Operating costs are those required for the day-to-day maintenance of your eCommerce business. People in the business industry commonly refer to business operating costs as OPEX or operating expenses. The primary component of eCommerce operating cost is the expenses of goods sold or (COGS).
The COGS are the costs that are directly related to your business’s goods or services and also include things like:
- Employees labor costs, such as payroll
- Employee health insurance, and other benefits
- Incentives
- Sales commissions
- Maintenance costs
- Depreciation
- Loan/Debt payments
Knowing how to measure and reduce operating costs is important because it allows you to improve your business that will have a direct impact on your profitability.
How to Reduce Operations Costs?
A business owner is always looking for ways to cut operating costs and optimize operating profit margins. Here are a few suggestions:
To reduce operating costs, businesses can centralize the space necessary for production. By tracking and measuring your business’s operational efficiency, you can reduce and adjust the use of available resources. Set performance metrics that define your goals and offer incentives when those goals are met.
Lower Financial Expenditures
To reduce your business operating costs, it is vital that you look at your financial expenditures that include insurance policies and financial accounts. You can save expenses on insurance by getting it at the most competitive rate. Ask your insurance provider to match the cost with your requirement. Consolidate the insurance policies if possible to ensure you’ve not over-insured or duplicating coverage.
Never take on unnecessary debt. Do a thorough analysis of cost-benefits and future business expansion. Consider the possibility of debt payments on cash flow as it might affect company rating, interest rates, and the ability to borrow in the future.
Outsourcing Business Functions
Identify your business processes that can be outsourced. Businesses looking to reduce operational costs should also consider whether outsourcing functions can save money for them or not. One of the commonly outsourced business functions is marketing, advertising, and communications. There is so much competition in the marketplace and finding a result-driven outsourcing provider can save you spending a lot of money.
Outsourcing of business functions is particularly helpful for small-to-medium businesses, which may not have the requirement for a full-time marketing team or advertising resource. You can find outsourcing services at more cost-effective or hourly rates.
Modernize your Marketing Efforts
Of course, you don’t want to pay extra for marketing; however, it can be worthwhile to look at cheaper alternatives. Save money on marketing efforts by contacting vendors to let them know you’re looking for marketing services at lower costs. Look outside of traditional vendors.
Also, reevaluate your suppliers for marketing efforts. If you rely on several different marketing firms, you may find that you can get services of quality from a vendor that charges less. Regular outsourcing and inquiries may also lead your current vendor to cut prices for marketing services.
Final Words
Reducing operating costs for your eCommerce business is not a one-time job. This requires a lot of effort that never ends. Your best strategy for running a successful business is to balancing your operating costs. As you know, small changes to your business can make a huge impact.
