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16 Ecommerce Expenses and how to reduce them

Ecommerce Expenses Img

When deciding on an ecommerce website, you need to think about the actual ecommerce expenses and what your business needs.

If we know now how much we will ultimately spend for our solution it’ll be easier not only in this decision but down the road when purchasing add-ons or making changes that require more money spent if they’re available at all (but don’t worry!).

E-Commerce CPA/Accounting

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It’s easy to get distracted by all the different design and feature options when you begin shopping around for ecommerce developers.

This is why it’s important first, before even looking at any solutions with their list of custom needs-to have a clear idea as far as your budget goes so they can tailor fit those project specifications accordingly.

So what do we need? What features would be nice additions or modifications from other platforms out there in case this doesn’t work perfectly right off bat.

There are 16 ecommerce expenses to consider, followed by a discussion of how to reduce them.

#1: Inventory management

Your inventory will decrease as a result of doing business. Inventory reduction occurs when items are lost to damage, theft, misplacement, and other problems before they reach the consumer.

Investing in inventory management system that tracks your goods from origin to a customer’s doorstep is an expense to consider, but it does not eliminate the problem entirely.  

Keep in mind, when your inventory grows, you’ll have to spend more and more money on it.

How To reduce your inventory management costs

  • Choose the optimum reorder point
  • Minimum order quantities can be a great help if you need them.
  • Overstocking should be avoided.
  • Eliminate your deadstock.
  • Reduce the time it takes to receive materials from your suppliers.
  • Use a software system to keep track of your inventory.

Further reading:

#2: Marketing and advertising campaigns

Whether it’s in-house marketing or outsourced, the expense of this is usually an ongoing ecommerce expense.

Marketing and advertising are crucial to the success of any company, but they can end up costing you more than expected.

The average marketing budget is about 7-12% off revenue (or how much it takes in), but some prefer spending one specific dollar amount on their ads which might make sense if there’s only certain kind of product or service being offered because this way they know exactly where every penny goes without having too many unknowns like “How am I going to grow my business?”

How to reduce your marketing and advertising expenses

  • By promoting your online store on social media sites like Twitter, Facebook, Pinterest, etc. (Make sure you determine if your target audience is on these types of media before)
  • New technologies constantly emerging that provide better tools for branding products – it might actually pay off financially just focusing down into one big campaign rather then spreading yourself thin between multiple smaller campaigns over time with little return.

#3: Ecommerce Taxes

Ecommerce taxes are primarily concerned with how your online business is taxed.

You’ll need to pay your federal and state income taxes on whatever you earn as a small store.

You may want to hire a CPA to help you understand whether or not you have to collect and submit sales tax (different states have different rules for collecting out-of-state sales tax).

You’ll need to register for the state sales tax if you’re in business in that state. If not, then your customers will be responsible for paying their own local taxes.

Taxes are based on the location an item was shipped or picked up from at. It can get very complicated with each state having their own rules.

How to reduce your ecommerce taxes

We’ve put up a comprehensive list of ecommerce tax deductions that are frequently available to internet retailers and it includes:

  • Your Business Inventory Storage
  • Business meals and entertainment
  • Shipping costs
  • Domain and hosting
  • Working with freelancers
  • Traveling expenses
  • Bank fees and interest

#4: Cybersecurity

More than 60% of small businesses have been the victim of a cyber assault, such as malware infection or hacking, according to recent research.

That’s because small e-store are more prone to vulnerabilities that are easier for cyber criminals to expose and exploit.

The ecommerce expense of being hacked may be devastating, therefore ecommerce stores should invest in additional security precautions beyond what ecommerce platforms provide, such as a firewall, encryption, and training employees (and themselves) in best practices.

To reduce your cybersecurity costs, Here are some common ecommerce expenses that small business owners should pay particular attention to:

  • Hiring a webmaster or an IT person to design and maintain security measures.
  • Securing the site by adding a security certificate.
  • Using a reputable shopping cart that offers a secure, encrypted checkout page.

#5: Returns and refunds

Shoppers should love it since online purchases are easy, and returns are often free.

Returns and refunds can be one of the biggest pain points for small business owners, they’re time-consuming, expensive, and sometimes deal breakers. You will want to teach your customers that you stand behind your product and their satisfaction is the most important thing.

You’ll have to consider those who require to return items for various reason —and sometimes pay for restocking or even disposal, if you offer a generous return policy (which is highly advised if you’re competing with the Amazons and Targets of the world) you’ll have to allow for people to make those returns.

The cost of returns is likely to be greater for ecommerce companies—the return rate for online purchases is around 20%, which is almost twice as high as that for brick-and-mortar stores.

#6: Shipping

Expect your shipping costs and capabilities to be unpredictable.

This means there will likely always be some extra cost coming out of nowhere, even for large orders with established customer bases and track records in getting gifts delivered on time (or early!).

Until then though, this should not discourage potential customers from ordering because they may only find themselves paying higher rates if their order requires special handling like hazardous materials or oversized items which require larger vehicles than what regular carriers offer.

Meanwhile, check out your ecommerce platforms to see what types of bulk deals they may be able to provide you and how you might save money by using large carriers.

How to reduce shipping expenses

  • Decrease the shipping distance
  • Weigh your packages and reduce dimensions
  • Find discounted supplies
  • Get discounted shipping rates
  • Check out offers from the platform(s) or marketplace(s) you sell on

#7: Maintenance of fixed assets

What are the “fixed assets” that you use every month to keep your business running? If any of your fixed assets, such as full-scale manufacturing equipment or new computers, go offline at any time, your company will suffer.

Maintenance, disposal, and replacement of your assets are all under-considered expenses.

They may just seem like another necessary cost that you have to live with, but they represent a place where your company’s profits can be lost to inefficiency and unforeseen costs.

To reduce such expenses 

  • Create an asset inventory so you know the parts of your business that must work or day.
  • Don’t forget about those parts of your business that don’t need to run 24/7 (like the accounting department).
  • Move resources away from non-essentials.
  • Use data analytics to discover what isn’t working, then streamline it out of your business.

#8: Platform payments

Most individuals who are new to selling on the internet will undoubtedly want to use a third-party ecommerce platform to create his own site in order to sell items online.

In fact, you may entirely bypass your own site and sell your items through third-party platforms instead. However, if you do, you’ll have to pay only to be listed on the site.

A percentage of each sale, as well as extra final value or referral fees, is required by each system. It’s possible that the monthly ecommerce expenses of each platform anywhere is from $10 to $100.

Fees per platform

  • Fees for selling on Amazon – Subscription on a monthly basis, Amazon’s referral fee, and any additional costs if you Fulfilled by Amazon FBA
  • Fees for selling on eBay – Insertion and final value fees, as well as listing upgrade costs
  • Fees for selling on Shopify– Ranges from $29 per month to $299 per month, plus there are other costs associated with using certain features and payment processing.

When it comes to which credit cards to use, feel free to watch this video.

While it may seem like a good way to keep costs low, you won’t be able to fully control your own brand and how customers find you on the platform.

Choose your platform carefully and use a strategy that will help you get more sales while saving money.

#9: Building & Hosting your website

Creating an ecommerce site isn’t simply a matter of setting up a WordPress blog.

Is it a surprise that you were expecting? Was there anything you didn’t realize you’d have to spend money on when you started up your ecommerce business? There’s a lot more to setting up an online shop than just establishing a WordPress blog.

Online consumers want ecommerce sites to have up-to-date web pages, but even just the essentials site will need to spend for a domain name, an ecommerce platform for processing payments, SSL certification, hosting, and paid plugins.

The cost of a website is not fixed, but it’s usually not cheap. Building a beautiful design, excellent content, and programmable widgets into your site might incur extra expenses.

As a result, the actual expense of a website is unpredictable, but it will certainly not be inexpensive.

To reduce your website building and hosting expenses

  • You may get started with a cheap hosting solution like Bluehost, which starts at $2.65 per month.
  • Use paid plugins when it necessary.
  • You can use a free SSL certificate plugin to reduce your overall expenses.
  • Hire content writers with prior expertise in your field who are inexpensive (Ensure that the content is high quality).

#10: Payment Gateway

When you first open an e-commerce store, one of the first things you should think about is how you’ll take credit cards.

It should come as no surprise that your payments should be done online, therefore you’ll need to utilize a payment gateway.

The problem is that many payment gateways have costs.

So, for example, if you earn $1 each hour and they take a cut of every dollar you make, then your profit is only $0.85.

That’s why it’s critical to understand how payment processing works before attempting to establish your own online store.

It’s critical to remember that including a variety of payment options increases the chance of a sale.

What would you do if a consumer wanted to pay with their PayPal rather than a credit card?

There are following payment gateways available for small businesses

  • Stripe – Fees 2.9% plus $0.30 per transaction.
  • PayPal Website Payments Pro – PayPal pro charges $30 per month but you have an option for the basic PayPal which will charge you Fees 2.9% plus $0.30 per transaction.
  • Skrill – There are no charges to receive funds into your bank account or to sign up. However, if you want to move money from a Skrill wallet into a local bank account, you will be charged a 5.50 EUR.
  • Amazon Payments– They charge 2.9% + $0.30 per domestic transaction.

#11: Storage

You could have started your business by selling via dropshipping. You understand that this approach works because you want to test out popular items without the danger of them not working or having to store extra stock.

You may have discovered a product that consumers love, but you want to improve it and manufacture your own.

You should consider not only the initial cost of production, but also where you’ll keep them after they’re manufactured.

But don’t panic! It is sometimes less expensive to locate a storage facility someplace else, but the disadvantage is that you are less likely to have time to visit it if you require.

Further reading:

#12: Insurance

The first thing that comes to mind when you’re just getting started with your store is simply putting it in place and making a sale.

If you’ve gained some traction, you should consider the future and safeguard yourself.

That’s why insurance is necessary.

Say you’re a business that sells electrical goods. What is one of your items that blows up after a client purchases it?

You don’t want a lawsuit on your plate, so do some homework and find inexpensive insurance that fits your needs.

Be persistent and polite. Try to talk with as many individuals as possible, explain your company model and what you’re selling, and then choose the one that works best for you.

You need to be aware of what you’re covered for. In most situations, saving money does not always imply getting superior value. So don’t make the mistake of looking for the cheapest insurance possible by shooting yourself in the foot.

#13: Salaries

Hiring someone else to assist or support you needs to be considered in the overall cost of their pay. People rarely work for nothing, so they must be paid for their efforts.

Hiring full-time requires more planning, as do other life events that result in a payout. If you hire employees, get advice from an accountant to set up pension plans and paid time off.

If you’re hiring freelancers or contractors, make sure they invoice you so you can keep track of your staffing expenses and deduct it from the total tax amount.

The goal should be to hire people that are only needed during certain times, rather than getting an entire company in place.

#14: Legal assistance

We’ve previously advised you to obtain insurance so that you’re never held responsible for anything that goes wrong.

But, if something goes wrong with your business, you should consider hiring a legal entity to assist you.

While I don’t recommend you take the law on your own, it is important to understand how to use it in coordination with other systems.

Legal teams are expensive and only beneficial once your store generates significant revenue, but you’ll thank yourself later if something goes wrong and you’ve already established a connection with the individuals who will assist you resolve it.

Whether it is an independent lawyer or a firm like Wiggin, your main goal should be finding someone who will guide you to the best possible outcome at the lowest price.

#15: Business utilities expense

If you’re not careful, you may find yourself wasting money on products that don’t work. Don’t forget that as an internet business, you’ll need constant access to the internet and you may use up more of your power bill.

Every additional dollar you must invest here is a dollar that can’t be spent elsewhere.

If you’re not using it, don’t pay for it.

To avoid wasting money on utilities, consider telecommuting or working odd hours when the demand is at its lowest point.

#16: Softwares

There are several useful subscription software solutions available to an ecommerce firm.

Subscription applications are beneficial since they are cloud-based and can expand with your business as needed, being accessible from anywhere.

There’s some useful softwares to use:

Further Reading:

FAQ

How much does setting up an online store cost?

It ranges from $1,000 to $100,000. There is no standard price for setting up an internet business since the prices differ based on what each business requires.

What are the biggest costs to a business?

The greatest ecommerce expense of any business is typically labor. Employee payments, benefits, payroll or other associated taxes are examples of labor expenses, which can reach as much as 70% of business costs.

Why is ecommerce the next big thing?

Ecommerce allows companies of all sizes to expand their revenue by expanding their online consumer base. Ecommerce provides consumers with a lot of convenience. Shoppers don’t have to deal with traffic or getting ready while shopping on the internet.

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