16 Ecommerce Expenses and how to reduce them

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

Suppose we know how much we will ultimately spend for our solution. In that case, it’ll be more accessible in this decision and down the road when purchasing add-ons or making changes that require more money if they’re available (but don’t worry!).

It’s easy to get distracted by all the different design and feature options when shopping 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 excellent additions or modifications from other platforms if this doesn’t work perfectly immediately?

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

Remember, 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:

• Valuing Inventory – 6 Inventory Costing Methods

#2: Marketing and advertising campaigns

Whether in-house marketing or outsourced, 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% of revenue (or how much it takes in). Still, some prefer spending one specific dollar amount on their ads which might make sense if there’s only a 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 has been on these types of media before)
• New technologies that provide better tools for branding products and are constantly emerging might pay off financially by focusing on one extensive campaign rather than 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 must pay 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, your customers will be responsible for paying their local taxes.

Taxes are based on where an item was shipped or picked up from. It can get very complicated, with each state having its 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-stores 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 everyday ecommerce expenses that small business owners should pay particular attention to:

• We are hiring a webmaster or an IT person to design and maintain security measures.
• We are securing the site by adding a security certificate.
• It uses a reputable shopping cart with 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 most significant 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 that their satisfaction is the most important thing.

You’ll have to consider those who require to return items for various reasons —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 people to make those returns.

The return cost is likely more significant 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, this should not discourage potential customers from ordering because they may only pay higher rates if their order requires special handling, like hazardous materials or oversized items requiring larger vehicles than regular carriers offer.

Meanwhile, check out your ecommerce platforms to see what bulk deals they can provide you and how you might save money using large carriers.

How to reduce shipping expenses

• Decrease the shipping distance
• Weigh your packages and reduce the 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” thu used monthly 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 be like another necessary cost they have to live with, but they represent a place where your company’s profits can be lost to inefficiency and unforeseen expenses.

To reduce such expenses 

• Create an asset inventory so you know the parts of your business that must work or day.
• Remember 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 new to selling on the internet will undoubtedly want to use a third-party ecommerce platform to create their site to sell items online.

You may bypass your site entirely and sell your items through third-party platforms. 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. The monthly ecommerce expenses of each platform anywhere may be from $10 to $100.

Fees per platform

• Fees for selling on Amazon – Subscription every month, Amazon’s referral fee, and any additional costs if Amazon FBA fulfills you
• Fees for selling on eBay – Insertion and final value fees, as well as listing upgrade costs
• The fees for selling on Shopify range from $29 to $299 per month, plus other costs associated with using certain features and payment processing.

Regarding which credit cards to use, feel free to watch this video.

https://www.youtube.com/watch?v=fzr2neVFYJI

While it may seem like an excellent way to keep costs low, you won’t be able to fully control your 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 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 your ecommerce business? There’s much 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. Still, 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 start with a cheap hosting solution like Bluehost, which starts at $2.65 monthly.
• Use paid plugins when 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 opening an e-commerce store, one of the first things you should consider 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 establishing your online store.

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

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

There are the 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 essential PayPal, which will set you at 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 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 drop shipping. 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 the initial cost of production and where you’ll keep them after they’re manufactured.

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

Further reading:

• Ecommerce Inventory Management: 16 Best Practices in 2022

#12: Insurance

The first thing that comes to mind when starting 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, so do homework and find inexpensive insurance that fits your needs.

Be persistent and polite. Talk with as many individuals as possible, explain your company model and what you’re selling, and then choose the best option.

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 look for the cheapest insurance possible by shooting yourself in the foot.

#13: Salaries

You must be considered in the overall cost of their pay when hiring someone else to assist or support. 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, ensure 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 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 alone, it is essential to understand how to use it in coordination with other systems.

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

If you’re not careful, you may waste money on products that don’t work. Don’t forget that as an internet business, you’ll need constant internet access and 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: Software

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

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

There are some useful software to use:

• Quickbooks for accounting.
• Slack for communication.
• Trello for project management.

Further Reading:

• QuickBooks Online: eCommerce Business Owner’s Basic Guide

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 each company’s requirements.

What are the most significant costs to a business?

The most significant ecommerce expense of any business is typically labor. Employee payments, benefits, payroll, or other associated taxes are labor expenses that 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 increasing their online consumer base. Ecommerce provides consumers with a lot of convenience. Shoppers don’t have to deal with traffic or get ready while shopping online.