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5 ways eCommerce business owners can reduce operating costs to boost profitability

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Nico Prins

Launch Space

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Reducing operational expenses is a goal for every eCommerce business. However, it shouldn’t be done without proper analysis. If you keep on reducing operational costs without taking into account the realities of your business and the existing market, it can negatively impact the company’s ability to make a profit.

Let me illustrate. Let’s say you reduce expenditures for salaries. A possible consequence is a negative effect on employee morale, decreased productivity, and, correspondingly, reduced profitability.

That said, there are more subtle ways to reduce operating costs that can enhance profitability. Let’s take a closer look at these ways:

1. Consider remote working

Leverage digital transformation and consider remote working. Many eCommerce companies have opted for remote work. One is Tortuga, which sells travel backpacks and duffels.

One of the main reasons for this is the amount of money that can be saved in terms of utility and maintenance costs. Office space doesn’t come cheap, especially in big cities and densely populated business districts. Even a small office space for just four people can cost up to $650 in New York City. 

A hybrid model of two to three days of remote work per week can save employers a lot of money. Including office space, utilities, and office resources, a hybrid model can save each business up to $11,000 annually.

But how can you ensure productivity if you can’t physically see your employees? According to Tortuga, traditional communication tools, such as Slack, do the trick. They even use traditional communication methods. 

For instance, when the team has to sample material to create bags, Tortuga says the sample material is sent via snail mail. So, the product manager gets the sample from the factory. The manager makes notes about what works and doesn’t work, then sends the sample to another member of the team via a traditional method. At any given time, then, there are multiple samples being sent in different parts of the world.

Having experienced working from home myself, remote workers have started to appreciate its benefits, such as reduced travel expenses and more personal time. If you offer these to potential employees, you get bonus points as an employer. As a result, you can hire more talent who can then help boost profitability.

On top of that, remote work has been shown to increase productivity. A study shows that 56% of employees agree they have fewer absences when working remotely. As well, 50% of employees agree they take fewer sick days when working from home.

remote work benefits

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That’s not to say you should go fully remote. Like Tortuga, you may opt to allow remote work only in some aspects of your business. As we’ve seen earlier, some Tortuga employees have to report physically to the facility to send the sample bag material required to team members.

2. Automate repetitive tasks like email marketing

Automating repetitive tasks within your eCommerce business is an excellent way to reduce operating costs. Email marketing is an area in eCommerce that can be automated. 

You don’t have to write the same emails to customers over and over again and send them manually. You can use email marketing software to automatically send already existing emails based on the behavior of your potential customer. 

So, if a website visitor, for instance, purchases something from your website, the software can automatically send thank you emails:

zalando order

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The software can also automatically send emails to address cart abandonment:

boohoo-1

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Two things happen when you automate your email marketing. One, you save time, and this is time you can use to manage other aspects of your business. Two, you become more efficient since you can send more emails with these tools than when you do things manually. Ultimately, the result of these two things can be increased profitability. 

So, think of other aspects of your eCommerce business you can automate. If you’re developing your product yourself, you can use sprint planning tools to automatically set sprint schedules, for instance. You can also use lead generation software and chatbots to automate some aspects of your customer service. 

3. Get your invoices paid on time

Invoices don’t just help you get paid. They also help you predict your cash flow. When you can predict your cash flow, you can plan your expenses properly. 

That’s why it’s important to get your invoices paid on time. If your customers don’t pay you on time, the plans you made get derailed. You could end up without the cash you had intended to use somewhere else for your business operations. This could negatively affect your profitability.

It’s not always easy to get customers to pay your invoices on time. However, there are ways you can increase your chances of getting the payment promptly.

Use a clear layout to ensure your invoices are easy to read. For instance, use black writing on a white background with simple letters. Limit your invoices to one page as much as possible so customers don’t have to scroll down. Don’t forget to itemize every cost. Also, put the most important information in bigger letters, as shown below, so that it stands out for your customers.

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You should also send your invoices early so customers are more likely to pay early or at least on time. You can do this by using software that automatically generates invoices when orders are placed.

4. Hire interns and freelancers

Interns are new to the job market and have limited work experience. As a result, you can pay interns less than your other employees. However, the intern also benefits because they get to learn new skills and gain valuable experience.

Although it’s an expense to train an intern, it’s an investment because an intern can become a valuable full-time staff member, which benefits both parties. The business gets a valuable asset that can help the business grow, and the intern gets a full-time role with an increased salary.

Freelancers can be hired for tasks that need to be completed infrequently. There’s a wide range of platforms, such as Freelancer and Fiverr, where one can find a freelancer for almost any eCommerce business task. As you can see from the screenshot below, Freelancer has a lot of useful service categories for eCommerce businesses.

Freelancer categories

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Web design is a good example of a task that could be outsourced to a freelancer. The initial design and build of an eCommerce website is a one-off task. Also, freelancers should be hired for annual tasks like calculating your annual tax return. It doesn’t make financial sense to have a full-time employee dedicated to tasks that are only completed monthly or annually.

Utilizing freelancers is a great way to fill gaps within your business while keeping operating costs down. However, you must ensure that all outsourced work is aligned with the core values of your business. Especially for tasks like web design or content creation, you must communicate with freelancers about content strategy and brand image.

5. Outsource non-core activities to other companies

Outsourcing non-core activities can also be very beneficial in terms of reducing operating costs. Some non-core activities can be time-consuming and end up distracting businesses and employees from core business activities. When this happens, profitability suffers.

An excellent example of this is marketing and advertising. Although marketing is an essential part of any B2B, eCommerce business, or a Saas marketing guide, it can be an overwhelming task.

This is the case especially for business owners who are not well-versed in modern digital marketing. Business owners sometimes get bogged down in trying to improve their digital marketing operations, and other core activities are pushed aside as a result.

However, there are multiple marketing agencies available for you to outsource these activities. Some agencies can provide a full marketing service for your business, while others provide services for particular aspects of marketing.

It may seem as though hiring an outside agency for non-core activities would be more costly than keeping them in-house. However, it’s a more valuable long-term investment. Outsourcing means that both non-core and core business activities receive more dedicated attention. Your non-core activities are taken care of by a specialist team. This allows you to focus on improving the efficiency of core business activities and boosting profitability in the long run. 

In Closing

It’s possible to reduce operating costs and enhance profitability without affecting other aspects of your business negatively. The key is to look beyond the basic methods of reducing costs.

Using software to automate repetitive tasks is an effective method. Similarly, you can outsource non-core activities to companies and consider remote work to reduce operating costs. Instead of reducing the salaries of current employees, hire more interns and freelancers. Finally, find ways to get paid on time.

Follow these tips to reduce operating costs, and you’ll soon see an upturn in profitability.

Published January 16, 2023