To run a successful online business, there are varied and sometimes unexpected costs you need to consider.
Plan ahead for your eCommerce business expenses, build them into your pricing structure and monitor their effect on your profits to keep your company in the black.
How financial modeling can help you manage expenses
Tracking expenses thoroughly helps you examine what costs you can cut down on and can even determine how much your business is worth.
Financial modeling can help you discover expenses that may be holding your business back from greater financial success. It could be anything such as a dip in productivity, an extra computer system or unnecessary software.
Managing expenses doesn’t always mean reducing costs. A financial model should help you decide if other avenues are worth investing in, like running a marketing campaign to grow sales or buying accounting software to save you time.
Replace redundant and recurring costs with investments that promise growth for your business.
Common eCommerce business expenses
No storefront doesn’t mean no ongoing costs to running your online business. Consider and plan for these common expenses:
Think of your website as your storefront, and plan to wow online shoppers. An essentials-only website requires you to pay for a domain name, an SSL certificate, hosting, and a payment gateway. After setup, costs may rise to keep your website running with services like hosting, analytics and reporting.
Counter digital security threats by investing in safety measures to protect business and customer information by installing a firewall, encrypting data, and regularly backing up data to a secure cloud storage system.
In addition to or in lieu of a website, you may choose to sell products on third-party platforms like Amazon, Shopify, eBay, or Etsy.
With these sales platforms, you’re required to pay a flat monthly subscription fee or a percentage of the sales. These add to your product’s overall cost.
Inventory management and product costs
Your website, third-party platform or other software can help you track and manage your inventory, aid in quality customer service and ensure accurate product delivery. These ongoing costs are highly variable and can cost thousands of dollars. As you price and manage your inventory, factor in the costs of shipping, returns, replacements, and refunds. Consider related costs such as boxes, stuffing, tape, and labels. Put in place replacement, return, and refund policies from the start and account for them in your budget.
You pay a processing fee for securely routing a customer’s online payment to your business account. Whether you use Square, Stripe, PayPal, Venmo, or other payment software, each will charge a flat fee or percentage of the sale for business transactions.
Market your business on a variety of digital channels with paid search and social advertisements, content marketing on your website and social platforms, or through email marketing. Consider costs for creating and distributing different kinds of marketing content.
5 tips for managing eCommerce business expenses
Get ahead of your business expenses with smart systems, automation, and management tips for your eCommerce business.
1. Set up expense-tracking and record-keeping systems
Open a business bank account to separate personal expenses from business spending and make your expenses easier to track. Digital receipts generated from each transaction make tracking and record-keeping easier.
Then connect your banking information to an accounting system. Choose from accounting software, a custom app, or a simple spreadsheet — whatever suits your business needs and saves you as much time as possible.
Try using cash-based accounting — recording cash transactions as and when they occur — when you start out and transition to accrual-based accounting — recording pending receipts as valid transactions. Consider automated software or a custom app if you’re not ready to hire an accountant.
2. Factor shipping expenses into your product costs
Include shipping costs in the price of your products to keep your profit margins healthy. The shipping costs depend on factors like the location you’re shipping to, the item’s size and weight, and the packaging materials you use. Include carrier surcharges such as weekly delivery charge or residential delivery charge.
Offer shipping options at increasing price points for faster delivery times, without needing to factor those higher rates into your product cost. Stay up to date with your carrier’s pricing and policies so you can adjust your prices if necessary.
Take steps to minimize replacements and returns. Verify and validate your customers’ addresses so packages aren’t sent to the wrong location. Even when a missing package might not be your fault, it can cost your business through replacements or refunds.
In your product listing, include a variety of high-quality photos from various angles that accurately represent your wares. The clearer customers are about the product you’re selling, the fewer returns they’ll make.
3. Enable tech solutions to automate, optimize and save time
Manual labor takes time away from other business tasks and leaves room for error. Try to automate repetitive tasks and processes, like reordering inventory when it’s low. Investing in a simple eCommerce shipping software and a printer lets you automatically create accurate and attractive package labels.
Keep your checkout process simple, intuitive, and easy to navigate. Integrate online payment gateways into your website to collect and encrypt shoppers’ payment information.
Save time, money, and manual effort by automating your business operations and financial intelligence. Tools like the Brightflow.ai autonomous finance app can help show your revenue, ROAS, LTV, and cash forecast across all your channels and platforms, and help you unlock capital when you need it.
Optimize your product descriptions for search engines by writing them yourself — don’t copy and paste a generic description. Original content is usually prioritized over duplicated content in search results. For better SEO, create unique content that accurately describes your product and makes it stand out.
Embrace a holistically digital environment for your business to run your online business efficiently. Replace face-to-face meetings with teleconferences. Work from anywhere with remote desktop software. Use a cloud-based storage system to digitize your documents while saving on printing costs.
4. Forecast and budget for expenses
Being aware of your weekly and day-to-day expenses is the first step in managing expenses more efficiently. Forecasting doesn’t just help eCommerce businesses visualize their performance — it highlights variables and how outcomes can change when you adjust them. Your financial model should enable you to budget for the short term as much as it helps you forecast for the long term.
As your business grows, so will your workload. You’ll need to hire more staff to share the burden, and you’ll have to optimize your cash flow so that you can make payments on time.
Employees and contractors are one of the biggest expenses, and at a certain point, staff is an expense your business can’t do without. Prepare a salary index and determine what roles are indispensable to your business. Outsource work to third parties if you don’t have a long-term business need.
5. Find savings opportunities
There are a few standard business expenses that you can minimize or rethink to save more.
Office spaces can be expensive, especially in desirable locations, and eCommerce stores can thrive in a solely virtual world. Alternative solutions include moving to a lower-cost location, downsizing, or sharing co-working space with other small businesses. Working from home can help your business save on expenses such as electricity, water, and maintenance, and employees may appreciate the flexibility.
There’s a lot of opportunity to save on equipment costs. Try second-hand or refurbished devices, or consider buying multipurpose hardware tools. Do make sure the equipment is in good working condition before you buy it. Check with companies that are going out of business to find used equipment for sale.
Advertising and marketing are crucial to generate leads, gain brand recognition, and help your business grow, but advertising costs can add up. Rethink your marketing and ad campaign strategies. Can you substitute Google Ads with boosted posts on social media? Can you save by using a static image instead of a video? Optimize small-scale advertising efforts that still move your business in the right direction.
Managing expenses and cutting costs pays off in the long run
Factor in eCommerce business expenses and use financial modeling to identify ways you can minimize expenses while maintaining high returns. An informed approach to managing your financials can save your business money in the long run.