Everyone understands that the reason to start up an e-commerce business is to make money! How do you make money? Well, as we learned on our numbers blog, you make money having sales that exceed your costs (expenses) and taxes. In short:
Revenue (sales) – Costs (expenses for production) – taxes = net profit
Every entrepreneur is going to encounter some sort of expenses, especially as your e-commerce business grows. Sure, with Amazon Merch the expenses are deducted right from your royalties so you have literally no upfront costs to begin. However, this does not take into account any of the software you need to design your shirts, nor the accounting software you most definitely need to stay on top of your business. Plus, as you tier up (meaning, you are designing more and more shirts) the likelihood that you will be working alone is pretty slim. Therefore, you will then have to factor in paying people to help you design. These things add up and the more successful you become, the more you will likely spend on expenses to make your business larger and more profitable. Ideally, you will want to branch out to other e-commerce platforms which will undoubtedly raise your expenses.
So, then, how do you minimize these costs in order to be more profitable? Do you just stay small and keep the overhead low? Do you forgo exploring other e-commerce platforms and just be happy with your little Amazon Merch shirt biz (or your little Etsy shop)?
NO! What are you daft?
Listen, you want to be an e-commerce success story, right? You want your designs or merchandise selling like hotcakes. You don’t want to settle for measly pennies when you can possibly be making major bank! So to do this you have to invest more to make more. One of the major rules of business. However, you want to be smart about it and learn some ways to minimize costs. This is a rather large topic, actually, so we will do it in a two part discussion in order to give full attention to all the ways to cut your expenses.
So, let us begin . . .
INVESTIGATE E-COMMERCE PLATFORM COSTS: We live in a virtual world and we are all virtual girls (and guys) *song reference probably lost on many* and as such there are tons of e-commerce platforms out there to explore. Not all platforms offer the same benefits and some are more pricey to use than others. Let’s take for an example Shopify vs. Etsy.
Shopify has a monthly charge depending on which seller tier you choose. I will provide middle level tier information for this example. Etsy does not have different tiers.
Monthly fee: $79 / month
Listing fee: none
Transaction fee: none
Credit card rates: 2.6% + .30
Shopify payment service – free
Other payment gateways – 1.0%
Shipping discount (better with each tier)
Monthly fee: none
Listing fee: .20 per item
Transaction fee: 3.5%
Credit card rates: 3% + .25
Etsy payment service – free
Other payment gateways – free
Shipping discount – none
So, which is the better option? It is not simple to decide without knowing (1) how many products you plan to sell (2) how you want to accept payments (3) what other services you may need to back up your business (4) how you plan to ship and how expensive the items are to ship.
Choosing Etsy may cut your costs, specifically if you prefer to accept PayPal or check by mail payments. However, when you delve more deeply into the different offerings, even though Shopify may have a $79 / month fee they do offer many services which Etsy does not, such as seller protection through all payment sources, not just Shopify payments, and abandoned cart protection (helps to maintain accurate records for inventory). Plus, those listing fees, although minimal, can add up if you are going to list many different products.
The goal is to analyze all the spending you are doing with your current seller platform and decide if there is a better, more economical (notice, not “cheaper”) seller platform that may better fit your business needs. Look at all the things offered and decide which are essential and which you maybe are paying for but never use. Make the most informed decision for your specific needs.
ALWAYS LOOK FOR DISCOUNTS: Depending on what type of business you have, you may have to get your products or materials from a vendor or manufacturer. Sometimes these vendors offer pre-payment or early payment discounts. In fact, almost any service you may need for your business may offer some sort of discount, including artisans (people such as designers or marketing experts). Perhaps you are hand-making a product and have to order a certain material in bulk. Bulk buy discounts are very common and while they may only be 2%, if you know you are going to need the material, it is worth the money. Now, be wary not to just go hog-wild and buy up everything in anticipation of selling all your products, this would be gambling in a non-economical manner. However, if you are ordering materials for products already sold, then hell yes get your discount on!
FIND WAYS TO SAVE ON SHIPPING / STORAGE: If you happen to have a lot of product that you need to store and ship it may be wise to look into a program like Amazon FBA. Since they store your product and ship it when purchased, this is a great way to take the sting out of the price here. Or, as referenced above with the Shopify example, some seller platforms have agreements with UPS, USPS, FedEx or DHL to offer discounted shipping for members. And, Shopify also subcontracts with Amazon FBA as well. Finding those little discounts with shipping can end up in massive savings, especially if you are just standard shipping your items to your customers. If your seller platform does not currently offer a shipping discount, and you are noticing a bulk of your expenses are from shipping, you may consider changing seller platforms in order to cut those costs.
We are only just beginning to delve into the world of expenses…stay tuned for more on this subject and in the meantime, here is some homework:
What pros and cons are associated with your seller platform? Is there one that may be better suited for you? Where are you spending the most money as to expenses on this platform?
Remember, it is your job to find the best fit for your business. Never be afraid to change or sample others.