3 Ways to Reduce Overhead for your e-Commerce Business
As an eCommerce business, you want to keep as much cash as you can. But selling on online marketplace giants like Amazon will eat up any profit you generate. It’s impossible to avoid working with these platforms, so how then can an eCommerce business improve its profitability?
Overhead covers any cash your business spends to sell products that are not advertising or the cost of goods sold. It’s challenging to cut your overhead out of your profit and loss because its contents could be very specific. While it does not include packaging expenses, ad fees, or manufacturing costs, it does include salaries and contractor fees, software, space rental and office expenses, outsourced service, outbound shipping, research and development.
Analyzing Profit and Loss
You should be able to identify a good margin. A good place to start is to look at your profit before advertising expense and compare it to overall net profit. If you have 20% or more for your Post-Advertising Gross, but end up with a negative balance at the end of the month, you should look at your overhead to start trimming excess expense.
Since Amazon Fees are inevitable at this point, you should focus on your overhead to lean out your finances. Review your P&L and watch out for expense categories that reach more than 2% of your overall expense. They should be the first to go.
Where to look
One of the categories that are often redundant is the systems and subscriptions. It’s easy to forget to cancel subscriptions once you apply. This seems like such a small thing but small expenses often snowball into expensive ones if left alone.
Another category is warehouse costs and staff. Your payroll is an easy category to overspend on. Sometimes, overzealousness will find you with too many staff on payroll with obscure job descriptions. This is especially true for new companies that have no grasp of the actual workload they face.
You could also look into renegotiating your supplier and space rental contracts. The good thing about eCommerce is you don’t necessarily have to own a workspace. But if you do, your options are not limited. You can therefore choose a state with cheaper rent.
Ripping the band-aid
I don’t think anyone wants to go through cost-cutting. But it is a necessary one. At some point in the life of your business, you have to ask yourself “what are you spending on that isn’t directly affect the bottom line of the business?”
We are prepared to guide you through the maze of your overhead to lean out your spending and achieve optimal growth potential.