{"id":418,"date":"2016-12-21T04:59:07","date_gmt":"2016-12-21T12:59:07","guid":{"rendered":"http:\/\/www.agiliron.com\/blog\/?p=418"},"modified":"2025-11-25T02:35:04","modified_gmt":"2025-11-25T10:35:04","slug":"reduce-e-commerce-costs-common-inefficiencies-that-eat-into-your-profit-margins","status":"publish","type":"post","link":"https:\/\/www.agiliron.com\/blog\/reduce-e-commerce-costs-common-inefficiencies-that-eat-into-your-profit-margins\/","title":{"rendered":"Reduce E-Commerce Costs: Common Inefficiencies That Eat into Your Profit Margins"},"content":{"rendered":"<p><a href=\"https:\/\/www.agiliron.com\/blog\/wp-content\/uploads\/2016\/12\/44796_Agiliron_image-2_112916.png\"><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter size-full wp-image-438\" src=\"https:\/\/www.agiliron.com\/blog\/wp-content\/uploads\/2016\/12\/44796_Agiliron_image-2_112916.png\" alt=\"44796_agiliron_image-2_112916\" width=\"675\" height=\"372\" title=\"\" srcset=\"https:\/\/www.agiliron.com\/blog\/wp-content\/uploads\/2016\/12\/44796_Agiliron_image-2_112916.png 675w, https:\/\/www.agiliron.com\/blog\/wp-content\/uploads\/2016\/12\/44796_Agiliron_image-2_112916-300x165.png 300w\" sizes=\"(max-width: 675px) 100vw, 675px\" \/><\/a><\/p>\n<p><b>What you will learn in this post:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Why the vast majority of e-commerce businesses fail within the first 120 days<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">How to target your largest expenditures to gain efficiencies and reduce costs<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">How minimum wage increases are affecting your business\u2019 bottom line<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Selling products online is a booming business. According to <\/span><a href=\"https:\/\/www.internetretailer.com\/2016\/02\/17\/us-e-commerce-grows-146-2015\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">data from \u201cInternet Retailer,\u201d<\/span><\/a><span style=\"font-weight: 400;\"> online sales accounted for more than a third of total retail sales growth in 2015. Last year was the sixth year in a row that U.S. e-commerce sales have grown near or above 15 percent. Business is booming, indeed, which begs the question, \u201cWhy are so many online business owners having a hard time turning a profit?\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It\u2019s a valid question, considering most e-commerce businesses <\/span><i><span style=\"font-weight: 400;\">never<\/span><\/i><span style=\"font-weight: 400;\"> realize a profit. The evidence is quite overwhelming; nine in 10 online businesses fail or end in failure within the first 120 days. The simple fact remains that inexperienced online sellers often are their own worst enemy. Most e-commerce businesses fail because their owners have little to no cash flow, poor inventory management practices and zero patience. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Some online business owners, however, <\/span><i><span style=\"font-weight: 400;\">do<\/span><\/i><span style=\"font-weight: 400;\"> survive to see day 121. And though it can be argued these individuals have seen a tremendous amount of success relative to their not-so-lucky counterparts, there is plenty of work left to be done in order to reduce costs and increase profit margins. \u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Many of these folks are left wondering: <\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">\u201cHow do I get a bigger piece of this pie?!?!\u201d<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">So, we\u2019ve compiled a list of five ways your e-commerce business can increase efficiencies and boost profit margins. For this post, specifically, we look at the five areas that often have the largest impact on the cost of operations for most e-commerce businesses: inventory, labor, shipping, payment processing and customer acquisition.<\/span><\/p>\n<div style=\"background: #fffb90; border: 1px solid #fffb90; padding: 15px 15px; margin: 0 0 20px 0; font-size: 18px;\"><strong>Exclusive Bonus:<\/strong> <a class=\"manual-optin-trigger\" href=\"#\" data-optin-slug=\"wrfj8d90jqcy5o4m\">Download the FREE Cheat Sheet<\/a> including five ways to reduce e-commerce operational costs (and boost profit margins)!<\/div>\n<h2><span style=\"font-weight: 400;\">Five ways your e-commerce business can reduce e-commerce costs and increase margins (hint: target your largest expenditures):<\/span><\/h2>\n<h2><span style=\"font-weight: 400;\">1) Implement solid inventory management practices to avoid \u201cdead stock\u201d<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Purchasing products\u2014either from wholesalers or manufacturers\u2014is often the largest, consistent expenditure for online sellers. Yet, for many, it is often the root cause of most cash-flow issues. Purchase too much of what you\u2019re looking to sell, and you can cripple your cash flow. Buy too little, and you risk leaving revenue on the table. So, when looking to diagnose potential cash flow issues, or increase profit margins in a meaningful way, examining your inventory management practices is usually a good place to start.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">First and foremost, order only what you need. While a seemingly obvious tip, many online sellers consistently over-purchase. Predictably, over-purchasing results in \u201cdead stock,\u201d which can quickly cripple even the steadiest of cash flows. You should understand the \u201cvelocity\u201d of your own products, or the time it takes you to sell each item in your inventory. Thankfully, the right inventory management system can help you <\/span><a href=\"https:\/\/www.shopify.com\/in\/blog\/inventory-analysis\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">remove human error from inventory management<\/span><span style=\"font-weight: 400;\">t.<\/span><\/a><\/p>\n<p><span style=\"font-weight: 400;\">If you\u2019d like to be even more aggressive (and potentially reduce costs more significantly), consider <\/span><a href=\"https:\/\/www.shopify.com\/blog\/what-is-dropshipping\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">dropshipping<\/span><\/a><span style=\"font-weight: 400;\">, which completely removes inventory from the process. Many wholesalers and manufacturers offer dropshipping as a service. Don\u2019t be afraid to ask. In the long run, dropshipping allows you (re: the seller) to completely eliminate most inventory-related expenses. \u00a0\u00a0\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">2) Understand how minimum wage increases affect your bottom line<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Labor is a significant expense for most businesses. More importantly, recent increases to the minimum wage have hit the e-commerce space particularly hard. In March of this year, The Wall Street Journal reported on a study conducted by CBRE, a real-estate brokerage firm. According to the report, every $1 increase in annual wages has the potential to increase costs for a warehouse employing 500 workers by $1 million. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">You may be thinking:<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">\u201cYeah, yeah, yeah \u2026 I\u2019m a small- to mid-sized business who happens to sell stuff online. I don\u2019t have a warehouse employing 500 workers, so what\u2019s the big deal?\u201d<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">As it usually happens, rising costs are felt across the board. For example, minimum wage increases add operational costs for wholesalers and manufacturers, who pass those costs along to their customers, usually in the form of higher shipping costs or higher product costs. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">These increasing costs are next felt by the buyer, who, faced with the prospect of thinning profit margins, must now pass these costs onto the end customer. In such a scenario, online sellers usually pass those costs onto their customers in the form of higher shipping costs or limited shipping options. Neither is particularly appealing to business owners or their customers.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So then, what are online sellers left to do?<\/span><\/p>\n<div style=\"background: #fffb90; border: 1px solid #fffb90; padding: 15px 15px; margin: 0 0 20px 0; font-size: 18px;\"><strong>Exclusive Bonus:<\/strong> <a class=\"manual-optin-trigger\" href=\"#\" data-optin-slug=\"wrfj8d90jqcy5o4m\">Download the FREE Cheat Sheet<\/a> including five ways to reduce e-commerce operational costs (and boost profit margins)!<\/div>\n<h2><span style=\"font-weight: 400;\">3) Constantly look for ways to lower your shipping costs<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">As previously mentioned, shipping costs are closely tied to the rising labor costs. Depending on each individual business, shipping costs often outpace labor expenditures. Roughly 47 percent of all online orders include free shipping. For some, free shipping isn\u2019t possible. It simply doesn\u2019t make financial sense to do so. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, there are quick ways to lower your shipping costs:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For starters, shop around for shipping rate discounts. These discounts can often be easier to come by than one might think. Keep in mind that even a few pennies savings can add up to a significant savings, particularly if you\u2019re fulfilling a high volume of orders on a routine basis. If you offer free shipping on all of your orders, you probably spend a significant amount on postage. Start here. Contact your current shipping provider and see if they\u2019d be willing to lower your shipping rates based on your order volume.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Your packing materials may also be thinning your margins. Once again, chances are good you\u2019re purchasing the same packing materials from the same supplier on a regular basis. If you aren\u2019t receiving a reduced rate for that reason alone, you\u2019re missing out on potential savings. If, however, you already receive a healthy discount on packing materials, call your supplier and ask if you can find another 20 percent savings. If you have a history of paying your supplier(s) on-time, use it to your advantage. When pressed, most suppliers will reduce your rates. <\/span><\/p>\n<h2><span style=\"font-weight: 400;\">4) Negotiate rates to lower your payment processing costs<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Many assume payment processing costs are fixed. Some fees are, in fact, fixed costs. However, some payment processing rates are negotiable. Nevertheless, many online business owners do not think to negotiate these costs. So, you should take the time to understand the difference between the <\/span><a href=\"https:\/\/www.merchantmaverick.com\/the-complete-guide-to-credit-card-processing-rates-and-fees\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">various parties in any online transaction<\/span><\/a><span style=\"font-weight: 400;\"> (e.g., merchant account versus payment processor versus payment gateway) as well as the myriad of fees associated with online transactions.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Depending on the payment processor used, you may or may not be paying an additional payment gateway fee. Many processors have built-in gateways that do not come with additional fees attached to the transaction. Check with your payment processor (or examine your bank statements) to see exactly which fees you incur each month. Look for any <\/span><a href=\"https:\/\/www.cardfellow.com\/blog\/top-3-hidden-fees-costs-of-credit-card-processing\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">\u201chidden\u201d fees<\/span><\/a><span style=\"font-weight: 400;\"> appearing on your bank statement.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The minutiae associated with processing online transactions can feel overwhelming to even the most experienced online business owner. That\u2019s exactly what many credit card companies and payment processors count on. Do your homework and <\/span><a href=\"http:\/\/www.mytotalretail.com\/article\/lowering-your-credit-card-processing-fees-just-the-facts-maam\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">find the right payment processing model for your business<\/span><\/a><span style=\"font-weight: 400;\">. If you process a high volume of transactions, don\u2019t be afraid to negotiate with your payment processor. <\/span><\/p>\n<h2><span style=\"font-weight: 400;\">5) Regularly examine your conversion funnel (or hire someone to do it)<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">On a regular basis, your business is hit with a tangible charge for inventory, labor, shipping and payment processing fees. You can see those charges on a bank statement. Your conversion rate, however, doesn\u2019t show up on any bank statement. Yet, for anyone selling goods via a website, this number is arguably the most important metric one can track.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to Compass, the average conversion rate in e-commerce last year was 1.4 percent. Top performers saw conversion rates at or above three percent. If you\u2019re running an online store, you should know exactly how you are performing relative to those numbers. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">More importantly, you should grasp the <\/span><a href=\"https:\/\/mcgaw.io\/blog\/conversion-rate-optimization-101-back-basics\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">basic principles of conversion rate optimization<\/span><\/a><span style=\"font-weight: 400;\"> (CRO). In general terms, CRO is a practice aimed at increasing the revenue generated via a website.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Many inexperienced business owners foolishly waste time and money in an attempt to acquire new customers. More often than not, their efforts result in high customer acquisition costs and many missed opportunities. Consider, for instance, the <\/span><a href=\"http:\/\/www.invespcro.com\/blog\/customer-acquisition-retention\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">profitability of selling to an existing customer<\/span><\/a><span style=\"font-weight: 400;\"> is 60-70 percent, while the profitability of selling to a new customer is 5-20 percent. Increasing your conversion rate is critical to sustainable profitability. \u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">To recap: \u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">To reduce costs and increase profit margins, target the five areas that often have the largest impact on the cost of operations for most e-commerce businesses: inventory, labor, shipping, payment processing and conversion.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Consistently operating with thinning margins increases the likelihood your business won\u2019t last. Meticulously examining the key areas of your business on a regular basis can help you pinpoint inefficiencies and reduce costs. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you\u2019re looking to take a bigger bite out of the ballooning e-commerce pie, start with the tactics most likely to make an immediate impact:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\">\n<h5><span style=\"font-weight: 400;\">Implement solid inventory management practices to avoid \u201cdead stock\u201d<\/span><\/h5>\n<\/li>\n<li style=\"font-weight: 400;\">\n<h5><span style=\"font-weight: 400;\">Understand how minimum wage increases affect your bottom line<\/span><\/h5>\n<\/li>\n<li style=\"font-weight: 400;\">\n<h5><span style=\"font-weight: 400;\">Constantly look for ways to lower your shipping costs<\/span><\/h5>\n<\/li>\n<li style=\"font-weight: 400;\">\n<h5><span style=\"font-weight: 400;\">Negotiate rates to lower payment processing costs<\/span><\/h5>\n<\/li>\n<li style=\"font-weight: 400;\">\n<h5><span style=\"font-weight: 400;\">Regularly examine your conversion funnel<\/span><\/h5>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">If you\u2019ve made it through the first 120 days, you\u2019re well on your way. In order to take the next step, you\u2019ll need to reduce waste and increase efficiency. <\/span><\/p>\n<div style=\"background: #fffb90; border: 1px solid #fffb90; padding: 15px 15px; margin: 0 0 20px 0; font-size: 18px;\"><strong>Exclusive Bonus:<\/strong> <a class=\"manual-optin-trigger\" href=\"#\" data-optin-slug=\"wrfj8d90jqcy5o4m\">Download the FREE Cheat Sheet<\/a> including five ways to reduce e-commerce operational costs (and boost profit margins)!<\/div>\n","protected":false},"excerpt":{"rendered":"<p>What you will learn in this post: Why the vast majority of e-commerce businesses fail within the first 120 days How to target your largest expenditures to gain efficiencies and reduce costs How minimum wage increases are affecting your business\u2019 bottom line Selling products online is a booming business. According to data from \u201cInternet Retailer,\u201d [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":438,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[45,13],"tags":[23,58,60,61,59],"class_list":["post-418","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ecommerce","category-growing-your-business","tag-ecommerce","tag-increase-profit-margins","tag-inventory-management-practices","tag-lower-your-shipping-costs","tag-reduce-e-commerce-costs"],"_links":{"self":[{"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/posts\/418","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/comments?post=418"}],"version-history":[{"count":0,"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/posts\/418\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/media\/438"}],"wp:attachment":[{"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/media?parent=418"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/categories?post=418"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.agiliron.com\/blog\/wp-json\/wp\/v2\/tags?post=418"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}