Practical Ecommerce

4 Ideas to Cut Costs on Your Ecommerce Business

Reducing unnecessary spending will help your ecommerce business become more efficient and could increase its profits. But how do you cut costs right now without harming your business’s future?

Here are four suggestions for cutting costs now. Not every one of these will be applicable to your particular ecommerce business, but if you can find just one tip that helps you save, those recovered dollars should drop directly to your bottom line.

Ecommerce Is Thrifty By Nature

Compared to other business segments, ecommerce can have a relatively low cost of entry and maintenance.

You don’t need to lease a big office or store — in fact many ecommerce businesses start in garages or kitchens. You don’t have to hire a lot of help or even invest in furniture and fixtures. Your costs tend to be in inventory, marketing, order fulfillment, and site or application development.

This is good news, but you can do more to save.

Take Advantage of Prepayment and Early-Payment Discounts

Many vendors will offer you a discount if you prepay or pay early for your merchandise. When these sorts of discounts are available, it may make sense to put up a little more cash at the outset to save in the long run.

The key to this cost cutting tip is to be sure that the discount being offered — 2 to 5 percent is common — is more than your money could have earned in interest if you had waited 30, 60, or 90 days to pay on terms. And more return than if you had used those dollars elsewhere.

Don’t Pay for Freight

Those same vendors that will give you a small discount for pre-or-early payment, may also forgo freight charges if your purchases exceed a specified level or amount.

As an example, I deal with a toy vendor that doesn’t charge freight on orders above $1,500. By contrast, a $1,000 order will come with something like an additional $125 in UPS-related charges. Forking over the $375 to place a larger order will save money long term, assuming I can sell the additional inventory. In most cases, it will make sense not to pay the freight.

Seek Co-Op Dollars

Brick-and-mortar retailers almost always receive some form of “co-op” advertising dollars from their vendors. Increasingly, ecommerce business — even small ones — can also get co-op dollars, which “reimburse” you for your vendor, brand-specific marketing.

For example, you can ask for co-op if you (a) purchase pay-per-click advertising around a particular vendor brand, (b) buy online banner advertising featuring a vendor brand, or (c) purchase traditional advertising like print ads that promote a particular vendor brand.

Also, some vendors will pay for banners or landing pages on your ecommerce website or invest in your social media marketing.

You should ask for co-op dollars at the beginning of the year. Show the vendor how you will be promoting its products in your advertising or on site, and ask for a reasonable contribution.

For example, if a brand-specific landing page on your site gets 5,000 page views per month and if you spend, say, $10,000 per year with the vendor, you may want to ask for something like $150 per quarter in co-op for that landing page.

The co-op dollars you receive mitigate both inventory and marketing costs. The secret here is not to be afraid to ask. Some vendors will say no. But others may say yes.

Focus on Social Media

Social media may be the hottest topic in marketing today. While some fear that it may be too early to know for sure that social media works for ecommerce, I am a firm believer that you can and should use social media to promote your ecommerce business.

One of social media’s strongest attractions is that if can take relatively less to get results than using pay-per-click advertising, as an example.

As a cost cutting measure try this. Take a percentage — I recommend a third — of your monthly PPC advertising budget. Slice that dollar amount into two halves. Eliminate that half, and invest the other half in a social media campaign. For example, you could give something away and require registration to enter the giveaway contest.

More specifically, if you spend $1,500 per month on PPC advertising, try spending just $1,000 next month. Keep $250 in your bank and giveaway $250 worth of merchandise on your website using Facebook and Twitter to promote the giveaways. Ask for registration with each entry in your contest, and include those new registered users in your email marketing.

If you get similar results, you cut more than 15 percent from your PPC marketing spend without harming your business.

Summing Up

There are certainly a lot of things you could do to save money and cut costs at your ecommerce business. In this article, I have described my favorite money saving strategies. I hope you will let me know what you think in the comments below.

Armando Roggio

Armando Roggio

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Comments ( 3 )

  1. Molly Sylestine February 21, 2011 Reply

    Thanks for a great write-up! I agree that Social Media is a HUGE money-saver…it’s free marketing!

    One other thing a store owner might consider as they think about cutting costs is enlisting the help of a professional for SEO/PPC. There is so much wasted money on these types of campaigns and having a professional manage them might save hundreds or even thousands of dollars and bring in more relevant and valuable traffic.

    Thanks again!

    Best,
    Molly

  2. Pamela Hazelton February 22, 2011 Reply

    Molly has a good point, especially if the store itself isn’t optimized for conversions – which is much more important than bringing in hordes of traffic.

    Social media is a great "branding" platform.

  3. John Lindberg February 24, 2011 Reply

    There are lots of ways of saving money on shipping and fulfillment, but one that some online merchants may not know about is discounted UPS and FedEx rates.

    This can be achieved by what is referred to as "face off negotiation" between sales representatives for each carrier. This is done by contacting the sales department of both UPS and FedEx, arranging face to face meetings and presenting to each sales rep a database of the merchant’s prior year shipping volume showing the package weight, delivery type (ground, next day air, second day air, etc.), delivery residential vs. commercial classification and delivery zip code for each parcel shipped.

    Make sure that each sales rep understands quotations are invited by both carriers and there will be a "winner takes all" contract for one year awarded to the lower price proposal. Every year the merchant should replete the process.

    If fulfillment is outsourced, the merchant should contact their fulfillment company’s sales department and inquire if UPS or FedEx discounts are available based on their prior year’s ship volume. Some fulfillment companies even provide discounts on postal rates as well.

    John Lindberg – President
    EFULFILLMENT SERVICE INC.