Lowering costs while increasing revenue has always been the economic rule of thumb for any business. In the modern business environment, the necessity to decrease expenses becomes even more pressing because of the global economic recession and constantly increasing competition in eCommerce.
So, how to reduce eCommerce project costs without sacrificing the quality of your product, customer service, and shopping experience your users get? In this post, we will explore some safe and proven strategies to do it in 2023.
What Are the Operating Costs in eCommerce?
As the name suggests, eCommerce operational costs are businesses' expenses in their day-to-day operations. They include but aren't limited to the office or warehouse rental or mortgage costs, employees' salary and benefits, website hosting fees, plus marketing and advertising expenses. Long story short, these are all the costs that eCommerce businesses have to pay to stay afloat in a competitive market.
While the final amount that goes for operational costs is significantly different depending on the eCommerce business size, the issue of lowering them is equally relevant for both small companies and large enterprises.
What Is Cost Cutting?
eCommerce cost cutting, in turn, is a strategy aimed at reducing operational expenses while keeping the quality of products or services high. At the same time, businesses that decide to cut eCommerce costs are usually striving to improve profitability. As a rule, such a strategy highlights areas with high costs and suggests business-reasonable tactics to make them lower.
How to Cut Costs and Reduce Business Expenses?
So, let's discover some pitfalls-free ways to cut eCommerce costs and take your business to the next level of operational efficiency.
Audit Your Regular Expenses and Cut Unnecessary Ones
The first step to reduce eCommerce operational costs is to audit the ones you have now and find some areas for improvement. For example, if you are renting an office space, you may be facing some overhead expenses. Consider negotiating a lower lease rate or switching to more energy-efficient utilities as an option.
Next, analyze the workload of employees and make sure you have no overstaffing. Also, check the software subscriptions you have and cancel unnecessary ones. It would also be wise to pay attention to the current costs of running an eCommerce website and consider either migrating to the most cost-effective eCommerce platform or optimizing your website maintenance expenses.
Outsource Non-essential Business Functions
Outsourcing non-essential business functions has long been a proven tactic to cut eCommerce costs without sacrificing quality. So, what tasks can eCommerce businesses outsource?
Website design, development, and maintenance. If, in addition to cost-cutting necessity, you still have to develop a new eCommerce website from scratch, refresh the design of the website you already have, or troubleshoot it, consider outsourcing this task to an eCommerce development vendor. For example, at WiserBrand, we can help you build future-proof Magento or Shopify eCommerce solutions, add a stylish look to your current website or mobile app, and help you with your software maintenance issues at a competitive cost.
Call center operations. Expanding your staff with call center agents can also hardly contribute to cutting operational costs. Instead, you are welcome to set up a remote call center, and this is another task we can support you with. Our practical experience with eCommerce call center setup, agent training, and performance analysis allows us to ensure accurate compliance with the highest customer care standards.
Human resource management tasks. Usually, small to medium eCommerce companies don't need a large HR department, so outsourcing HR management tasks would be a wise solution for accessing recruitment expertise and reducing overhead expenses. Some examples of HR functions that can be outsourced include payroll processing, benefits administration, employee relations, recruitment, and staffing.
Automate Routine Tasks
In addition to outsourcing non-critical business processes, consider automating routine and time-consuming ones. For example, there are automation solutions for payrolling and invoicing that also significantly reduce human error. Using chatbots for customer service is also an easy yet effective tactic. While chatbot integration isn't technically difficult, automatically processing standard queries will enable your customer support team to stay more focused on complex issues. Automated customer data analysis, in turn, promises an opportunity to get valuable insights that you can use for your future marketing strategy development.
Focus On Customer Retention (Not Acquisition)
According to the research, acquiring a new customer costs five times more than retaining an existing one. Moreover, increasing customer retention rates by just 5% can increase profits by 25-95%. So, while this tactic doesn't imply cutting the expenses directly, it still saves you from overhead costs and promises to boost your revenue. So, what can you do to retain your customers?
Develop a loyalty program. To retain your customers better, consider creating a loyalty program that will encourage your users to stay with your brand by providing them with gifts, personalized discounts, or subscription-based services, if applicable for your business.
Personalize your marketing campaigns. Marketing personalization has long been one of the keys to customer retention and better sales. What's more, in 2023, getting started with this approach isn't much difficult. Many solutions allow for customer data gathering and analysis, email marketing personalization, and omnichannel marketing strategy development. WiserBrand digital marketing agency is also here to help you bring your marketing efforts to the next level.
Provide excellent customer service. When it comes to ever-green customer retention practices, providing excellent customer service is one of them. Ensure quick responses to concerns and inquiries, and use customer service interaction data for further improvement.
Evaluate Your Marketing Strategy
Evaluating marketing strategy is an important step for eCommerce businesses to reduce costs. By analyzing the performance of different marketing channels, you can identify which channels drive the most revenue and which are not worth the investment. For example, outdoor advertising usually brings the highest eCommerce marketing costs. However, predicting and calculating RIO from it is challenging.
So, analyze all the marketing channels you use and decide on the economic reasonability of using them. You may also want to contact a digital marketing agency for digital marketing services to leverage the most effective marketing tactics custom-matched to your business needs.
Reduce Your Shipping Costs
So, how to reduce my eCommerce shipping costs? Increasing them and shifting the higher delivery cost onto the customers is obviously not the best idea, especially with the current economic recession making most people look for ways to pay less to get more.
Fortunately, there are other tactics that allow for reducing shipping expenses. For example, you can negotiate more affordable rates with the logistics company you are working with or consider using a regional company for local deliveries, which will be more effective than national carriers for all shipments. You may also offer free shipping thresholds to encourage users to buy more products at once or implement a ship-from-the-store model.
Take Advantage of Business Relationships
Negotiating new collaboration terms with long-established partners is another way to cut eCommerce costs. For example, you can ask your supplier for a bulk discount if you sell retail products. In this way, you will also be able to save shipment expenses and reduce the product's per-unit price.
As one more option, consider creating new partnerships with non-competitive eCommerce businesses looking for opportunities to optimize their operational efficiency. For instance, you can move to a more affordable warehouse and share renting costs or exchange your subscribers base to boost marketing efforts.
Switch to Cloud Services
Switching to cloud services is the next viable strategy to reduce operational expenses significantly. When opting for the cloud, businesses can save up to 20% of IT and 30% operational costs since there is no need to invest in costly on-premise hardware and software. Besides that, cloud data storage services often offer a pay-as-you-go subscription model so that eCommerce businesses can only pay for the computing power they consume.
In addition to optimizing data storage and management expenses, switching to the cloud promises better data security and faster disaster recovery, resulting in better reputation protection and stronger customers' trust.
Fraudulent activities, such as chargebacks and identity theft, can result in significant financial losses for eCommerce businesses. By implementing fraud prevention measures, eCommerce businesses can reduce the risk of fraudulent activities and avoid associated costs, such as chargeback fees and lost revenue.
According to statistics, nearly 4% of eCommerce orders result in chargebacks that cost businesses $40 billion annually. Plus, chargeback fraud is rising, so protecting from this issue should become one of the first priorities.
Some additional fraud prevention measures include implementing secure payment gateways, verifying customer information, and monitoring transactions for suspicious activity. Consider using AI-based fraud prevention solutions for this goal. They usually come as Software-as-a-Service, however, the subscription price will be paid off shortly.
Cutting eCommerce costs while keeping the quality of the products and services high can be tricky and challenging. In this article, we have explained several actionable strategies to do it risk-free, and we at WiserBrand would also be happy to support you along this path.
Get in touch with us for cost-effective eCommerce software development, business process outsourcing, and digital marketing expertise!
Chief Operating Officer
As a multi-skilled business development executive, I like to share my insights and the latest trends in ecommerce. I produce research-driven and clear copy to unlock new opportunities for your business and keep it competitive. If you want to connect, follow me on LinkedIn.