Business expenses for eCommerce
Why is it important to manage business expenses?
When you’re caught up with running your online business on a daily basis, it’s easy to overlook certain expenses that might be costing you more than you can handle.
Tracking expenses thoroughly helps you examine how much your business is worth and what costs you can cut down on.
Costs that you can cut down on:
As discussed in the previous lesson, a really good financial model helps you discover costs you can do without. These are additional expenses that are holding your business back. It could be anything such as, a dip in productivity every hour of a working day, an extra computer system you don’t really need or a paid software you have no use for. The financial model helps you spot such accumulating costs.
Taking on additional expenses
Being good at managing expenses doesn’t always mean you have to reduce costs. You just have to be smart with them. The financial model should help you decide if there are other avenues worth investing in. This could be something like a marketing campaign that promises growth in sales. Or purchasing certain accounting software that saves you time.
You can replace redundant and recurring costs with investments that actually promise growth for your business.
Being good at managing expenses doesn’t always mean you have to reduce costs. You just have to be smart with them.
Especially important for eCommerce businesses
An eCommerce venture may seem like an inexpensive endeavor but that’s far from the truth. In order to run a successful online business, there are certain varied and hidden costs you need to consider.
Not planning ahead for them can be an ill-advised move and could cost your business. So before we talk about the various tips that can help you cut down on costs , let’s take a look at some of the expenses you should consider:
Major eCommerce expenses
Maintaining a website
If you’re already running a website or plan to do so in the future, you may already have some idea about the cost. Your customers (online shoppers) have high expectations for your store. Your website needs to be robust, simple and optimised.
“Even an essentials-only website requires you to pay for a domain name, an SSL certificate, hosting and a payment gateway integrated into the site.”
However, while it may be less expensive to set up a website and get started, the costs rise to keep it running. This includes Hosting,Security,Analytics Reporting and
Data Backup, all of which can tally up to anywhere between 100-500 dollars.
Product-related costs
Managing your inventory, customer service, product delivery, product return, and refunds, etc are some of the ongoing costs you are likely to incur while running an eCommerce business. These are highly variable expenses that will also be reflected on your website. Using your website to keep track of all this can set you back anywhere between 1000- 6000 dollars.
Digital marketing costs
Setting up a website isn’t enough. You’d also have to market your business on a variety of online and offline channels such as through SEO, content marketing on your website and social platforms, email marketing etc.
3rd-party platform charges
Besides your website, you might consider enlisting third-party eCommerce sites like amazon or Shopify to sell your product. Or you could simply forgo your website altogether and use such platforms alone.
Either way, you’ll be required to pay a flat monthly subscription fee or a percentage of the sales, which can add up to your product’s overall cost.
- Amazon: Includes a monthly subscription, referral fees as well as additional charges.
- eBay: Charges a listing fee, a listing upgrade fee, and a final value fee
- Shopify: Ranges between $29 -$299 a month depending on your package.
Transactional costs
Since most of your transactions will be taking place online, you’d also have to pay a certain processing fee for securely routing a customer’s payment to your business account. This is yet another expense you need to be ready for.
Security measures
Running a business solely online exposes you to all sorts of security threats and vulnerabilities. So you’ll definitely have to consider the cost of investing in safety measures such as installing a firewall, encrypting all your data and regularly backing it up to a secure cloud storage system.
Shipping
Shipping costs can be unpredictable when you’re starting out. Factoring the price of shipping into your product would be a smart move. You’d also have to consider additional costs such as boxes, stuffing, tape, labels and more.
Also be prepared for customers requesting a replacement in case your shipment gets lost or destroyed. This is super common.
Returns and refunds
Whether an item is broken, misplaced or simply not what the customer wants anymore, you’ll need a proper return and refund policy. This is something you need to be prepared for well ahead. Refunds and returns can weigh heavily on your profit margins. So always make sure to account for them in your budget.
Tips that help you manage expenses
Open a separate bank account for your business
Opening a business bank account can help you separate personal expenses from business spend and make smarter decisions in the long run. At the very least you’ll need to open a business checking account and a business savings account.
Choose an appropriate accounting system
Whether you use generic accounting software, a custom app or a simple spreadsheet, make sure that it suits your business needs perfectly.
You can use cash based accounting when you’re starting out and gradually transition into accrual based accounting. The former involves recording cash transactions as and when they occur. The latter includes recording pending receipts as a valid transaction.
Choose a suitable method for keeping records
Make sure that the method you choose to make records saves you as much time as possible. Use automated software or a custom app if you’re not ready to hire an in-house accountant.
Connect to financial institutions
Cash transactions are hard to track and a hassle to record. By connecting all your bank accounts related to your business, you’re able to keep track of your budget and your spending. Digital receipts are generated for every transaction which makes the whole process easier.
The following are some additional tips that can prevent you from making expensive mistakes while running an eCommerce business.
Include shipping costs
Always consider including your shipping costs to the price of your products. Otherwise your profit margins may suffer. The shipping costs depend on the location you’re shipping to, the cost of packaging etc.
Offer a variety of shipping options
Same-day shipping policies can tend to become a headache for business owners later on. Not all customers have the same priorities. Offer your audience multiple shipping options at varying costs, which also makes it easier for you to deliver on your promise.
Calculate shipping expenses accurately
Shipping costs vary based on size. Make sure you have a reasonable estimate of how much each package is going to cost before you set the price for your product.
Include surcharges
Make sure you include carrier surcharges such as weekly delivery charge,residential delivery charge etc
Address feedback
While the internet can be a place for trolls to leave baseless comments and unfounded criticism, it is always a good idea to go through the feedback you’re receiving. You’d be able to improve a lot on your current business model based on constructive feedback that’s offered genuinely. Also, be aware that other customers will set their expectations based on the reviews you are getting. For better or worse, customer feedback can actually make or break your business.
Use your own product descriptions
Do not copy/paste product descriptions from other websites or platforms. This will affect your SEO. Original content is usually displayed on priority over others that have been replicated. It is a better idea to use unique content that properly defines your product while also making it stand out.
Use top-quality product images
Your customers don’t have the option to thoroughly examine your product before you ship it out to them. They heavily rely on the images you provide. Therefore it’s really important that you use the best possible images that accurately represent your product. The lesser misconceptions there are about what you’re selling, the better.
Keep track of your shipping inventory
Someone has to be keeping an eye on your inventory so that you can know exactly when to re-order as you run out of stock.
Be ready for policy changes
Carrier policies can change from time to time. This could be a complete revision of pricing and charges that takes place annually or in the middle of the year. Make sure you have access to this information and are up-to-date on the latest changes.
Make it easy for your customers to check out
A complicated check-out process is the fastest way to lose potential customers. Remember to keep it simple and easy to navigate. Customers won’t appreciate having to relearn everything they know about eCommerce buying just so they can make an order. Try to make your process as intuitive and user-friendly as possible.
Validate your customers’ addresses
No matter what online store you’re running, this is super important. Verify and re-verify your customers’ addresses so that the packages don’t get sent to the wrong address. Even when a misplacement might not entirely be your fault, it can still cost your business since the customer will either demand a refund or reshipping.
Automate as much as you can
Manual labor leaves room for error and can cause a large indent on your profit margins. Try to automate most of the repetitive tasks and processes that your business is involved in.
Yes, a mom and pop store or a business you run from your living room can’t really afford to scale up to factory-size automation. But that doesn’t mean you can’t bring a professional look and feel to your business.
Payment gateways, keeping track of inventory and sales, package labeling etc are all procedures that could be done by free computer software to save you more time and money.
Apart from an initial investment, a simple eCommerce shipping software and a printer can be used to create an attractive package label for your products.
Forecasting expenses
Forecasting lies at the heart of every financial model. It helps eCommerce businesses visualize their performance. But additionally, it also shows you the variables that lead to such outcomes so that you can change them.
Practical solutions in technology
There are numerous ways in which you can cut down on costs with simple tech upgrades. For example, integrating online payment gateways into your website can significantly help you in the long run. Teleconferences can replace face-to-face meetings and remote desktop software is much more convenient.
The new world of small scale businesses is continually challenging many of our preconceived notions about the physical office space. Turns out many businesses, especially eCommerce stores, can thrive solely in the virtual world. That’s where most of your efforts need to be oriented.
Virtualize your routine
It’s time you ditched the land-line and embraced a holistically digital environment for your business. From smart phones and virtual desktops, the possibilities for your online business to run efficiently are growing.
Go for digital storage
If your business doesn’t already use a cloud-based storage system, it’s about time you got started. Digitalize as much of your documents as you can. You’d be surprised how much you can save on printing costs.
Budgeting
Your financial model should enable you to budget for the short-term as much as it helps you forecast for the long term. Being aware about your weekly and day to day expenses is the first step to managing expenses more efficiently.
Working from home can cut costs drastically. You could save expenses such as electricity, water, maintenance, and so much more while your employees appreciate the flexible hours.
Salary expenditure
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.
It’s one of the highest expenses that your business can’t do without. You need to prepare a proper salary index and determine what roles are absolutely necessary to your business. They only need to be on your payroll if they’re indispensable.
Also consider outsourcing to third parties for one time projects
Minimize rent
Office spaces can be expensive
Most businesses struggle from exorbitantly high office space rates. You need to reconsider whether you really need a working space in the city.
You’d be surprised at the solutions available. Some eCommerce sellers downsize to low-costing locations. Others look for co-working arrangements with other small businesses and startups.
Savings on equipment
There’s a lot of scope for saving in equipment costs. You could try secondhand devices and consider buying multipurpose hardware tools. These will be available in businesses that are shutting down where they usually have a sale listed online.
You do need to make sure that they are in good condition before you make a purchase however.
Reduce the need for supplies
The little things tend to accumulate into bigger costs. For instance, you’d be surprised at the aggregate cost of electricity, water and office supplies. A lot of these expenses can be avoided through remote working arrangements and outsourcing.
Advertising and marketing
This is one of the most important things your business needs to invest in. You simply can’t do without marketing if you want to generate leads, gain brand recognition and help your business grow.
However, advertising can end up costing way more than you expected. So you have to rethink your campaign strategies. Do you really need to book a Google ad when your clients are directly accessible online on socials? Do you really need to take out a video ad when an instagram post will suffice? These are the questions that matter.
The truth is, a lot of small scale advertising efforts can be optimized and enhanced with the right efforts in the right direction.
In short, these are all some of the many ways in which you can minimize business expenses for your eCommerce venture while also maintaining high returns. Remember, a smart and informed approach to managing your financials can save your business in the long run.
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