Ecommerce business operations attract some hidden costs that many entrepreneurs overlook. And such costs can significantly impact the business’s bottom line. Operating costs form 20% of the general expenses of an ecommerce business. However, some expenses are not obvious until you start your business, taking you by surprise and draining your finances. And preparing for them can determine your company’s survival. Here are three hidden costs of running an ecommerce business.
- Customer service and returns
Your ecommerce business should build trust and customer retention by providing excellent customer service. That includes offering efficient and responsive customer support at all times. But this can be very expensive for several reasons. You may have to hire and train customer service reps, implement live chat systems, and manage customer inquiries and complaints – all of which will incur considerable costs. Also, e-commerce businesses usually experience higher returns than physical stores. And that’s mostly due to incorrect sizing, damaged products during shipping, or customer dissatisfaction. Handling returns and managing refunds can add to your expenses and reduce profits. To avoid these, you should focus on proactive customer service, a clear return policy, and effective communication channels.
- Online payment processing and transaction fees
Online transactions are not free, at least not on your end. They involve various payment processing fees and transaction costs that could surprise you if you’re unprepared. As an e-commerce business, you should expect to incur charges from the payment gateways you use, credit card processors, and any other financial service provider you’ve subscribed to. And these fees can eat into profit margins, especially if your business has high transaction volumes. To optimize costs, compare and negotiate different payment processing rates. Also, research and explore alternative payment options that are less costly. You may also consider implementing fraud prevention measures to minimize the risk of chargebacks.
- Shipping and fulfillment
Getting customers to purchase your products is only half the job done. That’s because you need to ensure that you deliver the products safely, conveniently, and timely to the buyer. Of course, shipping expenses may not sound like hidden costs, but packaging and getting them delivered attract expenses that will add up over time. And the more orders you receive, the more such costs you can expect. And failing to prepare for such expenses could mean crippling cash flow challenges down the road.
Generally, shipping costs should not take over 15-20% of your net sales, so keep this in mind. Unfortunately, many ecommerce businesses exceed this margin. And while you may prepare for shipping costs ahead of time, it’s worth looking into smart ways to save or cut back on those costs. It could be relying on a third-party fulfillment company or using the local post office, so feel free to consider this. Another good example is taking advantage of section 321 shipments to save up to 20% in small shipment duty and tariff costs.
Detecting and eliminating hidden costs can benefit your business in many ways. Hopefully, you’ll consider the tips listed above for the desired outcome.