiple delivery options, for instance standard delivery, next-day delivery, selected day delivery and so on, you may well find that certain delivery services are cheaper (and perhaps more flexible) than others.

Yodel, for instance, offer competitive pricing for next-day delivery and Parcelforce offer greater flexibility, for example next-day delivery before 9AM.

Another thing to consider is that by using more than one courier, you are protected in the event of any potential issues. More specifically, you are protected against the subsequent costs that come with compensating your customers in the event of a late or cancelled delivery.

After all, it’s easier to ship more products with an existing courier (even if it’s not the most cost-effective option short-term), than it is to try and arrange a last-minute delivery with an entirely new courier service.

For a full comparison and details into which courier will be the cheapest for your business needs, have a read of this.

Extend the cut off time for next-day delivery

If you offer next-day delivery, you will have a cut-off time – usually around mid-afternoon – that customers must purchase by to qualify.

Now while this is completely normal (even some of the biggest brands ask that you purchase by 2pm for guaranteed next-day delivery), what if there was a way that you could extend this cut off point to much later in the afternoon and still guarantee that the item will be delivered the following day?

Well, there could be.

Chris Dawson recommends finding out how close your local depot is and if possible, dropping off any parcels that were ordered after the main shipments have been collected.

In fact, you could have up until 6/7/8 PM before the warehouse closes, giving you a chance to extend this cut-off period by a good few hours.

If this is viable for your business, it could be a fantastic way to differentiate your brand’s offering and ultimately increase sales, in turn reducing your overall costs.

Take advantage of next-day delivery rates.

What many retailers aren’t aware of is that couriers often prefer 24-hour delivery over 48-hour delivery, as it eliminates the need to store the items in their warehouses for long. As such, the price difference between both delivery options is often minimal.

With this in mind, you should consider opting for a 24-hour delivery service, regardless of which delivery option your customer chooses – assuming you don’t offer same-day or nominated-day delivery that is.

Even if a customer chooses 48-hour delivery, if it’s not costing you much more to ship the following day, then you end up with a satisfied customer.

If, however, they select next-day delivery, then you can actually make money from it by charging a premium delivery rate. After all, consumers are often willing to pay more for expedited shipping.

Negotiate better rates

As obvious as negotiation may seem, a surprising number of retailers don’t do it and as such, could be missing out on a great opportunity to cut back on expenses.

With respect to reducing your delivery costs, the best piece of advice would therefore be to outright ask for it.

In fact, most rates advertised by shipping providers aren’t fixed and are negotiable.

That said, it’s often worth speaking directly with a representative (or your account manager), as opposed to emailing. It’s also worth keeping in mind that the more flexible your business can be with regards to signing up for a fixed term contract, the more flexible the courier will likely be with delivery rates.

Business location

We all know that business rates can differ enormously across different parts of the country, but have you ever considered the fact that they can also differ substantially in different postcodes?

In fact, you could be paying a premium for your warehouse/premises in one location, whereas 20 minutes down the road it could cost a significant amount less.

Business location also extends beyond the cost of rent and other fixed expenses and can come down to staff costs for the area.

While this of course isn’t the easiest or quickest tip to put into practice, it is something worth considering in the lead up to renewing your lease.

Cross-border trade

Expanding your business overseas can be a great way to increase profits (and lower the impact of your other business costs), but there are certainly other costs that you will need to consider.

While some of these costs really are fixed – there’s not much you can do about international tax rates and customs fees, for example – there are alternative areas that you might be able to cut back on.

Foreign exchange

Even though there are tons of considerations around business expenses when selling overseas, one area that you should be trying to save money on is your currency conversion rates.

Here’s the thing – the fees incurred when your international payments are converted into your local currency are often negotiable.

In fact, with an e-tailer account offered by some online platforms, you can secure much better rates than simply using the marketplace’s own currency converter. This could be around 2% less of your total sales, which may not seem a lot, but definitely adds up.

You can’t get rid of the cost entirely, you can reduce it significantly and this is one way to do so.

You should also be aiming to achieve the best exchange rates possible, in order to lower your product cost price.

That’s not all though.

Once you’ve secured your exchange rates it’s worth locking them in to avoid the risk of currency exposure.

Currency exposure specifically refers to the time between an order being placed with the supplier and the customer purchasing the product (and this money being transferred back to you).

As I’m sure you can imagine, this isn’t always the shortest time frame and currency rates could potentially fluctuate substantially in this time.

Ultimately, you could lose a lot of money and even find yourself making a loss in profit should the exchange rates move the wrong away.

But isn’t this just bad luck?

Well yes, but it doesn’t have to be.

Deepak Goyal highly recommends that all cross-border sellers ‘buy business certainty’ to avoid this from happening.

What this essentially means is you can lock in your first exchange rate using what’s known as a forward contract. By fixing for 25-30 days, as opposed to 18, for example, you can also protect yourself from delayed shipments. To learn more about how this might benefit your business, have a read of this.

Grow your business in new markets

As we’ve already mentioned, one of the best ways to increase your profit margins is by selling more. This includes selling into new international markets.

There are in fact a whole host of marketplaces across the globe that you can sell on, many of which you might not have even considered.

Chris Dawson encourages all online businesses to sell on multiple marketplaces, for the simple reason that it can increase your revenue by a substantial amount.

Think about it.

By selling in more marketplaces your fixed business costs – warehouse, staffing and other overheads – won’t really change, and the only extra costs you will incur – listing fees and commission rates – will be more than covered by the increase in sales.

Ultimately, cross-border trade can be a fantastic way to sell more and become more profitable. Of course, you will need to consider a multichannel inventory management system for full visibility of your stock and to avoid overselling and stockouts.

Reduced marketplace fees

If you’re a UK seller, it’s worth noting that you may well be eligible for reduced fees across various international marketplaces.

The Department for International Trade (DIT) can pass on preferential marketplace fees, meaning you could reduce your international selling costs even further.

Stock management

As an eCommerce business, your stock is at the core of everything you do and pretty much every decision you make.

As such, inventory management is a prime area that you should be optimizing to drive down business expenses and increase efficiencies.

Get rid of unsold stock

Helen Parker from the Wholesale Community summed it up perfectly – your stock won’t be worth more tomorrow than it is today.

Chris Dawson added that stock on shelves won’t make you money and instead, you make money by turning over stock more frequently.

While this in itself is enough of a reason to get rid of old inventory, you should keep in mind that the cost of holding unsold stock is in fact amplified when using a fulfillment service such as FBA. The reason being that you will need to pay storage fees after a certain amount of time.

So, how can you get rid of unsold stock?

In addition to running a sale or promotion, other options include selling it in bulk on eBay or taking it directly to a wholesaler.

In fact, you can view the complete list of inventory reduction strategies here.

Reduce business expenditure with better warehouse management

One of the most effective ways to cut back on costs and increase the profitability of your business is by becoming more efficient.

Effective warehouse management is just one way you can do this.

One key example is by optimizing your order picking method.

Many businesses fail to make the best use of their warehouse space and subsequently spend more time picking and packing orders ready for dispatch.

By making this process more efficient, for example by using a batch picking method, you could save both time and money.

Automate business processes

By automating your online selling processes, you not only stand to make your own life as easy as possible, but you also free up valuable time to focus on growing your business or to spend with your loved ones.

That’s not all though.

Mistakes cost money (not to mention time and reputation) and without automation you are at greater risk of human error occurring, perhaps the biggest one being overselling.

But what exactly can be automated in business?

The honest answer is most things.

In addition to stock control – which is of course crucial for maintaining a balance between customer satisfaction and company profits – you can also automate your listing creation, order processing, inventory management, the printing of shipping labels, order fulfillment, stock replenishment and even warehouse management.

So, there we have it. Twelve cost saving ideas for online retail companies.

While this isn’t a comprehensive list for cutting costs, hopefully these expert tips will go some way in helping you to reduce your business expenditure for increased profitability.