Trimming the Budget: 7 Practical Ways to Reduce Store Expenses

Are you running your online shop and wondering how to reduce the cost of your business? There are several ways to do this. In the following article, we present the most effective methods to reduce the costs of an online store.

The importance of cost reduction in e-commerce

Optimizing operating costs is one of the key areas through which you build a profitable and scalable business. The most obvious reason to look for savings is to increase company profits. Simply put: fewer expenditures mean more profit.

Company savings allow you to invest your money in clever ways. Financial comfort makes:

• You can cut prices — it’s a significant step from the perspective of price-sensitive customers. With this strategy, you can increase the customer base in your shop.
• Savings from different areas of the business can translate into added value that you will offer your customers. 
• With savings, you can flexibly allocate a budget — for example, testing marketing solutions, reaching for new technologies, and experimenting with your offer.
• The extra money allows you to react efficiently to possible rapid transformations of the e-commerce market. Such changes in the industry are quite likely in a world where technology is revolutionizing reality every month.

Of course, there are many more advantages to looking for savings in business – nevertheless, those listed seem the most promising.

How to conduct a comprehensive expense audit?

Exploring new opportunities to optimize spending should start with a thorough audit of current expenditures. This expertise will reveal any potential mistakes in how your company funds are being allocated. However, for these measures to truly contribute to cost optimization, certain steps need to be taken.

1. Assessment of all costs: at first instance, it is crucial to collect and categorize all costs. This process involves gathering comprehensive data on expenses and organizing them into meaningful categories for further analysis.
2. Analysis of expenditure representing a significant part of the budget: by pinpointing the key expenditures within your budget, you pave the way for scrutinizing the validity of specific investments. This can be an incentive to explore more cost-effective alternatives.
3. Assess the relationship between a particular expense and the value it brings to the business: It may turn out that a particular expense is not necessary. Moreover, it does not translate into increased efficiency for the company. In such a case, it is advisable to dispense with it. 
4. Exploring areas for automation: automation of repetitive tasks often become a source of considerable savings for the company. It is worth considering in which activities automated solutions can be implemented, such as customer service.
5. Interviewing staff: relevant part of preparing a financial audit of a shop is to consult with the entire company team. Each person can identify areas they perceive as a source of unnecessary costs.
6. Preparation of a detailed financial optimization plan: when you feel that you have collected complete information on the company’s finances, you can put the planned actions into practice and monitor their effectiveness.

7 best cost-cutting strategies

During a financial audit, it is helpful to keep in mind the following areas that can be easily implemented and contribute to financial optimization. 

Minimise return rate

According to the research, the return rate for a typical e-commerce business is estimated to be around 20-30% of all sales. If the situation is similar in your shop, you can save a lot by lowering the return rate.

Source: https://cdn2.hubspot.net/hubfs/4621584/Benchmarks-Reports/2020/Ecommerce-Benchmarks-Report-2020.pdf

There are some ways to get this goal. 

Describe your products as accurately as possible. This will eliminate some returns due to discrepancies between the description and the real product features. 

Support customers after purchase. You may find that troublesome product handling makes buyers return it.

Optimize marketing costs

marketing is the basis for successful online sales. Provided you do it effectively. To check the effectiveness of your marketing activities, it is worth performing a marketing audit. When you find that some of your activities are wasting money, it is worth looking for new marketing solutions. 

When optimizing marketing efforts, support from a professional digital agency can be the right step. Of course, you have to remember that you are looking to save money — you must make a careful decision. 

Manage your prices intelligently 

The features of your products serve as a strong foundation that can generate savings for your online shop. For instance, implementing proactive price management strategies can be highly beneficial for your business. Utilizing a price automation tool becomes essential in this regard.

An example of a tool that would be ideal for automating a shop’s pricing strategy is Dealavo. This software allows dynamic prices update in an e-commerce store. Using Dealavo, you can significantly reduce your marketing budget — the prices in your shop will induce customers to buy because they will be simply attractive to them. 

Dealavo – a price monitoring tool with dynamic pricing functionalities for e-commerce shops & brands.

Negotiate with external service providers

Every online shop uses a number of services from external suppliers. Suffice it to mention the payment gateway, courier services, wholesalers, and suppliers of product packaging materials.

With the provider of each of these services, you can negotiate individual terms and conditions for the use of their solutions. Your chances of a positive outcome from such negotiations will be greater the more sales your shop has. 

Reduce technical infrastructure costs

people like convenient life. Sometimes it takes some negative consequences. This is the case when a company uses solutions such as expensive web hosting or overpriced marketing tools. The shopkeeper is not looking for alternative solutions because he fears the technical difficulties involved in migrating a website.

You shouldn’t act in this way. If you are concerned that changing the technical infrastructure is a significant challenge, you can rest assured. The employees of the hosting company will assist you with everything. In the end, you will be able to save some money.

Start dropshipping sales

The cost of storing products is a large percentage of e-commerce companies’ expenditures. One way of cost reduction in e-commerce is to start dropshipping. 

Dropshipping is a model in which products are kept in your supplier’s warehouse. They are sent to the customer once he buys them. 

The main advantage of dropshipping is the fact that you do not have to pay for the warehouse. After all, the products are in your supplier’s warehouse.

Cost reduction in e-commerce – Summary

As you can see, there are many ways to reduce the budget of your online store. Remember that the key to effective optimization is a detailed audit of your company’s expenses. Based on the gathered information, you can start planning effective actions to reduce the store’s expenditures.