Ann Marie Puig discusses simple ways eCommerce businesses can reduce costs through better efficiency
Date : August 8, 2021 By
We are in the digital age, and eCommerce stores are more prevalent than ever. There are between 12 and 14 million online stores worldwide, and the number is growing day by day. The popularity of online stores makes sense. Typically with little upfront expense, you can have a fully functioning online business. However, making it work over the long term requires much more than simply setting up an online store. Ann Marie Puig, an entrepreneur and philanthropist from Costa Rica, explains how eCommerce businesses can use efficiency to reduce costs and gain long-term success.
While online stores tend to spend less, eCommerce overhead can quickly accumulate. As a business owner, you should always look for ways to keep costs down. Overhead is an accounting term that is used to describe most business operational expenses. Says Puig, “Overhead refers to continuous business expenses that are not directly connected to the introduction of a product or service. Many people confuse their operating expenses with overheads. However, these are not the same.”
Operating costs are all expenses that help you manage the day-to-day operations of your business. For an e-commerce store, these include the materials you purchase, labor, production, packaging, shipping, marketing, and other related costs. Overhead, on the other hand, is a common expense you incur, whether you produce or sell something. For an eCommerce store, these can include insurance, software, web hosting fees, employee and executive salaries, and more.
You can divide overall eCommerce costs into three different categories: fixed overhead, variable overhead and semi-variable overhead. Fixed overheads costs are fixed and cannot be changed. For example, the storage space rented each month to house inventory. Variable overhead expenses are those that vary from month to month, such as an electric bill. The electricity bill may be higher at certain times of the year (such as winter or summer) and lower at other times. There is no fixed monthly payment. Semi-variable overhead costs mean that part of the payment is fixed, while the other part may depend on its activities. For example, your email marketing platform may have a basic fee to pay each month and then additional fees depending on how many emails you send or how many contacts you have. To reduce the overhead of an eCommerce store, focus must be on variable and semi-variable costs. These are the expenses that can be decreased with a little preparation and strategy.
It’s hard to cut costs when you’re not careful what you’re spending. Unfortunately, that’s what usually happens. These expenses accumulate quickly without most companies noting. Says Puig, “To get started, you should first plan your costs. List all the overall costs of your company, including rental fees, utilities, software, salaries and other related expenses you incur, whether you produce or sell something. Divide these costs into fixed, variable and semi-variable costs. Once you have a good understanding of all your overhead costs, now is the time to divide them into three categories: fixed, variable, and semi-variable. This is an essential step for you to understand what you can and cannot reduce.”
Creating a budget is an essential part of any business. This helps you understand all the expenses your business incurs and where you can reduce them. When you create your budget, divide your expenses into different categories (fixed, variable, and semi-variable) to see specific costs. By focusing on the annual eCommerce overhead costs, rather than scrutinizing them each month, will help create a clearer understanding of the big picture.
The eCommerce space allows business owners to reach more customers regardless of their location. This can generate higher profits, as your customer base is not limited to your city. However, your overhead can slowly erode profits, sometimes without you noticing. One way to reduce overhead is to reevaluate your packaging. These are easy to ignore as they are often inexpensive compared to other expenses. Unfortunately, over time, the cost of these materials can increase rapidly. To keep costs down, pack your most popular items in the perfect size packaging. This will keep you from wasting money.
Paying more attention to your current customers will help, as well. Studies show that it is cheaper to retain a customer than to purchase a new one. For a potential new customer, you’ll have to pay a lead generation fee when you try to show them how amazing your product or service is, but your current customers already know it because they’ve bought from you before. While it’s essential to continue to grow your brand and acquire new customers, be sure to focus more on your existing customers to help keep costs down.
Lastly, focus on your high-end products. It is expensive to ship and store your products in a warehouse. One way to reduce this cost is to reduce the number of products you offer. At first glance, this might not make sense: the more products and variety you offer, the better? The reality is that not all products will be popular with your customers. Some products will, of course, work better than others. Instead of shipping and storing everything (and incurring a cost for products that your customers don’t particularly like), pay attention to your popular products.