In the ever-expanding and changing cyber world, a thriving e-commerce business must constantly refine their business model, advertising strategies, and software investments to stay profitable.  As your business grows, expenses in the form of site development, custom tools, and applications also grow.  These expenses will inevitably put a dent in your profit margin, ultimately leading to a vicious cycle of low profits and high costs.

On the bright side, prudent thinking, meticulous planning, and effective market research can go a long way in creating a lucrative e-commerce business.  Fortunately, there are several smart tactics you can use to cut down costs starting today.  Here are four major pain points for e-commerce businesses, and how you can fix these to free up funds for more important aspects of your business.

1) Investing in Unnecessary Software and Services

Application developers and service providers make constant upgrades and changes, making it difficult to stay updated with the latest and most profitable services. Notions such as search engine optimization (SEO), search engine marketing, social media marketing, and content marketing play a significant role in the life cycle of an e-commerce business.  Hundreds of websites provide these services, but do you really need to be paying ten or so services to improve your website’s rank, let alone lose sleep about it?  The quick answer is NO.

Recent changes to Google’s search algorithm and new shopping engine (read more about Google Panda and Google Penguin) have made SEO relatively more difficult to systematically control. It’s important that you:

  • Stay away from SEO consultants who promise placement on the first page of search results.
  • Don’t invest in an SEO plan that focuses on keyword density
  • Instead of focusing on SEO, focus on efficient marketing and creating products that your users love.
  • Don’t be content and complacent with your current services if they’re producing minimal results.  Remember, they work for you and not the other way around

Consumers love well-designed websites that are easy to navigate and provide secure payment gateways.  A small to medium e-commerce business owner should not compete with the big players that have teams of software developers.  Here are a few more tips:

  • Work with your software developer to understand what applications your business really needs.
  • Cloud applications can save time and cost. They also provide easy accessibility.  

Note: Not all services are bad! An ecommerce service that produces tangible results (ex. boosts in revenues, ROI’s, AOV) that outweigh its cost to your business is something that would add value to your company.  

2) High Advertising and Marketing Spending

Let’s be honest, a lot of people use the internet and that number isn’t getting any smaller.  This makes a very strong case in support of social networks and online advertising.   Instead of promoting your e-commerce business through offline channels, think about ways of promoting it online. Pay-per-click marketing is a good place to start for businesses with no online presence, but it can be expensive in the long run.

A large number of businesses now depend on referral traffic for conversions.  Social networks such as Facebook, Pinterest, and YouTube are the largest senders of referral traffic.  As an e-commerce business owner, it’s imperative that you:

  • Read up on inbound marketing. Content is king (and free)! Develop a marketing strategy that focuses on marketing by way of good, relevant content such as through blogs, podcasts, and vlogs.  Start a company blog or write guest posts on authoritative blogs in your industry.  This is an easy self-sufficient way to generate traffic to your site and start building back-links.
  • Eliminate offline marketing and promotional activities.  
  • Embrace social media marketing. Social networks are free to use, and their large user base increases the chances of viral marketing. You can hire a freelance social media consultant to work on your company’s branding for a few hours every day. Work with the consultant to create a social media policy and strategy for your brand. 
  • A strong online presence on major social networks like Facebook, Twitter, Google+, and LinkedIn will add to the perception of credibility and authoritativeness in your company.

3) Shipping & Payment Management

To state the obvious, online consumers prefer purchasing from websites that have low or free shipping.   As a business owner, your inventory comes from specific vendors.  These vendors typically offer you a lower rate for large purchases.  Work with your vendors to see if they can reduce or eliminate freight costs if you purchase above a specific threshold.  This approach will help you save money in the long run and offer lower shipping rates to your customers, but make sure you can sell a huge inventory before doing this.

Many vendors also offer discounted rates for merchants who can prepay or make early payments.  The industry standard is a 2-5% discount.  By doing some financial forecasting, you can evaluate how much money you’ll save with a discounted prepayment vs. a term payment.  Here’s a few tips:

  • Research and implement payment gateway plans that cost little or nothing to set up. Services such as Google Wallet ensure ease of payment for the customer and also for you.
  • Work with your vendors to determine if they can offer lower or even get rid of freight costs if you purchase a larger inventory.   
  • Make use of discounted rates for prepayment or early payment with your vendors.  

4) Open Source Software Development  

Many e-commerce business owners think that open source development is best for their business since it’s free and can be completely customized to suit their specific needs. Contrary to popular belief, open source development comes at a heavy cost since you’re investing in software that doesn’t come with any support or hosting.  Things to be aware of:

  • Investing in open source software is not cheap! There are multiple hidden costs like hosting, design, and ongoing development support. Instead, ask your developer to provide you with a complete package solution.
  • Choose an e-commerce complete solutions package. A Google search will point you in the right direction. Many hosting solutions providers have e-commerce plans that could be cheaper than purchasing a la carte payment hosting, development, support, and other solutions.  

When determining business costs, think about the services your businesses cannot run without and services which you can replace with cheaper solutions.  This will help free up money, in the short and long run, that can be used in expanding your business.

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